Associate, Katie Edwards and Legal Director, Phil Parkinson of specialist property law firm JB Leitch, look at a recent case to provide a cautionary tale for landlords on the need to provide timely and open communication with insurers… 

The subject of fire safety remains a high priority across the sector. Given that we are all adapting to shifting priorities due to the COVID-19 pandemic, the government’s guidance on the need to ensure continued remediation and safety works highlights the importance of maintaining standards in a safe and practical fashion.

Following the initial recommendations from the Grenfell inquiry and the government’s recent budget pledge of an additional £1bn toward fire safety remediation work, it is clear that there is urgency and momentum in comprehensively mitigating risks in building safety – materially, procedurally and also in the measures in place to cover damage or loss. These considerations apply across residential, mixed use and commercial premises.

Within the context of insurance, the recent case Niramax Group Ltd v Zurich Insurance plc [2020] EWHC 535 (Comm) serves as a cautionary example of the need to ensure open, accurate and prompt communication with insurers in order to provide and maintain sufficient cover and of course, a safe environment for staff.

In essence, the case indicates how a failure to disclose non-compliance with an insurer’s risk requirements culminated in an unsuccessful insurance claim following a destructive fire which consumed the plant.

Niramax, a waste collection and recycling business were found to have not complied with a previous underwriter’s serious concerns regarding the fire suppression systems, which were judged to be “lackadaisical” in responding to recommendations.

When the company sought to insure new sorting equipment, Niramax did not disclose the previous underwriter’s concerns, thus enabling their policy with Zurich to extend to covering the new equipment. Following the fire, a claim of £4.5m was made to Zurich who argued that they would have refused the additional cover had they been in full possession of the material facts. The trial judge concurred, finding that the insurer was entitled to refuse the cover due to the undisclosed safety concerns.

Paying the Price

Ultimately, the case shows that landlords cannot afford to be laissez-faire in the management of their obligations in fire safety. From required action in fire-risk assessments, to the schedules of an insurance policy, it is important that businesses have a rigorous and robust approach to managing both health and safety and building safety. Given the considerable risk to life and business continuity, good management (and managerial responsibility) should not only include a clear understanding of mandatory obligations under fire safety legislation, but the obligation to identify, record and mitigate risks in a prompt and effective manner. 

It is perhaps telling that in the Niramax case, the “lackadaisical” approach suggests that there may have been neither clear understanding within, nor effective communication from, the business.

Advice: Stay Covered!

Clearly, a failure to disclose or provide notice can have dire consequences. Withholding material facts, whether intentionally or mistakenly, almost automatically raises questions of knowing indifference, culpability, negligence, illegality and even fraud. However, it could also be said that it in some instances, mistakes may simply be down to confusion or accumulated misinterpretation of the core requirements. This is also why legislation is explicit in highlighting the remit of a “responsible person”* in managing fire safety as a core part of business management and why mistakes such as a failure to provide information or notification are judged harshly.

Whilst regulations vary according to the type of property in question, it is important for landlords to understand obligations and those of commercial tenants. In short summary, some of the key points for consideration include:

• Ensuring that commercial tenants or their managing agents are fulfilling their responsibilities such as routine health and safety risk assessments covering fire safety, electrical equipment, ventilation, asbestos, EPC certification and gas safety.
• Ensuring scheduled fire Inspections as well as scheduled maintenance from registered gas and electrical engineers** 
• Making sure that landlord and tenants understand their respective responsibilities under the lease – for example, as the landlord of a commercial property, your responsibilities may include keeping up with any maintenance and repairs to the property depending on the terms of the lease.

• Recognising some of the responsibilities may have been passed on to the tenants in the terms and conditions, being kept aware of any proposed changes or alterations within the premises and being confident that sufficient health and safety checks are in place, necessary actions recorded and shared with you and (of course) that tenant insurance policies cover these modifications.

As the case discussed illustrates, if your arrangements are in place or changing, make it a priority to keep insurers notified – stay in regular contact in relation to changes to the premises, its common areas or fixed assets that may affect the scope of cover within your policy schedules. Given the breadth and diversity of the policies that are available, we recommended that you speak to a financial expert or solicitor who can ensure you are comprehensively covered in conjunction with the agreed terms of the lease. Failure to notify may ultimately carry a heavy cost both in terms of business continuity – and above all – human life.

*The Regulatory Reform (Fire Safety) Order 2005 (“the Order”) – refers to either tenant or landlord.

**The Landlords and Tenants Act of 1985 / Section 8: ref. electrical safety in rented commercial property