Asbestos risks: a 2021 perspective
The high risk environment of asbestos- related claims looks set to continue for many years to come.
Asbestos-related risks have been of great concern to the insurance industry for many years, given the losses arising from the number of claims generated by the use of large amounts of asbestos-containing materials (ACMs) in both new and refurbished buildings. Asbestos, which is naturally occurring and is obtained by mining, was imported for many years from South Africa, Canada and Russia and used in the UK construction industry until it was banned in 1999. Despite the ban, it can be found in almost all types of buildings constructed prior to 2000. It was particularly popular in the 1960s, when large volumes of asbestos were imported for construction purposes due to its construction qualities, including being strong, cheap and providing resistance to heat, fire, water and electricity.
From the 1970s, however, research began to show significant health risks to those exposed to asbestos and it is now well known that asbestos can cause serious illness and death arising from the inhalation from asbestos fibres, which most frequently occurs when asbestos in buildings is inadvertently disturbed during the course of the demolition or alteration of a building. The three main fatal diseases caused by asbestos fibre exposure are asbestosis (fibrosis of the lung), cancer of the larynx and mesothelioma (cancer of the abdominal lining of the lung). These diseases are untreatable and there is no known safe level of exposure. It is for these health risks, combined with the amount of asbestos historically used in buildings both in the UK and around the world, that asbestos risks are of such a concern to insurers.
It is currently estimated that there are over 5,000 asbestos-related deaths in the UK each year and the World Health Organisation estimates that there are currently 1.25 million people in the world who are exposed to asbestos in the workplace. Consequently, losses under insurance policies run into the hundreds of millions each year.
The health risks of asbestos exposure to employees and construction personnel generate commercial losses on building projects when ACMs, whose presence in a building or particular parts of it were previously unknown, are discovered during the carrying out of the building work and need to be treated or removed and disposed of under strictly regulated conditions. This in turn causes programme delays, the need for the provision of temporary alternative accommodation, loss of income and high costs of removal or treatment.
As a result, many professional indemnity policies either exclude or restrict the cover available for asbestos related risks. These restrictions often include the exclusion of death or bodily injury claims, costs inclusive aggregates or specific asbestos-related sub-limits.
Unsurprisingly, claims under professional indemnity polices in relation to the discovery of asbestos are most frequently made against asbestos surveyors. Typically, claims arise from the investigation of the presence and extent of asbestos as part of the due diligence process in business acquisitions, particularly in relation to industrial and manufacturing businesses and also from the investigation of ACMs in a building prior to planned demolition or refurbishment works taking place.
The current trend in terms of surveying claims continues to be the failure by a surveyor to identify an ACM at all (whether obvious or in an obscured part of the building) or to make an error in the volume of material identified. Very often, these failures arise from a lack of quality control in the planning of the asbestos survey by both the surveyor and often by the party commissioning the survey. In addition, there is often a lack of survey thoroughness during the actual inspection. While surveys should be performed in a structured, methodical and systematic manner, too often this is not what happens on the ground, where insufficient time and insufficient personnel (in terms of both numbers of surveyors and experience) are allocated to the job.
The United Kingdom Accreditation Service (UCAS) is the sole national accreditation body in the UK and organisations can demonstrate they are technically competent to undertake surveys for ACMs by obtaining UCAS accreditation. Sole traders or organisations with only a few surveyors can obtain ‘personnel certification’ from a certificated body accredited by UCAS.
UCAS-accredited bodies are more likely to identify ACMs during inspection due to the processes required by the standards to achieve accreditation and to suitably caveat their reports. The vast majority of claims continue to be made against non-UCAS accredited organisations. However, claims do continue to be made against larger UCAS-accredited businesses which, under financial pressure, sometimes submit low pricing estimates to win the work, either due to smaller amounts of survey work available generally during the pandemic or due to buying work cheaply to provide for large work forces. There is then an incentive to carry out the survey as quickly as possible in line with the cost estimate and perhaps to not spend as long carrying out the survey as is actually required by the demands of the building.
In our experience, most claims against asbestos surveyors are made for breach of contract but where a claim is made on the basis of a duty of care being owed in the absence of a contract (such as where the purchaser of a building claims to have relied on a survey he did not instruct), there may be a strong argument of no duty being owed at all. A breach of contract or duty may be fairly obvious, although it is well worth checking the survey notes and caveats which may have flagged up to the claimant what the limitations of the inspection were, in terms of parts of the building which could not be accessed. Very often, contractors want to pursue claims absent any expert liability evidence, but it may be useful to insist on this where there is any doubt as to whether a competent surveyor would have spotted the missed asbestos.
Where the real battleground will often be, when defending these claims, is causation and quantum. Even with a clear breach being established, we have succeeded in achieving significant savings for our clients. In terms of causation, there may be a question of whether the survey was in fact relied on, what pre-existing knowledge the claimant had of the likely levels of and locations of ACMs in the building and how the contractor set about the building work in terms of disturbing ACMs, knowing that ACMs had been found in the building and that there would be a possibility that further unidentified ACMs remained.
Claimed losses can also be significantly reduced by careful analysis of each head of claim. There will usually be the argument that the costs of removing the missed asbestos would always have been incurred. It may also be the case that the ACMs only needed to be encapsulated, rather than expensively removed. Prolongation, disruption, acceleration and management costs should be scrutinised and back up evidence demanded as it is often the case that these claimed costs are “over egged” with, for example, excessive staff costs, which can’t be proved. In terms of programme delays, it may be that the programme was being affected by other unrelated factors, such that full programing evidence should be obtained. It can be helpful to bring all these factors into play, especially if the claimant is looking for an early settlement.
Where asbestos has been inadvertently disturbed, claimants often seek an indemnity against the risk of possible asbestosis or mesothelioma claims in the future by those who were exposed to the asbestos. As our colleagues specialising in defending such personal injury claims know, these illnesses can take many years to manifest. Since it is impossible to know whether such claims will, in fact materialise, it is usually necessary to settle the claim against the surveyor on the basis of carving out such future injury claims from what otherwise would amount to a full and final settlement. While this is not ideal for insurers who are looking for finality, it is usually preferable to committing to an indemnity, which will always be unattractive.
The COVID pandemic has resulted in a slowdown of surveying activity generally and does not appear to have impacted on the way a survey is either planned or carried out. In terms of the actual survey, in some cases, the fact of either a building being empty or having fewer people inside, has given a greater level of unfettered access to the site to the surveyor and to that extent has made the carrying out of surveys easier, which result in fewer errors. However, there are still risks and the likelihood of future claims resulting from the limited availability of quality surveying teams from reputable companies due to furlough, shielding and childcare issues. These may leave clients to simply seek a surveyor or organisation who has the availability to carry out the survey promptly, rather than appointing an organisation with a track record of quality.
While most asbestos-related claims are made against asbestos surveyors who have carried out surveys, there is a growing trend for claims to be made against consultants who have managed asbestos remedial works and conducted the subsequent clearance testing. These are sometimes found to be flawed, following the discovery of ACM residues, often several years after the removal works have taken place. In these circumstances, the relevant Licenced Asbestos Removal Contractor will usually also be the subject of a claim.
Given the very significant and ongoing risk of losses arising from asbestos-related risks and the hardening of the insurance market generally, it is no surprise that many businesses are having to reduce the amount of cover they hold. The costs of UCAS compliance also means that there is a rise in the number of non-UCAS accredited businesses and, combined with decreased levels of professional indemnity cover, the effect is of a lowering of quality available in the market from a client’s perspective.
As there is still estimated to be 6 million tons of asbestos inside 1.5 million UK buildings, including schools and hospitals, the high risk environment of asbestos- related claims looks set to continue for many years to come.