The devastating fire at Grenfell Tower in north Kensington looks set to trigger a myriad of claims across multiple lines of business, with potential triple-digit property and liability losses falling mainly on reinsurers.
The biggest gross loss is likely to be borne by the Royal Borough of Kensington and Chelsea's combined casualty and property insurer Protector Forsikring, which is heavily reinsured by a panel of around 10 continental European and London market reinsurers.
But a host of other parties including a web of contractors, subcontractors and manufacturers will be exposed to claims, and their liability insurers will be poised to respond.
Willis Re brokers Protector's reinsurance cover, with the Norwegian insurer's net exposure to any event typically capped at 20mn kroner ($2.4mn) by excess-of-loss reinsurance.
Munich Re is understood to be the lead on the property programme, but does not feature on the liability panel.
The Protector policy, which offers both property and liability cover for the Royal Borough of Kensington and Chelsea and the management company, provides no liability cover above £50.0mn ($63.8mn), one source said.
A line-slip facility, which like the primary policy is placed by JLT, was in place in the London market to facultatively reinsure Protector for deals that required liability limits in excess of £50mn, but another source said that no risks were put through the structure.
A number of London market sources suggested that the local council's expenses from liability claims would be likely to exceed the £50mn of cover on the Protector policy.
Zurich, the market leader on public liability business, had insured the Royal Borough of Kensington and Chelsea until the end of March. Had it still been on risk it would have carried a large net loss, given its much greater risk appetite, which would have spared the reinsurance market much of the loss.
Protector is a relatively recent entrant to the public liability market in the UK and agreed a five-year deal with the council.
The fire, which occurred a week ago, is believed to have killed at least 79 occupants of the residential tower. It has also left dozens of families and individuals homeless and destroyed the 24-storey, local authority-owned building.
The insurance loss will be complex and will take years to fully pay out, with multiple insureds and multiple covers set to be impacted.
In addition to property policies, which will be affected by business interruption (BI) and contingent business interruption claims, a range of liability covers including construction liability, professional indemnity (NASDAQ:PI) and directors' and officers' (D&O) policies could be hit.
Spanish insurer Ocaso is the primary carrier for the leased properties at Grenfell Tower.
Other companies linked to the event include Rydon, the main contractor for the block's recent £8mn-plus refurbishment, and Harley Facades.
Harley, which fitted the building's exterior cladding, has public and product liability cover from Allianz and PI cover written by MGA Dual. The Allianz cover provides £5mn of limit for any one occurrence and in the aggregate. The Dual cover has a £10mn limit.
Chancellor of the Exchequer Philip Hammond told the BBC over the weekend that the cladding in question was illegal in the UK, with a Treasury spokesman later clarifying that he was referring to its use on buildings over 18 metres in height.
The numerous other entities associated with the block include ventilation systems supplier Witt UK; project manager Artelia; architect Studio E; building materials manufacturers including cladding supplier Arconic; and Celotex, a Saint-Gobain unit that supplied the insulation board that sits under the exterior cladding.
Hill Dickinson partner Andrew Schutte predicted significant construction liability insurance claims, and said that primary and any excess layers of PI insurance would likely be exhausted.
The lawyer added: "The underlying contractual arrangements on the construction and the maintenance of this property will be what determines the structure of many of the claims or any disputes that might arise."
In addition, landlords of leasehold properties within the block are likely to draw on BI cover, while neighbouring businesses, including SMEs, are likely to do the same if the terms of their cover allow it.
D&O insurance will also come into play as the criminal investigation and public inquiries progress.
Several sources said Kensington and Chelsea would probably pay many of the claims in the first instance, and could then subrogate against the insurers of other parties involved.
However, claimants would be able to cut through directly to the insurers of the liable parties or potentially liable parties in the case of those contractors and subcontractors that had supplied collateral warranties.
Additionally, a legal change which came into force with the Insurance Act in August will make it easier for third party claimants to pursue claims directly with the insurers of any parties involved in the Grenfell Tower refurbishment that have since gone bankrupt.
The council's public liability policy could be expected to cover pollution, clean-up and environmental monitoring as well as some BI claims, on top of death and bodily injury claims, a number of sources said.
Several sources drew a parallel with the explosion at the Buncefield oil storage depot in 2005, when the clean-up, BI and environmental costs generated $1bn in insured losses, although no one has suggested that insured losses will be at anything like this level.
In terms of compensation payable to the families who have lost loved ones, or those injured and unable to work, insurers will look at what the victims could have earned in the future to calculate the awards.
As occupants of social housing their likely future earnings in aggregate would be lower than those from other types of residential blocks. Nevertheless, the compensation tally will run into many millions and lawyers said it was highly likely that claims lawyers would pursue class action lawsuits on behalf of former residents that targeted multiple parties.
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