for Historic Buildings: A Risky Business
The nation's stock of historic buildings is finite. Whether a stately
home or a more commonplace town house, each individual building contains
an inherent and often unique series of values which deserves a higher
degree of care and consideration than their more modern counterparts.
This philosophy needs to be applied when assessing requirements for
property insurance to ensure that the appropriate levels of cover
and protection are provided. In addition, the design and construction
of historic buildings invariably makes them more vulnerable to damage,
especially by fire, and more expensive to repair after damage has
recent years, major losses have occurred to our heritage, including
fires at Hampton Court and Windsor Castle, and bomb damage to the
Baltic Exchange and St Ethelburga in the City of London. These losses
have led to extensive reviews of the nature and spread of damage,
as well as recommendations to reduce the risk of similar events occurring
in future. Prevention is obviously better than the cure, as no matter
how well reinstatement works are carried out, the loss of historic
fabric is irreversible. Insurance cover is a fallback position only,
which provides recompense to owners in the event of loss or damage
in order that repair or reinstatement may be financed in whole or
There is an extensive range of insurances which could be considered appropriate.
It is necessary to take a holistic view and to take advice from professionals
and insurers with specialist knowledge of historic buildings in order
to ensure that adequate cover is provided in relation to the perceived
risks. In addition, owners must recognise that The Duty of Utmost
Faith implies an obligation of full disclosure of all material facts
to the insurer; any breach may result in a contract for insurance
This article concentrates on the subject of property insurance, which provides
cover to the effects of physical damage upon the structure, fabric,
fixtures and external features of a building or structure. However,
other forms of insurance may also be needed to ensure that all the
various interests and liabilities are protected including:
insurance usually applies to items not permanently fixed to
the building including furnishings, works of art, collections and
personal possessions. Specialist knowledge may be required to value
certain items and a full inventory with record photographs kept
in a fire-proof repository.
insurance provides cover for damage or loss of mechanical plant
such as lifts, boilers, ventilation systems and lifting equipment.
Insurance of this type requires regular inspections and testing
of equipment under cover.
or third party insurance provides cover for claims for damage
to persons or property, made by employees, visitors and neighbours.
loss insurance: 'Business interruption' or 'loss of profit'
insurance provides cover for loss of revenue from visitors or rent
for example, and other consequential financial loss such as temporary
relocation, removal and storage costs.
and ornaments insurance: Property insurance does not provide
adequate cover where there is significant value in garden ornaments
such as statuary. Some insurers offer policies to cover soft landscape,
although an understanding of the level of reinstatement possible
needs to be defined.
against terrorism: Since 1993, damage and reinstatement cover
to commercial buildings and certain types of residential property
caused by terrorist action have been excluded or limited from standard
property insurance policies, and additional cover needs to be considered.
works: The introduction of building works into historic buildings
significantly increases the risk of damage or destruction as illustrated
by the fire at Uppark in Sussex. Not only should additional precautionary
measures be instituted (see Risks and Risk Management below), but
insurers should also be notified and additional temporary cover
put in place. The insurance clauses included in any building contract
need to be closely studied and appropriate cover obtained by the
owner or contractor as required.
INSURANCE - FACTORS TO BE CONSIDERED
Before deciding on the type and level of property insurance required, it
is necessary to return to first principles and assess the following:
the building or structure have a historic value which would be
destroyed or seriously compromised by rebuilding in part or whole?
In such a case, full reinstatement insurance may not be considered
the building part of a group of historic buildings, say in a conservation
area, which would be greatly devalued if a single element was
not rebuilt? In this case, the justification for full reinstatement
insurance is greater.
- Does the building have a commercial value or interest which needs to
be protected, for example as an obligation under a lease or mortgage;
or alternatively where it forms part of an investment portfolio?
Here full reinstatement may be a contractual requirement or prudent
in order to protect commercial interests.
the premium based on a total reinstatement insurance policy outweigh
both its historic or commercial value? In which case a lesser
form of insurance may be acceptable.
should be borne in mind that total loss is very rare and therefore
claims against building insurance policies are usually on a partial
loss basis. The point at which a building becomes so damaged that
full reinstatement is not justified is a difficult one to identify,
however, figures of 50 per cent to 60 per cent loss have been suggested
as the break point.
OF PROPERTY INSURANCE AVAILABLE
reinstatement provides a level of cover which in the case of
total destruction should enable the owner to completely rebuild
to the same design quality and style but in accordance with current
legislation. Similarly, in the case of partial loss, it enables
the repair and rebuilding of the damaged and destroyed parts.
In relation to modern equivalents, historic buildings are inherently
expensive to repair and rebuild. Therefore premiums are comparatively
high, particularly where full reinstatement insurance applies. Owners
may select lesser and cheaper forms of cover in agreement with insurers.
However, very careful consideration must be given to assess their
shortcomings balanced against the risks.
Modern materials clauses enable reconstruction to the same design but
using modern and more readily available equivalent materials. Therefore
cover will not be sufficient for the full cost of repairs to scheduled
monuments and listed buildings, and may also be insufficient for
buildings in conservation areas, where all repair and replacement
work would usually be required to match the existing in material
First loss and agreed value insurance provides cover to the largest
single risk which may be represented by the largest building within
a group or the most vulnerable part of a single building based on
a single event. If the value of the reinstatement or rebuilding
exceeds the value of cover, recompense may be limited to value of
the lesser. A similar principle may be applied to irreplaceable
works of craftsmanship or artistry which are deemed to be part of
the building fabric. In such cases, an agreed value may be covered
which might reasonably reflect the cost of a contemporary replica.
Indemnity cover provides enough money to build a modern replacement building
in the event of total or near total loss. Once again, complications
will occur in the case of partial loss whereby statutory requirements
may impose the need to reinstate on a 'like for like' basis, in
which case the full cost is very unlikely to be covered under such
Average cover limits final payment to an agreed proportion of the actual
total value of cover compared to the full reinstatement value. In
effect, this would leave the building knowingly under insured, and
there must be a clear understanding between both parties of the
limitations and their implications.
rebuilding insurance: With certain monuments, reinstatement
would detract from the historic value and if commercial value is
not significantly affected, there may be little point in reconstruction.
However, some cover should be obtained, if only to make the structure
safe and, if appropriate, to record and remove debris. Large estate
owners may also select to carry the full risk for loss or damage
to individual buildings and structures, or indeed to the entire
estate and not insure at all.
historic buildings there is always a possibility of an element of
disrepair. Unless it was contributory to the loss or damage, a small
amount of disrepair may be tolerated in the event of a claim, however
insurers are unlikely to contribute to improvements or betterment
without making some adjustment to payments against a claim.
RISKS AND RISK MANAGEMENT
The nature and control of risks can have a significant effect upon insurers'
willingness to accept risks and can also control the level of premiums.
The type of risks have changed over the years with some increases
which have in part been countered by the introduction of preventative
systems including methods of detection of fire or intruders in particular.
Control of risks or Risk Management is becoming increasingly important,
particularly to historic buildings where organisations such as the
National Trust and the Historic Royal Palaces Agency have introduced
strict controls to reduce the danger of fire, theft and damage including
detailed salvage plans. Such plans indicate to insurers that positive
steps are being introduced to reduce and control extent of risks.
These manifest themselves in a series of building and site standing
orders, as well as physical improvements which generally fall into
design: With the help of a specialist, consider the introduction
of barriers to the spread of fire and smoke together with fire detection
and fire fighting systems above any statutory requirements; review
the combustibility of components and finishes and consider methods
of reducing risk of fire in these areas; and review heat sources
in a building and seek methods to reduce the risk of them becoming
sources of fire.
construction work: Historic buildings often face their greatest
period of risk during construction work. It is essential to apply
strict controls on access and maintenance of escape routes and fire
detection and fire fighting systems. Ban the use of appliances which
produce naked flames or sparks; impose the use of hot work permits;
avoid the use of compounds containing flammable solvents; clear
rubbish regularly and nominate persons to inspect all work areas
at the end of the day.
management: Standing orders should be issued regarding regular
testing of heat producing equipment, fire detection and fire fighting
systems. Control smoking and regularly inspect all areas of buildings
for hazards with increased frequency in high risk areas. Develop
and practice fire evacuation and salvage drills.
Management is a complex subject in its own right and requires considerable
thought and planning beyond the suggestions outlined above.
The value needs to include not only the cost of reconstruction but
also allowances to build to current legislation, inclusion for demolition,
temporary site works and clearance, professional fees, VAT, plus any
other directly related expense. The value must be calculated to cover
a loss on the last day of the insurance cover, plus any inflation
which may occur in the time taken to establish and complete a contract
The most accurate method of estimating for reinstatement is likely to
be obtained on a detailed elemental cost basis analysis similar to
an approximate Bill of Quantities. Reasonably accurate figures may
be produced by calculations based on costs per metre cube and cost
modelling; prices per metre square should only be used in simple cases.
In any event, experienced professional advice should be sought to
obtain an accurate cost, and valuations should be updated annually
or, if an inflation provision is in-built, every five years.
IMPORTANCE OF RECORDS
It is of utmost importance to have permanent records of the building
to aid reinstatement, of which at least one copy should be held off
the premises. The record must include a set of record photographs,
cross-referenced to scaled plans. Ideally drawn cross-sections and
elevations should be included and with particularly fine buildings,
justification should be found to commission a rectified photographic
survey or better still a photogrammetric survey if not already available.
should take all reasonable measures to prevent and limit loss or damage
to their buildings. They should ensure that adequate insurance cover
is provided and that valuations and building records are updated as
necessary. In the event of a claim, it is imperative that specialist
professional advice is sought. It is essential that the correct measures
are taken to preserve and conserve the historic, architectural and
archaeological interest of the building.