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Why the 16 April floods may cause a spike in claims against Construction Professionals in the UAE

03 May 2024
For various reasons, the volume of construction PI claims has historically been lower in the Middle East than in North America, the UK and Australia.

Of those reasons, perhaps the most prominent is the method of contracting. Design work is more frequently employer-owned, meaning that when early issues arise, employers are more likely to target claims at the main contractor, to whom they would be exposed in the form of EoT and variation claims for design failures targeted at the design teams.

The rate of subrogation is also lower than in other jurisdictions where subrogation is more routine, and standalone recovery teams within major insurers are more common. Local property (PAR) insurers are historically more likely to absorb damage losses through their reinsurance support than to pursue complex recoveries.

A changing position

The rains in the UAE on 16 April 2024 – where around 18 months' of rain fell in 12 hours, causing significant damage – are within the narrow set of circumstances which might significantly alter that position. It should not be assumed that the volume of rainfall and the intensity of the weather event will prevent claims against professionals or preclude recoveries.

First, the contractual barriers to bringing claims are less likely to exist. For projects completed within the past decade or so, with final account disputes settled and no potential for EoT and variations, the field is clearer for claims jointly or solely against the professionals who specify, design, inspect and supervise waterproofing and drainage.

These might take the form of claims for water ingress through roofs, balconies and complex façade designs, couched in terms of design, supervision or inspection failures. In addition, ground and basement level flooding arguably caused or exacerbated by insufficient drainage exposes professionals to a range of claims. We might also see decennial liability claims for structural defects (or in rare cases collapse) arising from saturated reinforced concrete structures, particularly in basement areas.

Additionally, with such large exposures all coming at one time, a valid strategy for PAR insurers to mitigate their overall exposure is seeking to share it with professionals and their indemnity insurance towers, and a keener eye will be on recoveries.

Live issues

If claims do arise, of the numerous issues in play, a number jump out:

Forum: with separate contracting, and the popular use of arbitration clauses in professional appointments, forum issues will arise in bringing and defending multi-party claims, and the jurisdiction of tribunals and courts to hear them will come under scrutiny and challenge – both as a matter of legal argument and strategy. This will be an issue exacerbated by decennial liability claims being run alongside contractual claims, which by their nature allege joint liability and are an awkward fit with common arbitration mechanisms.

Time Bar: while complex PAR claims, particularly with business interruption elements, will take time to resolve, clocks don't stop on the claims against professionals. Where projects are historic, valid recoveries may be lost if not given early attention, and the prospect of significant time bar disputes arises.

Indemnity: when claims arise, they will inevitably involve allegations of poor professional work, workmanship and potentially decennial claims. The latter issues may be either excluded entirely, or in the case of decennial liability, outside the scope of professional indemnity policies triggered by negligence not strict liability. As ever, disentangling the various aspects of a claim presents both a challenge and room for disputes.

Final thoughts

Whilst waterproofing and drainage have historically been after-thoughts in practice in the Gulf, that doesn't mean they were treated that way when contractual obligations were accepted under complex appointments. In addition, the extent to which mandatory waterproofing testing and commissioning has been fully completed (and documented) on projects may come under uncomfortable scrutiny.

While the PAR claims are being resolved, the volume of claims will take time to build. After that, as someone wise once said, "when the tide goes out…" .

For more information in the Middle East, please contact Adam Pryor and Rebecca Neville, our professional liability specialists, and Bill Evans, Co-Lead of the DWF Global Recoveries Group.

Further Reading