What is social housing?
Social housing accounts for approximately 17% of all households in the UK. As it is usually built with the support of government funding and rents are linked to local incomes, it should, in theory, provide a lower-cost home with greater tenant protection, compared to a private rental.
Social housing landlords (or ‘social landlords’) are registered with the Regulator of Social Housing (the “Regulator”) and tend to be either local councils or housing associations.
A sea change?
The tragic death of two-year old Awaab Ishak in December 2020 from respiratory conditions caused by damp and mould in his family home (which was owned and let by Rochdale Boroughwide Housing) has added impetus to efforts to drive up standards for those living in social housing. The Social Housing (Regulation) Bill (the “Bill”), which will bring in a tougher regulatory regime for social landlords, has received broad support as it progresses through the legislative process and it is expected to become law by autumn 2023.
The Bill has a strong focus on accountability, with greater scrutiny on social landlords’ efforts to keep property in good repair, and new rights and powers for tenants to escalate complaints. One of the amendments to the Bill is 'Awaab's law', which requires social landlords to fix reported hazards in properties within a specified time frame, or rehouse tenants where it is not possible to do so. On an individual basis, social housing managers will be required to have a professional qualification, in an attempt to raise standards.
The powers of the Regulator have been significantly enhanced, to allow it to proactively intervene and carry out regular ‘Ofsted-style’ inspections of social housing to check health and safety and repairs. These inspections may be conducted with only 48 hours’ notice (rather than the current period of 28 days). If refused, the Regulator may apply for a warrant to use force, and it will become an offence to stop an inspector from entering a property.
Social landlords may also be issued with performance improvement plan notices (PIPNs) where they have failed or are at risk of failing the necessary standards or providing information to the Regulator. In response, social landlords will need to prepare an improvement plan (open to the tenants) which, if not complied with, may expose the social landlord to enforcement action including fines and/or compensation.
Where a property’s standards are such that there is an ‘imminent risk of serious harm’ or the social landlord has failed to comply with an enforcement notice, the Regulator will also have the power to conduct emergency works on properties with only 48 hours' notice at the social landlord’s cost.
What does this mean for Social Landlords' D&O insurance?
The Bill will hopefully result in a much-needed improvement in the standards of social housing and avoid further preventable tragedies. However, a predictable consequence of the legislation will be an increase in claims under the D&O insurance purchased by social landlords.
Such insurance covers (under Side A) the directors and officers of the social landlord (likely including the newly-qualified social housing managers) in respect of claims made against them personally for actual or alleged ‘wrongful acts’ taken whilst acting in their insured capacity i.e. within the scope of their regular duties; and (under Side C) claims against the social landlord entity.
In light of the Regulator’s enhanced powers to carry out inspections, insurers may start to notice an uptick in notifications for ‘investigations’ or ‘pre-claim inquiries’, the costs of which may also be covered under some D&O policies. Tenants’ increased powers to escalate complaints to the Housing Ombudsman may, in due course, develop into claims. Moreover, a Regulator’s focus on a particular site or landlord may also offer evidential ammunition for claims from the tenants themselves, for example, for a failure to carry out necessary works/repairs identified in the PIPN or prepare an improvement plan.
We anticipate that claims arising from the new legislation will largely target social landlord entities, being the bodies likely to be named in PIPNs and subject to enforcement action. It is possible disputes between insurers and their insureds may arise in relation to whether Side C exclusions for breach of contract (i.e. the lease terms), property damage and bodily injury have been triggered, as a result of the poor maintenance of the property. Prior circumstances exclusions are also likely to come into play if the property in question has been in disrepair and attracted complaints for a lengthy period.
Such exclusions do not tend to apply to Side A cover, however – and it is foreseeable that claims may be made against the individual directors personally for failures in their statutory or fiduciary duties as directors (or social housing managers), should they be seen to have fallen below the standards of the new legislation.
D&O policies may cover the costs of mitigating or preventing a covered claim (which could potentially include temporary rehousing costs whilst works are undertaken), the damages (or equivalent) paid to the tenants and the legal costs incurred in investigating or responding to a claim. Under some policies, there may also be cover for the fines or penalties imposed by the Regulator, but this is likely to be dependent on the facts (for example, where there has been a deliberate infringement of the regulations).
Social landlords now await the full legislation (expected to receive Royal Assent during the current session) and the secondary legislation and guidance which will emerge out of the consultation process, so they can fully understand and implement strategies in response to their new weighty obligations. The legislation will also be of significance to their D&O insurers, as the increased accountability may well result in claims. As and when the provisions of the legislation become finalised, insurers may wish to consider whether any amendments to policy terms are required to reflect any changes in exposure.
