At 17:22 hrs on Friday 14 March 2014, a fire broke out in the air handling unit supplying the Assembly Rooms; it was totally destroyed. According to BB7, an organisation who was commissioned to investigate the fire and the fire safety measures and:
“…assist Derby City Council in meeting the requirements of the applicable fire safety legislation in order that it can identify how best to proceed with the proposed re-opening of this facility”
stated in their report of 29 Jan 2015:
“Although the building suffered a significant fire, the damage to the main building was relatively minor”
The insurer was made aware of the Council’s claim on the 14th March 2014; the claim for the property damage was submitted on 17th March 2014, and the loss of revenue on the 18th March. The claim was for a total of £5.051m ( reduced by £1000 excess)
It was reported in the Derby Telegraph on 9 December 2014, relating to the £5.05m
“The figure quoted is the council’s current estimate of the loss. It is the council’s current estimate of the value of the cost of repairs to property and loss of revenue following the fire, and we are using these figures as a basis for discussion with our insurers to come to an agreed settlement”
After the BB7 report was issued, Paul Robinson, Acting Chief Executive, at the time, re-affirmed that:
“Any work that we’ve done in the Assembly Rooms has been fully compliant with modern building regulations and they have been delivered to a specification that is required by law. Any building that age wouldn’t comply with modern fire regulations. The building did stand up to that very large fire and didn’t spread to the auditorium. Although there are points to learn, the actual fire safety systems did work,” he said
By 5 March 2015, the Council seemed to have gone very luke-warm on re-opening the Assembly Rooms:
Cllr Rawson (Deputy Leader) in the Telegraph, said that it would cost £10 million to repair the building with “very limited life expectancy”.
He said: “We’ve an estimate that it has five to 10 years left in it.We don’t think spending £10 million (£3.5 million for the new plant room) to get a building for that period of time represents value for money.”
“The seating capacity for example – it’s too small to be profitable for commercial-type shows. We’ve had discussions with the private sector and they’ve been unwilling to take on the building as it is.”
The Council had substantial insurance cover for all of its property totalling £525m and for business interruption totalling £15m. The Assembly Rooms was valued for insurance purposes at £20.7m; its accounting value was £37m. Ernst Young pointed out in their Audit Report:
“The failure to impair the value of the Assembly Rooms in a timely manner following the fire illustrates a lack of thorough review for impairment indicators when preparing the asset valuations. This therefore raises a risk that additional assets within the Council’s property portfolio are also valued incorrectly.”
The Council was criticised by the auditors for valuing the car park at zero, when it should have been in at £3m. – this was described as an “oversight on the Council’s part”
Although, on the face of it, this might imply that the building was under-insured, Paul Robinson (in the DT 30 September 2016) emphasised that the valuation of the Assembly Rooms car park and insurance of the building were two separate things and the council had not lost out on insurance for damage caused by the 2014 fire as a result of the oversight. He said: “No. This is nothing to do with that.”
This does not comment on the potential under-insurance of the Assembly Rooms itself.
On 1st July 2015 the Council signed a declaration confirming that the original claim of £5.05m was in “full and final settlement”. Why didn’t the Council revise the claim to £10m in line with Cllr Rawson’s reported expectation of the repair bill…and why sign a settlement that was insufficient? The Council accepted a 50% pay-out
An assessment made in November 2015 as to the costs of getting the Assembly Rooms up and running was £7.4m. Therefore, the original claim seemed to be short by £2.35m.
The Council was given an advance payment of £0.3m on 14 April 2014
The balance of £4.75m was paid on the 16th August 2015.
The Council’s 2015/16 annual accounts showed that £3.4m re: Assembly Rooms, had been transferred to reserves. £1.65m of the claim (£5.05-£3.4m) was used to pay for:
- Making the building safe following the fire
- Replacement of IT equipment damaged in the fire
- Fund business interruption costs
- Undertake feasibility work looking at a replacement performance venue.
The Council was paid the full amount of its original claim (£5.05m), which it submitted within a few days of the fire, which it claimed represented the full extent of the loss.
The book value of the Assembly rooms was £37m which was double the insurance valuation of £20m. Given that the replacement of the plant room (£3.5m), and the minor repairs to the main hall would cost £7.4m (£10m according to Cllr Rawson) then it seems reasonable that the re-build cost of the entire structure would be considerably greater than the insurance valuation of £20m. In normal circumstances this means that any pay-out against a claim would be scaled back (50%)….due to the property being under-insured.
If the buildings were properly insured, then the full cost of repairing the building, and bringing it back to profitable use would have been covered…and paid. There was no evidence that the fire, or consequential damage, resulted from poor maintenance.
It’s clear that the Assembly Rooms property was under-insured, and that the insurer scaled back the pay-out, by ~50%, because of this. As a consequence, re-opening ceased to be an option.
All of the facts and details were taken from a Freedom of Information request, Council published documents, the Ernst Young audit report and the Derby Telegraph. Perhaps it is time for the Council to, transparently explain, to the people of Derby
- why the insurance claim was not for the full cost of the repair bill?
- why the venue was not re-opened in line with the original plan?
Categories: Derby City Council