Derby City Council

Assembly Rooms: the mystery of the insurance claim explained

6x4a5941At 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.”

Insurance Cover

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.

Payments

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.

Conclusion

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.

Postscript

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?

 

 

 

 

 

 

 

9 replies »

  1. I think it’s time people lobbied to get it re opened, and also think the explaining of the situation is rubbish – how can a building opened in the 1970’s only have a ten year life left in it? When there are school buildings built in the 1870’s still in use – indeed I can name half a dozen secondary school that were built in the 1950’s and 60’s that are still in use, buildings that were built with smaller class numbers in yet are still capable of seating children today! It’s rubbish ! The next big thing with Derby city council will be privatising or selling off council owned care homes for the elderly! So there will be no care services left! It disgusts me!

  2. Another attack on Derby City Council.
    Can I ask what your political allegiance is?
    I have read the article and it seems very biased against the council when it is the officers that do the majority of work. Yes the councillors make the decisions but only on what is presented to them.

    • What my allegiance is? Are you saine? We have a council that can waste the insurance money for the repair of the assembly rooms, loose the clock from the ‘spot’ and replace it with bent scaffold poles, have expensive gates places at markeaton park yet close and sell off the children’s attractions in the park, ignore the state of the roads yet happily pay out for all the damage to people’s cars caused by the mass of potholes rather than repair them!Close mooorways & Queensway swimming baths to the public yet rent it out privately, spend millions on the council house upgrade only to waste more starting alterations again! Close the cattle market, propose closing the main library and three museums, no switch on of the Christmas lights, cancelled the November firework display ……. the Christmas ice rink went to tender costing more than before…… you have the gall to question my allegiance? Shall I continue, as after twenty years there is still a huge question mark over duckworth square site… my allegiance is to the place and the people where I live, and it’s time this shop of fools were removed, it’s no wonder people suggest special measures is a suitable route for this council!! Oh and incidentally the council are preparing to close the main council run care homes in the near future and sell them off….so my prediction there was correct – feel free to “foi” the proposals at your convenience !!

      • Hope you feel better now you have got that off your chest. The comment was aimed at the article writer. I am fed up of peoples negativity about the city. Whether or not the council changes in 2018 it will still be run by political parties that do nothing but attack each other and score points rather than work together for the good of the city. I think the frenzy and hatred this site whips up can only lead to more extremism.

  3. I am at a complete loss as to why this council continues to hang on to control of the City council. Their incompetence defies description. Jules has described brilliantly some but not all of their mindbogglingly decisions and I continue to maintain that this Council is motivated by idealogy in a socialist attempt to blame everyone else. We are surrounded by councils making a real go of it. Leicester, also labour controlled is going from strength to strength whilst we are rapidly turning into a socialist ghetto.

  4. I’ve been a COUNCIL tax payer of one sort or another for 50 years. This load of Labour councillors beenjng pulled by a nose ring by its leaders are the most useless bunch of incompetents, attacking with there policies the working class people they were elected to represent. The answer is simple people in 2018 you can vote them out. Unfortunately it means getting off your idle arses and coting

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