(New Home) Buyer Beware
Recent case law highlights the importance of adequate insurance cover for buyers of new homes, to remediate any latent defects identified post-completion, whilst the Building Safety Act 2022 implements significant changes to the new build warranty landscape.
In Griffiths and another v Gilbert [2022] EWHC 3122 (TCC) (6 December 2022), HHJ Sarah Watson (Principal Judge of the Technology and Construction Court in Birmingham) dismissed allegations that a director of the building contractor responsible for construction of the claimants’ property had fraudulently misrepresented that £2 million worth of NHBC cover would be obtained, covering the full build cost, rather than the standard £1 million limit for defects claims under the NHBC Buildmark policy.
After practical completion, a dispute arose concerning building defects and contamination of surrounding land. The claimants referred matters to the NHBC's dispute resolution service but subsequently withdrew from the process, unhappy with the initial response. Court proceedings alleging personal liability for fraudulent misrepresentation were commenced in 2014 and then stayed, pending the outcome of an arbitration pursued by the claimants against the contractor. In 2018 the arbitrator awarded substantial damages and costs to the claimants, which the contractor was unable to meet, and it went into insolvent liquidation. The claimants successfully recovered £1 million under the NHBC warranty, and court proceedings against the director were revived seeking recovery of outstanding losses.
The Judge held that elements of the tort of deceit were not made out in this case and the fraudulent misrepresentation claim failed. The director had confirmed the property would be built to NHBC standards and a Buildmark warranty would be obtained, but premium figures in the contract costings were estimates not representations. It was inherently unlikely the contractor would fraudulently represent the situation to save a small fee on a £2 million contract, knowing this would come to light when the NHBC certificate was provided. Further, NHBC was advised of the sale price at the outset with no question of “underinsurance”, analogous to standard property policies, where claims might be reduced if a building was insured for less than full reinstatement costs.
The judgment illustrates the limitations of new home warranties and how parties can extend the scope of cover for a price. In 2011, NHBC had offered to increase the cover to £2 million for an additional fee of approximately £4,500 but that proposal was not accepted by the claimants.
The importance of sufficient protection for buyers of new homes is also reflected in legislative changes under section 144 of the Building Safety Act. These provisions impose legal requirements on developers to provide new build warranties with a term of at least 15 years (increased from the usual 10 years period applicable previously), in line with the new prospective limitation period for claims under the Defective Premises Act 1972. Regulations are anticipated in 2023 imposing additional requirements on the kinds of defects covered, minimum policy limits, period during which the developer remains responsible, and financial penalties for non-compliance, following further industry consultation. Mandatory parameters of coverage should increase transparency for all concerned, helping to minimise the prospect of disputes.
Amy Lacey is a Partner at Fenchurch Law
Fenchurch Law bolsters insurance disputes team in London with three new hires
Fenchurch Law, the UK’s leading firm working exclusively for policyholders and brokers on complex insurance disputes, has announced the expansion of its team in London with three new appointments to its coverage disputes team; Michael Robin, Dru Corfield and Grace Williams.
Michael Robin joins as Partner, bringing with him over 45 years' experience in handling complex claims across the international insurance market. Michael joins Fenchurch Law from global legal services firm DWF, where he was Partner in the Professional Liability and Commercial Insurance Disputes team, and is well known in the insurance market as a founding partner of Robin Simon.
Dru Corfield joins as an Associate Solicitor from Elborne Mitchell LLP, where he was a Trainee Solicitor. Dru graduated from McGill University, Montreal, Canada with a degree in History and Political Science, before achieving a distinction in his LPC at BPP, Holborn.
Grace Williams also joins as an Associate Solicitor, from New Zealand law firm Robertsons, where she specialised in insurance litigation. Prior to this, Grace began her career at law firm Russel McVeagh as an Associate, after achieving a Bachelor of Laws with Honours First Class/Bachelor of Science (Genetics) from Otago University, New Zealand.
The new appointments will bolster the firm’s insurance disputes team, which was set up to help level the playing field between policyholders and their insurers, when coverage disputes arise
David Pryce, commented: “The demand for policyholder-focused insurance disputes specialists is growing all the time. We intend to continue investing in our team in order to continue to help policyholders challenge their insurers on a level playing field, when they feel their insurance claims have been incorrectly turned down, and Michael, Grace, and Dru are exciting additions to our market leading team”.
Michael Robin added: “I’m delighted to be joining such an exciting, growing team of insurance dispute experts at Fenchurch Law. I look forward to applying my in-depth knowledge of the global insurance market to helping support policyholders across the UK and internationally.”
Dru Corfield added: “I was attracted to Fenchurch Law because of the size, purpose and direction of the business. Despite being a fairly young firm, it has quickly established a very strong reputation within the insurance market for first-rate protection of policyholders’ interests. Fenchurch Law’s core values were also an important draw for me, its entrepreneurial culture is one in which colleagues are empowered to think outside the box to get the best possible results for their clients.”
Grace Williams added: “I wanted to work at a firm which focused solely on insurance law. I am excited to work alongside solicitors that are experts in their field and to assist policyholders with coverage disputes.”
The Financial Ombudsman Service: 10 Things That Every Policyholder Needs to Know
Do you have a policy coverage dispute with your Insurer?
Are you a Consumer or Small Business?
Is your dispute worth £375,000 or less?
If the answer to these questions is Yes, the Financial Ombudsman Service might offer you a pathway to resolve. Please read on…
The Financial Ombudsman Service (FOS) is a free service that aims to settle disputes between Consumers or Small Businesses on one hand, and businesses that provide financial services (including insurance companies) on the other hand.
Here are our Top 10 Things that every Policyholder needs to know:
1. IS THERE A COST?
The FOS is a free service because it is funded by levies and case fees from businesses which are regulated by the Financial Conduct Authority (FCA). The legislation that gives the FOS its powers is The Financial Services and Markets Act 2000 (FSMA), which determined that the FOS should be funded by the businesses it covers, and that these businesses should meet the costs of resolving disputes. The FSMA does not contain any power to charge Consumers for using the FOS.
2. IS IT A LEGAL PROCESS?
The FOS is an informal and non-legal process, as an alternative to the Courts. There are no fixed timetables; no need for detailed legal arguments or any cross-examination; and no need for witness statements or expert evidence. The FOS aim to decide cases on a fair and reasonable, not necessarily a legal basis. Whilst they will be guided by the Law, they are not bound to follow it. Unlike a Court process, there is no risk of adverse cost if you lose.
3. CAN THE FOS HELP ME?
The FOS can assist with complaints from Consumers and Small Business Policyholders.
A Consumer is an individual who enters into a consumer, or personal, insurance contract.
A Small Business is:
- a ‘micro-enterprise’ with an annual turnover or balance sheet that does not exceed €2 million and fewer than ten employees
- a small or medium-sized enterprise (SME) with an annual turnover of no more than £6.5 million and fewer than 50 employees
- a charity with an annual income of less than £6.5 million
- a trust that has a net asset value of less than £5 million
4. WHEN CAN I COMPLAIN?
The FOS can only review a complaint once the Policyholder has exhausted their Insurer’s complaints procedure, and the Insurer has provided a “final response letter” in accordance with the FCA Handbook, rule DISP 1.6.2, which requires that the final response:
- rejects the complaint and gives reasons for doing so;
- encloses a copy of the Financial Ombudsman Service's standard explanatory leaflet;
- provides the website address of the Financial Ombudsman Service;
- informs the complainant that if s/he remains dissatisfied with the respondent's response, s/he may now refer their complaint to the Financial Ombudsman Service
5. IS THERE A FINANCIAL LIMIT?
The FOS has an award limit, which is the maximum amount the FOS can require an Insurer to pay when they uphold complaints. This limit is adjusted each year in line with inflation, as measured by the Consumer Prices Index (CPI).
From 1 April 2022, the award limits were updated and are currently:
- £375,000 for complaints referred to the FOS on or after 1 April 2022 about acts or omissions by firms on or after 1 April 2019
- £170,000 for complaints referred to the FOS on or after 1 April 2022 about acts or omissions by firms before 1 April 2019
The FOS aim to put Policyholders back in the position they would have been had the Insurer not made a mistake.
If the FOS upholds a complaint, it can ask an Insurer to pay compensation, ie a monetary award against the Insurer, and will often require the Insurer to pay interest on the award. The FOS also has the power to award costs against the Insurer, but this is rare and usually you cannot recover your own costs.
There may be cases where the FOS consider that compensation should be higher than their award limit. In those situations, the FOS can recommend that the Insurer pays more, but the FOS cannot force them to pay anything over the limit, and the Insurer can decide whether they pay any extra or not (although in practice we would expect them to do so, especially if it is a relatively notional amount).
6. THE PROCESS: STAGE ONE - INVESTIGATOR
The FOS is a two-stage process: (1) Investigator; and (2) Ombudsman.
At the first stage, an Investigator will review the complaint submission by the Policyholder, and the Insurer’s file. The Investigator will then share their initial assessment of the complaint with both sides and recommend how it could be resolved.
The Investigator’s assessment is not binding on either party.
If both sides agree with the Investigator’s assessment, the complaint is settled accordingly.
Either side can however reject the Investigator’s assessment, and request that the complaint is referred to an Ombudsman.
7. THE PROCESS: STAGE TWO – OMBUDSMAN
At the second stage, an Ombudsman will then look at all details of the complaint afresh, and make a final decision.
As part of this process the Ombudsman may decide to issue a provisional decision which will set out the decision s/he is minded to make on the complaint’s case. The Ombudsman will then give both parties a reasonable time in which to make any final representations. After this time the Ombudsman will consider any further submissions s/he receives before issuing a final decision on the case.
If the Policyholder accepts the Ombudsman’s final decision, it is binding on the Insurer, who has to accept the decision and follow the Ombudsman’s ruling. The Insurer does not have the same power and cannot compel the Policyholder to accept.
If the Policyholder does not wish to accept the Ombudsman’s final decision, they do not have to, but it does mean that the FOS involvement is concluded.
8. IS THERE A RIGHT OF APPEAL?
There is no right of appeal to another Ombudsman.
The FOS a public body and can be judicially reviewed. A judicial review usually focuses on the process an Ombudsman has used to make their decision, not on the facts and evidence of the dispute itself.
9. HOW LONG DOES IT TAKE?
The FOS aims to give answers to complaints within 90 days of receiving the complete complaint file, in line with the EU directive on Alternative Dispute Resolution (ADR).
The FOS currently has a large volume of cases and so it is taking them longer than usual at the moment. For any new complaints they are typically advising that it will be 4 months before they can allocate a Case Handler. As a broad guideline, first stage assessments are probably in the region of 6 months after submission of the complaint, and second stage decisions are probably an additional 3 months; but each case is very much dependent on its own facts, and we are aware of cases which are well over 12 months old and still ongoing.
10. CAN I FIND OTHER DECISIONS?
The FOS publishes Case Studies and Ombudsman’s decisions on their website. These are not precedents, nor a definitive statement of the law, the FOS approach, or their procedure. The FOS may refer to previous cases or decisions, although each case is still decided on its own particular facts and merits.
FENCHURCH ADVOCACY SERVICES
Fenchurch Advocacy Services offers Policyholders a cost-effective solution to refer complaints to the FOS on their behalf. This is a non-legal service, undertaken by an ACII qualified Chartered Insurance Practitioner, under the supervision of experienced solicitors from Fenchurch Law’s market leading insurance disputes team, and includes:
- Undertaking a review of the Policyholder’s case;
- Advising on prospects of success;
- Challenging the Insurer’s position (if there are good prospects of success) and obtaining a “final response letter”;
- Referring the case to the FOS, as appropriate.
FENCHURCH ADVOCACY SERVICES
Fenchurch Advocacy Services offers Policyholders a cost-effective solution to refer complaints to the FOS on their behalf. This is a non-legal service, undertaken by an ACII qualified Chartered Insurance Practitioner, under the supervision of experienced solicitors from Fenchurch Law’s market leading insurance disputes team, and includes:
- Undertaking a review of the Policyholder’s case;
- Advising on prospects of success;
- Challenging the Insurer’s position (if there are good prospects of success) and obtaining a “final response letter”;
- Referring the case to the FOS, as appropriate.
If you would like more information, please contact our Insurance Consultant Phil Taylor at phil.taylor@fenchurchlaw.co.uk
Court hands down judgment in much anticipated Covid-19 BI cases: the takeaways for policyholders
Fenchurch Law represents Stonegate Pub Company Limited in its claim for Covid-19 business interruption losses against its three insurers: Ms Amlin; Liberty Mutual; and Zurich.
760 of Stonegate’s premises were insured under a Marsh Resilience wording, which was a wording considered by the Divisional Court and Supreme Court as part of the FCA Test Case. The Test Case confirmed that the policy responded to business interruption losses. However, a number of secondary issues remained in dispute despite the Courts having confirmed coverage.
The key issues for consideration were as follows:
- Trigger;
- Aggregation;
- Causation;
- Additional Increased Costs of Working (“AICW”); and
- Government Support.
In its judgment, notably, the Court rejected the Insurers’ primary argument that all cases aggregate to the emergence of the virus or pandemic, and agreed with Stonegate’s position that losses are recoverable after the end of the policy period. The Court found in favour of Insurers on other issues, and in particular with regard to furlough.
Below we consider the Court’s judgment in relation to each of the issues, as well as the related judgments in the cases of Greggs v Zurich [2022] EWHC 2545 (Comm) and Various Eateries v Allianz [2022] EWHC 2549 (Comm), and what they mean for policyholders.
Trigger
The Court was asked to consider the trigger (a colloquial shorthand for the matter or matters which gave rise to a right to claim under a policy) under the Disease, Enforced Closure and Prevention of Access perils present in the Marsh Resilience wording. The Court made the following findings:
- The Disease peril is triggered whenever there were cases of Covid-19 which were either discovered at an insured location, or within the relevant vicinity, and each example is separate Covered Event;
- The Enforced Closure peril triggered whenever all or part of an insured location was closed under a relevant compulsion or instruction. The policy is “triggered” in respect of each such closure, and the number of locations closed is the number of triggers. A location opening and then closing again at a different time would be considered a separate trigger;
- The review, reiteration, continuation or renewal of regulations which were materially of the same effect does not constitute a separate closure or separate ‘trigger’;
- The Prevention of Access peril trigger was the number of such actions or advices which prevented or hindered the use of or access to the insured location;
- Steps or advice which merely repeated or renewed an existing prevention or hindrance of access forms part of one set of ‘actions or advice’, and therefore is only one ‘trigger’ or Covered Event;
Policyholders with different aggregation wording, or with no aggregation wording, could find the Court’s analysis on trigger particularly useful.
Aggregation
With regard to aggregation, ever the tricky area for policyholders and insurers alike, the Court considered the extent to which Stonegate’s claimed losses arose from, were attributable to, or were in connection with one more single occurrence for the purposes of aggregation as one or more Single Business Interruption Loss.
In determining the number and nature of occurrences, the Court had regard to ‘the degree of unity in relation to cause, locality, time, and, if initiated by human action, the circumstances and purposes of the persons responsible’. The Court also considered the concept of remoteness between the aggregating event and the loss, which acts as a counterbalance to the more aggressive aggregation clauses and issues that arise from causation.
Insurers maintained a number of alternative cases in relation to aggregation in an attempt to limit Stonegate’s losses to a single sub limit of liability to which all losses could be aggregated.
The Judge disagreed with a number of the Insurers’ proposed occurrences for the purposes of the aggregating wording, including tracing Covid-19 back to its evolutionary roots, the original zoonotic transmission of Covid-19 in Wuhan, and the virus’ entry into the UK. The Court rejected these arguments on the basis that these proposals were either geographically, temporally or causally too remote (or a combination of).
Instead, the Court held that there had been at least two occurrences that satisfied the relevant aggregating test and fell within Stonegate’s policy period (which ended on 30 April 2020), and acknowledged a possible third occurrence, being:
i) The decision taken at the COBR 16 March meeting to advise people to stop non-essential contact with other and to not visit crowed areas such as pubs, restaurant and clubs (a finding that went against the previously established precedent that a decision did not constitute an occurrence);
ii) The instruction given on 20 March that all pubs, bars and restaurants were to close; and
iii) The announcement of the national lockdown on 23 March 2020.
The Court considered that at this point in time the decisions taken by the devolved administrations were taken jointly, and therefore there was only one occurrence across the UK. However, the Court accepted that if it was wrong on this point, there would be an occurrence in the form of the decisions of each home nation.
It is notable, however, that there was no finding in relation to losses in the pre-aggregated period (16 March 2020), therefore, the occurrences thereafter did not aggregate any of the losses incurred before the COBR meeting on 16 March 2020.
The judgment does not consider other occurrences from 30 April 2020, as this is the date on which Stonegate’s policy expired. However, in Greggs v Zurich, the Court provided some further clarity for policyholders, and held that there was a separate occurrence for each announcement or measure relevant to Greggs’ business, with the exception of those that simply continued, made trivial changes to, or reduced existing restrictions.
In Greggs, the Court considered decisions taken from May 2020 by the home nations as being separate and therefore not single occurrences in the meaning the policy wording. The result is that business with locations in each administration will benefit from cover for a separate occurrence (and therefore a separate sub limit if applicable).
Policyholders with longer policy periods should be aware of other examples of an “occurrence” within the meaning of the Marsh Resilience aggregating wording, which may include:
i) In England, the bringing into force of the three-tiered system on 14 October 2020;
ii) The announcement and implementation of the second national lockdown,
iii) The announcement and implementation from 20 December 2020 of the Tier regulations;
iv) Restrictions imposed on limited areas of the country, for example, the local lockdown in Leicester on 04 July 2020.
Causation
Stonegate, as with most hospitality and leisure businesses, continued to feel the effects of Covid-19 long after the expiration of its policy period. The Court found that losses suffered after the expiry of the policy period were attributable to Covered Events, and rejected the Insurers’ argument that any losses suffered after the expiry of the policy period could not have been caused by a Covered Event.
Stonegate’s losses, from 1 May 2020 until 4 July 2020 (in England), 6 July 2020 (in Scotland) and 13 July 2020 (in Wales) were all proximately caused by Covered Events that occurred between 17 February and 30 April 2020.
Losses beyond those dates were considered to be in response to the subsequent developments of Covid-19, and predominantly caused by more recent cases.
The Court did accept that there were several individual categories of causal linkage that could continue after the dates outlined above, such as continued losses caused by deaths or long covid, and loss of momentum in relaunching premises prior to the expiry of the policy period.
Within those categories was the cancellation of events which had been organised to occur after the dates outlined above, by reason of uncertainty as to whether they would be able to go ahead. This category is undoubtably important to the hospitality industry, and the same logic may equally apply across other industries.
The Court gave further consideration to the issues of causation in Various Eateries v Allianz. The Court held that in Various Eateries’ circumstances (where this particular policy expired on 28 September 2020), cases of Covid-19 occurring in the Vicinity during the Period of Insurance were potential proximate causes of government action for a time after 28 September 2020 and in particular, that they were at least equal proximate causes of the tier system announced by the government on 14 October 2020 (but not the movement of some areas within the tier system to tier 2 on 29 October 2020).
The causation findings are very fact sensitive and will be dependent on the length of the policy, the length of the indemnity period and the significance to that policyholder’s business of the different announcements, measures and regulations.
AICW
The Court confirmed that AICW applied per Single Business Interruption Loss (i.e. per occurrence) and in addition to the notifiable disease sub-limit, but it did not apply to economic increased costs of working. The wording of the policy, correctly construed, meant that the AICW limit only applied to additional costs which were uneconomic (i.e. that which exceeds the amount of reduction in turnover avoided) but not to increased cost of working where the limit applicable to the ICW has been exhausted.
Government Support
The Court considered that payments received under the Coronavirus Job Retention Scheme (“CJRS”) should be taken into account for Insurers’ benefit when calculating sums recoverable by policyholders. The significance of this finding is subject to the wording of policy specific savings provisions. However, it is likely to be applicable to most policyholders (not just the Stonegate, Various Eateries and Greggs parties).
Payments made under the Business Rates Relied (“BRR”) would not be accounted for to insurer’s benefit if the business shows that normally business rates would have been paid out of turnover. Unlike the Court’s finding in relation to CJRS, the BRR is fact specific per policyholder.
Where next
A spokesperson for the Stonegate Group said:
“The outcome of this case is far from conclusive. We are pleased that the Judge found in our favour on a number of key issues and note that he sided with our insurers on others. In this sense, the outcome is similar to the judgment of the Divisional Court in the Test Case brought by the FCA last year.
However, we believe that the Court’s interpretation on a number of issues which are generally applicable to policyholders is out of step with the approach taken by the Supreme Court in the Test Case and with the approach of Courts in other jurisdictions (such as on furlough). We intend to appeal those elements of the decision.
Whilst our recovery from the pandemic has been strong, we cannot ignore the significant disruption caused during the last two years and, along with most businesses in the UK, we are now grappling with inflationary challenges and a cost of living crisis for the UK consumer. In the circumstances, we, and other businesses, are entitled to look to our insurers to provide the cover promised under our policy”
Copies of the judgments can be accessed here:
Stonegate - https://www.bailii.org/ew/cases/EWHC/Comm/2022/2548.html
Various Eateries - https://www.bailii.org/ew/cases/EWHC/Comm/2022/2549.html
Greggs - https://www.bailii.org/ew/cases/EWHC/Comm/2022/2545.html
Authors:
Anthony McGeough is an Associate at Fenchurch Law
Joanna Grant is a Partner at Fenchurch Law
Grasping the Nettle on International Risks
Recent decisions of the English courts show enthusiasm for boldly tackling the largest and most complex cases, including those involving international risks, with significant implications for commercial policyholders.
In Municipao de Mariana v BHP Group (UK) Ltd [2022] EWCA Civ 951, the Court of Appeal has allowed claims to proceed against the Anglo-Australian mining company BHP in respect of losses caused by the Fundão Dam collapse in 2015, overturning the first instance decision to strike out the case as an abuse of process. Millions of tonnes of toxic mining waste were released along the Doce River resulting in mass claims from individuals, businesses and municipalities seeking at least £5 billion in damages. Over 200,000 claimants can now seek redress through the English legal system in respect of Brazil’s worst ever environmental disaster.
The High Court previously concluded that the case would be “irredeemably unmanageable” and “akin to trying to build a house of cards in a wind tunnel”, in view of concurrent claims and compensation schemes in Brazil. The Court of Appeal disagreed, noting that case management complexity could not of itself justify a finding of abuse, and there was a real risk that full redress could not otherwise be obtained. In a striking statement of the English courts’ approach, their Lordships observed (at paragraph 211):
“In principle, claimants are entitled to choose whom to sue. There may be diverse and legitimate reasons why a claimant may choose to sue a particular defendant or defendants and it is not part of the court’s function to interfere with that process. … A claimant’s unhindered right of access to justice in respect of properly arguable claims is a core constitutional right inherent in the rule of law.”
In Al Mana Lifestyle Trading LLC & others v United Fidelity Insurance Co PSC & others [2022] EWHC 2049, the Commercial Court decided that an ambiguously worded jurisdiction clause allowed COVID-19 business interruption insurance claims to be brought in the English courts, having regard to the good commercial sense of facilitating resolution of disputes through a single neutral venue with extensive insurance law expertise.
The claimants operate in the food, beverage and retail sectors and sought recovery of around $40 million pandemic related losses under multi-risk insurance policies issued in the Middle East. The defendant insurers, located in the UAE, Qatar and Kuwait, challenged the English court’s jurisdiction, with reference to the following policy provision:
APPLICABLE LAW AND JURISDICTION
In accordance with the jurisdiction, local laws and practices of the country in which the policy is issued. Otherwise England and Wales UK Jurisdiction shall be applied.
Under liability jurisdiction will be extended to worldwide excluding USA and Canada.
This was construed as a non-exclusive jurisdiction clause allowing proceedings to be issued either in the UK or the country where the policy was issued. Reference was made to the relevant factual matrix in reaching this decision, including the policies having been issued as part of a suite of insurances intended to provide comprehensive cover for group operations in numerous jurisdictions and reinsured in the international market. The option for policy disputes to be determined in one place was advantageous and presumed to accord with the parties’ intentions, with the English courts being: “particularly well-versed in the issues relating to claims for indemnity for Covid-related business interruption losses [and] highly experienced in dealing with issues of foreign law, where they arise.”
The English legal system’s independence and flexibility inspire business confidence, underpinning international trade and investment. As one of the leading financial, (re)insurance and commercial centres in the world, the UK offers unrivalled access to high quality legal services, and specialty underwriting through Lloyd’s of London. These factors are important for multi-national businesses considering a choice of jurisdiction, as well as potential claimants affected by the actions of their foreign subsidiaries. The UK courts remain at the forefront of jurisprudence on recovery of pandemic related losses, alongside growing trends for human rights and environmental litigation.
Amy Lacey is a Partner at Fenchurch Law
Fenchurch Law boosts insurance disputes team with double hire
Fenchurch Law, the UK’s leading firm working exclusively for policyholders and brokers on complex insurance disputes, has announced the expansion of its team with two new appointments to its Leeds office; Catrin Wyn Williams and Chloe Vine.
Catrin Wyn Williams joins as an Associate Solicitor, bringing with her experience of representing insurers in a variety of areas includingProperty Damage and Professional Indemnity. Catrin was previously a solicitor at BLM, and experience of working in house at Hiscox
Chloe Vine joins as a Trainee Solicitor from a nationwide insurance broker, where she was the Group Claims Technical Manager. Chloe has experience handling all aspects of insurance claims, including taking the lead in relation to coverage disputes.
The new appointments will bolster the business’ team in Leeds, which was set up to support the insurance broking community in the North of England, and their policyholders.
Daniel Robin, Senior Associate and Head of Leeds Office commented:
“In a short space of time we have built the leading policyholder practice in the North of England, providing the same high quality specialist services as our colleagues in our City office. Catrin and Chloe come from different professional backgrounds, but both bring with them an excellent combination of insurance and legal knowledge that will be invaluable in our mission to level the playing field for policyholders.”
Catrin Wyn Williams added:
“Fenchurch Law impressed me from the outset; not only for their commitment to assisting policyholders in challenging coverage disputes, but also for their progressive and unique values. For me, this set Fenchurch Law apart from other law firms.”
Chloe Vine concluded: “I was attracted to Fenchurch Law for their policyholder-focused approach. Having worked for insurance brokers’ previously, this company mission really resonated with my own ambition to better equip policyholders in disputes with insurers.”
Co-Insurance, it’s a bit of a scrum
The Rugby Football Union v Clark Smith Partnership Limited & FM Conway Limited [2022] EWHC 956 (TCC)
This recent High Court decision once again shines a light on the tricky issue of co-insurance under project CAR policies, in particular the difficulties faced by contractors of all levels when trying to demonstrate the extent of cover in the face of a subrogated claim from project insurers.
It’s the most noteworthy judgment on the issues since Haberdashers’ Aske’s Federation Trust in 2018 (which, as we’ve stated previously, is a bad decision for policyholders), and is a helpful refresh of the issues, if only to remind parties to construction projects to ensure that the contractual arrangements for any project accurately reflect the intention and authority of the party obtaining insurance cover for others.
Background
The Rugby Football Union (“RFU”) was undertaking significant works at Twickenham in 2012 in order to prepare for the 2015 Rugby World Cup. It engaged Clark Smith Partnership Limited (“Clark Smith”) to design buried ductwork which was to contain power cables, and FM Conway Limited (“Conway”) to install it. RFU and Conway contracted on the basis of a JCT Standard Building Contract without Quantities 2011 (“the JCT”), some of which (but importantly not all) was the subject of agreed amendments.
RFU asserted that the ductwork was defective which caused damage to the cables as they were pulled through (by a third party), which resulted in replacement costs of £3,334,405.26, for which it was indemnified by the project insurers, Royal & Sun Alliance Plc (“RSA”).
The project policy contained a DE3 standard form defects exclusion, which meant that the cost of addressing the defective ductwork was excluded, but the remedial cost of the consequential damage to the cables was covered.
RSA sought to recover those sums from Conway (and Clark Smith) in a subrogated recovery action on the basis that the damage had been caused by its defective workmanship. In response, Conway issued Part 8 proceedings seeking a declaration that it was a co-insured under the project policy and that it had the benefit of cover to the same extent as RFU (as principal insured), which prevented RSA from bringing the subrogated claim against it.
Issues
In relation to the claim brought by RSA (in relation to which it stood in RFU’s shoes), Mr Justice Eyre was asked to consider whether the sums paid by RSA to RFU were irrecoverable because RSA could not exercise subrogation rights and/ or on a proper analysis of the project policy and/ or the contract documents that RFU and/ or RSA were not entitled to claim the insured losses.
The judgment contains a very useful summary of the law regarding co-insurance to date, including the basis on which subrogated claims between parties to an insurance policy can be barred by reason of circuity of action (Co-operative Retail Services Ltd [2002] UKHL 17) and the basis on which one insured may obtain cover for another (Gard Marine & Energy Ltd [2017] UKSC 35). However, the key aspect here was not the existence of cover in the first place, but the extent of that cover for a co-insured.
The specific consideration here was whether Conway had the benefit of the full cover under the project policy, which provided cover for damage to other property insured caused by Conway’s defective works, or whether its cover was restricted to damage caused by Specified Perils as provided for by the unamended part of the JCT.
Mr Justice Eyre was at pains to stress (guided by the above authorities, but also National Oilwell (UK) Ltd [1993] 2 Lloyd’s Rep 582) that the contract is key when determining the intention and authority of the principal insured when securing cover, stating:
“74. What is important is that the authorities are clear that in order to determine whether the insurance cover which a policy effected by, in my example, the employer or contractor applies to the contractor or sub-contractor and if to what extent (with the latter point determining the extent to which they are co-insured) it is necessary to look to the terms of the contract between those parties. It is those terms which provide the key to the existence and extent of the insurance cover.”
“88. … when a person becomes a party as a consequence of the actions of another person then the terms of the contract between the insured party and that other govern the extent of the insurance”
In relation to the intention and authority of RFU, Mr Justice Eyre found (despite witness evidence to the contrary relied on by Conway, that the insurance obtained by RFU was intended to be more extensive than envisaged by the JCT), that the contract documents read together (including the JCT) did not demonstrate an intention for the project policy to create a fund which would be the sole remedy for loss suffered by RFU as a consequence of a breach by Conway.
Whilst Conway was an insured under the project policy, the extent of that cover was that as envisaged in the JCT and no wider, such that it was not a co-insured in relation to the damage for which RSA had indemnified RFU. He went on to find (again consistent with National Oilwell) that the waiver of subrogation clause in the policy only related to the matters for which Conway had cover under the policy, and so didn’t prevent a claim by RSA.
Comment
This judgment doesn’t alter the previous state of the law in this area, but is a salutary reminder to make sure that the contractual documents are in line with the expectations of the parties.
Mr Justice Eyre indicated that “compelling evidence to counter the inferences from the natural reading” of the JCT may have altered the result (which is in line with the “other admissible material” referred to in National Oilwell), but that evidence was not present here. Rather, the judge found it “surprising” that the JCT was subject to amendment elsewhere, but not in relation to the insurance for the works. If the parties had intended the extent of cover to be different from that envisaged by the unamended JCT, then presumably it would have been simple enough to reflect that in an amended version of the JCT. The absence of those amendments seems to have been an important consideration in relation to the parties’ intentions.
If there’s an intention for members of the project team to have a benefit under any project policy, it is vital that the underlying contractual documents accurately reflect the full extent of the principal insured’s intention and authority in that regard.
Rob Goodship is a Senior Associate at Fenchurch Law
Reinstatement 101 – (rein)stating the obvious?
Reinstatement can be a difficult issue for a policyholder to navigate in the wake of a loss.
The answers to what might seem like obvious questions such as: what is it? who does it? and, do the costs actually have to be incurred? are in actual fact far from straightforward, and have been the subject matter of a number of legal cases in recent years.
This short article summarises some of the key principles that are involved.
What is it?
Reinstatement is the repair or replacement of property so that it is in the same condition or a materially equivalent condition to that which it was in prior to the loss occurring.
Of itself that seems clear enough. However, as ever the devil is in the detail, and the wording of reinstatement clauses varies from policy to policy with very different outcomes for the policyholder.
For example, depending on the precise wording, the policyholder may or may not be entitled to a cash settlement, may or may not be required to rebuild, and may or may not have to rebuild on the same site. Also, many policies give the insurer the option to reinstate.
Who does it?
As might be expected, more often than not the policyholder reinstates. However, many policies give the insurer the option to reinstate at its election. Why might an insurer choose to do so?
There are several reasons why an insurer might elect to reinstate, rather than have the policyholder reinstate or pay them an amount equivalent to the cost of reinstatement. Certainly, one reason identified by the courts is to avoid what other might be “the temptation to an ill-minded owner to set fire to the building in order to pocket the insurance money” (Reynolds v Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep 440).
If an insurer elects to reinstate, it must give unequivocal notice to the insured, whether expressly or by conduct. Following a valid election to reinstate, the policy is no longer treated as one under which payment is to be made, and instead stands as if it had been a contract to reinstate in the first place. The consequence of this is that if the insurer fails to perform the contract adequately, it will be liable to the policyholder for damages.
Do the works have to take place?
Whether, and if so, when the reinstatement works have to be carried out, or whether the policyholder is entitled to an indemnity for what the works would cost if carried out, is again going to turn on the precise wording of the policy.
The starting position is as set out in the following extract from the judgment in Endurance Corporate Capital Ltd v Sartex Quilts & Textiles Ltd ([2020] EWCA Civ 308):
“How the claimant chooses to spend the damages and whether it actually attempts to put itself in the same position as if the breach had not occurred – for example by reinstating lost, damaged or defective property – or whether the claimant does something else with the money, is – in accordance with the general principle mentioned earlier – irrelevant to the measure of compensation.”
Therefore, subject to any contrary wording in the policy, a policyholder is entitled to recover the cost of repairing their property, regardless of whether they in fact carry out such repairs, but instead decide, for example, to sell their property or to use the money to build elsewhere on site.
Insurers often look to limit that entitlement, and reinstatement clauses often provide that the work must be commenced and carried out “with reasonable despatch”, and that “no payment is to be made until the costs of reinstatement have actually been incurred”. This presents something of a chicken and egg situation for insureds, since an impecunious policyholder will not have the funds available to pay for reinstatement without first receiving the costs of reinstatement from the insurer.
In Manchikalapati & Others v Zurich [2019] EWCA CIV 2163, the insurer contended that where the policy provided an indemnity for “the reasonable cost of rectifying or repairing damage …”, the term “reasonable cost” should be read as meaning “actual” or “incurred” costs. Therefore, because that cost had not yet been incurred, the insurer argued that its liability under the policy had not been triggered. The court rejected that argument, finding that there was nothing about the wording which indicated that the cost must be incurred before the policyholder was entitled to an indemnity.
An insurer can limit its liability to costs actually incurred, provided it uses clear language to that effect. However, absent clear language, or where the clause is neutral as to whether the cost must already be incurred or may be incurred in the future, the courts have made it clear that insurers are no longer able to able to withhold the indemnity pending the works being carried out.
To what extent are intentions relevant?
One thorny issue that has come up time and again in the context of reinstatement is the relevance of a policyholder’s intentions. This first arose in a case where the policyholder intended to sell the property at the time of the fire. In that case, the court found that the indemnity to which the policyholder was entitled was the price at which it was prepared to sell at the time of the fire. This is because a policyholder is entitled to be indemnified for its loss, and in quantifying that loss, an insured’s intentions may impact on an assessment of the value of the property to them.
This issue most recently came before the court in Endurance v Sartex [2020] EWCA Civ 308. The insured, Sartex, claimed an indemnity on the reinstatement basis following a fire at its premises. The insurers asserted that that this was inappropriate because Sartex did not have a genuine intention to reinstate, placing reliance on the fact that Sartex had not carried out reinstatement in the many years after the fire occurred. As such, the insurer said that Sartex was only entitled to the considerably lower sums representing the diminution in market value of the property as a result of the fire. The court found that the question of whether Sartex actually intended to reinstate the buildings was, in most cases, of no relevance to the measure of indemnity.
Standard of repair
Another issue that frequently arises, particularly in the context of older properties, is what happens when the reinstatement results in the property being in a condition better than it was before. This is known as betterment. The principle of betterment requires the policyholder to account to the insurer for the improved or better aspects of the new property.
Sometimes, a policyholder has no practical alternative but to replace the original property with modern, upgraded property. This is known as involuntary betterment, and in those circumstances the policyholder is entitled to the actual replacement cost.
If an insurer does look to apply a discount for betterment, a policyholder would be advised to require the insurer to identify precisely what betterment the policyholder would enjoy and to serve evidence in support, as where an insurer fails to adequality quantify and evidence its case on betterment, no deduction should be applied.
Summary
Reinstatement clauses are intended to place policyholders into a materially equivalent position to that which they would have been in had the loss not occurred. Quite how that works in practice can be a minefield, but recent case law has helpfully cleared up some misconceptions around the policyholder’s intentions and the extent to which the works have to be carried out – both of which will be of assistance to policyholders in getting their claims paid.
Alex Rosenfield is a Senior Associate at Fenchurch Law
Better late than never: the first reported case on damages for late payment
Quadra Commodities S.A v XL Insurance Co SE and Others
Ever since the Enterprise Act 2016 ushered in the ability of insureds to claim damages against their insurers for the late payment of insurance claims, the sector has been waiting to see how this legislation would play out in practice, and in particular what would constitute a ‘reasonable’ time for paying claims.
That wait is finally over.
Background
The policyholder, Quadra Commodities, specialised in the trade of agricultural commodities including grains, oil seeds and vegetable oils. In 2019, a fraud now known as the ‘Agroinvestgroup Fraud’ unravelled and revealed that Agroinvestgroup, a loosely associated group of companies involved in the production, storage and processing of agricultural products, had defrauded the policyholder.
A claim was notified under the policyholder’s marine cargo open cover insurance policy in February 2019. The insurer denied all liability for a variety of reasons, including that the policyholder had no insurable interest, and that the loss was purely financial with no loss of physical property (for which the insurer maintained the policyholder was not insured).
Section 13A of the Insurance Act 2015 (“the Act”)
While the details of this claim are well worth a read (see here for the full judgment) interest in the case has focused on the claim for damages pursuant to s.13A of the Act (a copy of the wording of s.13A can be found here).
As a primary point the Court was clear that the issue of what was a “reasonable time” in which the claim should have been paid must be considered separately to the Defendants’ case as to whether there were reasonable grounds for disputing the claim.
The onus is on the insured to show payment was made after the “reasonable time” within which the insurer should have paid sums due in respect of the claim: whereas the insurer carries the burden of proof for showing that there were reasonable grounds for disputing the claim.
In considering the question of what was a “reasonable time”, the Court considered that the fact that the Defendants’ actual conduct of the claims handling could be said to have been too slow or lethargic, was not of itself an answer. The Court looked to the non-exhaustive list of factors referred to in s. 13A (3) of the Act and the accompanying Explanatory Notes (all the while attempting to keep separate the question of whether or not there were reasonable grounds for disputing the claim).
The Court concluded that, given the nature and complicating circumstances of the claim, including the origins of the claim in the Agroinvestgroup Fraud and the destruction of documents, the reasonable time in which the claim should have been paid was not more than about a year from the notice of loss.
The one-year period would have been a reasonable time for the insurer to investigate and evaluate the claim, and then pay it. However, this was predicated on the assumption that there were no reasonable grounds for disputing the claim or part of it.
Turning then to whether or not there were reasonable grounds for disputing the claim the fact that the Court may ultimately find that those grounds were wrong did not automatically infer that those grounds were unreasonable. On the facts, the Court agreed that in the circumstances there were reasonable grounds for reaching that conclusion.
Ultimately, while it could be said that the way in which the Defendants conducted their investigations was too slow, as this aspect of their conduct occurred within a period throughout which there were reasonable grounds for disputing the claim there was no breach of the s.13A implied term.
Conclusion
While the policyholder was successful in its claim for an indemnity, it was not successful in its argument relating to s.13A of the Act.
Any s.13A claim will be highly fact specific, but in circumstances where there are fairly significant complicating factors, a “reasonable time” of no more than a year to investigate, evaluate and pay a claim (which is not a lot of time in the grand scheme of a complex loss) appears to be a positive decision for policyholders. Large losses can be unpalatable for insurers, but they may now think twice before delaying investigations in order to test a policyholder’s resolve, especially in circumstances where ultimately there are no reasonable grounds to dispute the claim.
Anthony McGeough is a Senior Associate at Fenchurch Law
Recent developments in the W&I sector: Q&A with Howden M&A's Head of Claims, Anna Robinson
Hot on the heels of the release by Howden of its annual M&A Insurance Claims Report we caught up with their Head of Claims, Anna Robinson, to find out about trends across the sector in 2020/2021 and her predictions for 2022.
A copy of the full report can be accessed here.
Q: Despite the turmoil of the pandemic, we understand that M&A transactions continue to increase as companies use mergers and acquisitions to grow. Is this increase in deal-making, and increase in the use of M&A insurance, starting to lead to an increase in claims activity?
A: Yes on both counts. Following a significant drop in deal activity at the start of the pandemic, there was a phenomenal and unprecedented increase in deal activity from Q3 2020 onwards and throughout 2021. The same period saw an exponential increase in the use of M&A insurance, and a corresponding increase in the number of notifications. Although the number of notifications in percentage terms has fallen since 2019, the absolute number of notifications has risen, which is a factor both of the increase in use of M&A insurance and the increase in Howden M&A’s market share.
Q: Has Covid had the impact on M&A claim notifications that was envisaged by the insurance industry? Do you expect any COVID-19-related claims trends to emerge in the future?
A: Interestingly the predicted spike in notifications did not materialise. With hindsight, in some ways that is not surprising as the deals done, and associated policies placed, following the emergence of COVID-19 would either have diligenced COVID-19 or excluded claims arising out of it.
Q3: Has there been an impact on when claim notifications are made against the policy i.e. are claims now notified earlier following inception or later?
A: Our research indicates that notifications are being made later. For notifications received from 2015 to 2019, 90% were made within 18 months of the policy’s inception. In 2020/2021 the proportion of later notifications, made after 18 months, rose significantly. There are two potential reasons for this – the first is that longer warranty periods are available, and the other is the increase in tax claims which, of course, have longer notification periods reflecting the time it can take for these to materialise.
Q4. Has there been a change in the claim values being discovered and notified under the policy?
A: It is the larger deals, and in particular the mega-deals (above €1 billion EV) that have a higher notification rate, and which rate increased again in 2021. These large and complex deals are both more difficult to diligence and often conducted at a fast pace meaning issues can be missed.
Q5. What’s the most common cause for claims and are there any emerging trends? Are there any sector trends for claims notifications?
A: The top three most commonly breached warranties that we see are: Material Contract warranties, for example where a known issue with a supply contract wasn’t disclosed; Financial Statement warranties, reflecting errors in the financial statements; and Compliance with Law warranties, where relevant legislation has not been complied with. This latter type of breach is something that arises commonly in relation to real estate deals where planning, environmental and safety laws are not complied with. While Tax warranties have historically been one of the most common breaches, it still takes up a large portion of notifications received at 17.8%. Taken together these four amount to just over three quarters of all notifications.
Q6. Has the percentage of notifications turning into paid claims changed?
A: The data shows that three-quarters of claims were resolved positively, which is a slight reduction from the previous period but is explained, in part, by the increase in precautionary notifications.
Q7. What would be your top tips for policyholders in getting their claims paid?
A: Good question! Notify early and in accordance with the policy provisions; particularise each element of the warranty breach and provide robust supporting evidence; keep the insurer updated and provide them with the documentation they need to investigate the claim, and, perhaps most importantly, make sure you can evidence the impact of the breach on the purchase price. Also, involve your broker as their relationship with the claims handler can be key to ensuring a smooth claims process.
Q8. What role does Howden M&A play in getting claims paid, can you give an example?
A: We provide assistance with the claims process as a W&I claim is often the first time an insured has dealt with an insurer in this context. We also assist clients with policy interpretation and quantum issues – quantum is typically the most complex part of a W&I claim. As brokers, we are able to deal directly with the insurers, and we can negotiate outcomes based on commercial as well as legal imperatives.
Q9. What role do coverage specialists, like Fenchurch Law have to play in the claims process?
A: Where a case turns on a point of law or policy interpretation, and the insurer/insured have reached stalemate and commercial negotiation has not assisted (which is rare!), it is vital for us, and our clients, to be able to have specialist advisers to call in that situation. Knowing that Fenchurch Law offer a free preliminary advice service is very reassuring!
Q10. Finally, what are your predictions for the coming year?
A: We predict a tidal wave of notifications in the coming year, reflecting the phenomenal increase in policies placed in 2020 and 2021. In similar vein, given the increasing number and size of the deals on which we advised in 2021 we anticipate that claim size and complexity will increase. In line with the trend for more policies (title and tax in particular) to include cover for ‘known issues’, we anticipate that notifications and claims arising under these policies will increase. Watch this space!
