URS v BDW: a milestone decision from the Supreme Court – but does it break new ground?
The Supreme Court has handed down its long-awaited judgment in URS v BDW. The judgment considers a number of important issues for construction professionals including limitation, liability in tort, and the interplay between the Defective Premises Act 1972 (“the DPA”) and the Building Safety Act 2022 (“the BSA”).
Background
BDW, a well-known developer (whose brand names include Barratt Homes and David Wilson Homes) engaged URS, a designer, to carry out design work on two apartment blocks called Capital East and Freemans Meadow (“the Blocks”). Practical completion of the Blocks took place in 2012, and the apartments were then sold to individual purchasers.
Following the tragic Grenfell Tower fire in 2017, BDW undertook a wholesale review of its developments and discovered that the Blocks’ design was seriously defective, and that they were at risk of structural failure.
It is relevant to note that, at the time the defects were discovered:
a) There was no damage or cracking at the Blocks, even though it was accepted that that they were dangerous.
b) BDW had sold all the flats in the Blocks (thus retaining no interest in them).
c) BDW’s contractual limitation period for defective design had expired, and the then applicable six-year limitation period to bring a claim under the DPA had also expired.
Despite not owing the Blocks, nor facing claims from their owners or occupiers, BDW felt that it could not ignore the problems once they came to light, and incurred costs running to “many millions” to carry out investigations, temporary works, evacuation and a permanent remedial solution. Accordingly, in 2020, BDW issued proceedings against URS to recover the cost of the remedial works, which at the time was confined to a claim in negligence.
At a preliminary issues hearing, Fraser J held that BDW’s alleged losses were recoverable in principle, and agreed with BDW that its cause of action accrued on practical completion, not, as URS contended, when the defects were discovered.
In 2022, following the advent of the BSA, s135 of which extended the limitation period to claim under section 1 of the DPA from 6 to 30 years, BDW was permitted to add new claims under (1) Section 1 of the DPA; and (2) the Civil Liability (Contribution) Act 1978 (the “CL(C)A”).
URS appealed both decisions unsuccessfully, and was then granted permission to appeal to the Supreme Court on the basis of certain “assumed facts”.
The Grounds of Appeal
URS’ grounds of appeal were as follows:
(1) As to BDW’s claim in negligence, had BDW suffered actionable damage, or was the damage too remote because it was voluntarily incurred? If the damage was too remote, did BDW already have an accrued cause of action in tort at the time it sold the Developments? (“Ground 1”)
(2) Did s135 of the BSA apply here, and if so, what was its effect? (“Ground 2”)
(3) Did URS owe a duty to BDW under s1 of the DPA, and if so, are BDW’s alleged losses of a type which are recoverable? (“Ground 3”)
(4) Was BDW entitled to bring a claim against URS under s1 of the CL(C)A, notwithstanding that there had been no judgment or settlement between BDW and any third party? (“Ground 4”).
The appeal was heard by seven Justices, who unanimously dismissed it.
Ground 1
As a preliminary point, the Supreme Court explained that BDW’s claim against URS was for pure economic loss ie., compensation for financial loss (because the Blocks has a lower value and required repair), not physical damage. Nevertheless, it was accepted that there was an “assumption of responsibility” by URS to BDW, such that, if URS was in breach of its duty by its negligent design, BDW’s losses would be recoverable.
The issue to be decided here, however, was whether BDW’s losses could be recovered in circumstances where BDW had “voluntarily” repaired the Blocks, it being noted that any claims by the Blocks’ owners would, by that time, have been time-barred.
The Court rejected a principle of voluntariness which established a “bright line” rule of law which would render BDW’s losses too remote. In any event, there were powerful features of the case to suggest that BDW’s actions were not ‘voluntary’ in the true sense of the word. Those included that: (1) if BDW had not repaired the Blocks, there was a risk that they would cause personal injury (or at worst death) to the owners; (2) even though any claims by the owners would have been time barred, that would only provide BDW with a limitation defence, which it was not obliged to take – it did not extinguish the owners’ rights altogether; and (3) BDW would be exposed to reputational damage if it ignored the problems, including the danger to homeowners, once they had been discovered.
On the basis that there was no automatic “voluntariness principle”, the Court declined to consider when the tortious cause of action accrued. As such, the much-maligned decision in Pirelli – in which it was held that limitation in negligence against a designer runs from the date of the damage, not when it was discovered – remains, for now at least, good law.
Ground 2
The question here was whether s135 of the BSA could apply to claims which, although not claims under the DPA, were dependent on the time limits under the DPA e.g., claims by homeowners against a developer, designer or contractor.
In grappling with that question, the Court firstly set out that a key objective of the BSA was “to identify and remediate historic building safety defects as quickly as possible, to protect leaseholders from physical and financial risk and to ensure that those responsible are held to account.” S135 of the BSA, which created a “backward-looking” 30-year limitation period for claims under s1 of the DPA, was written with that objective in mind.
Against that background, the Court found that s135 applied to cases such as the present one. A finding to the contrary would seriously undermine the scheme of s135 of the BSA, and effectively create two contradictory “parallel universes” – one for claims by homeowners against developers, and another for onward claims by developers against the designers or contractors responsible for the defects, each of which would bear different limitation periods. Plainly, the Supreme Court found, that would be an incoherent outcome.
Ground 3
S1 of the DPA imposes a duty on those who “take on work” for in connection with the provision of a dwelling to ensure that the work is done in a professional manner, and that the dwelling is fit for habitation when completed. The duty is owed to the person who commissioned the dwelling, ie., “to the order of any person”, and any person who acquires a legal or equitable interest in the dwelling.
It was common ground that BDW owed the s1 duty on the basis that it took on work. The question raised by Ground 3 was whether BDW could also be owed the s1 duty, because URS took on work to BDW’s order.
Unsurprisingly, the Court held that BDW was owed the s1 duty. As a matter of normal meaning, the words “to the order of any person” did not confine the recipients of the duty to lay purchasers, but were capable of embracing the “first owners” who order work ie., developers. Accordingly, the Court found, “there is no good reason why a person, for example, a developer, cannot be both a provider and person to whom the duty is owed …”.
Ground 4
S1 of the CL(C)A 1978 establishes a right of a person who is liable for damage to seek a contribution from others who are also liable for the same damage. There is a two-year limitation period that applies to such claims, running from the date that the right accrues.
URS asserted that BDW was not entitled to bring a claim for a contribution. That was because, it said, there had been no judgment against BDW, a settlement, or an admission of liability on BDW’s part. BDW, by contrast, contended that the right to claim a contribution under the CL(C)A arose as soon as the damage was suffered.
The correct answer, the Court found, was somewhere in between: when (1) there is damage suffered for which two defendants are each liable; and (2) the first of the defendants “has paid or been ordered or agreed to pay compensation in respect of the damage”. It was at that point, and not before, that the first defendant would be entitled to recover a contribution.
Accordingly, BDW was not prevented from bringing a contribution simply because there was no judgment against it, nor a settlement with any third-party claimants.
Conclusion
Although the Supreme Court stopped short of breaking new ground in some respects (Pirelli, notably, being left for another day), the decision in BDW v URS brings welcome clarification on a number of important issues. Those include, in particular, that claims under s1 of the DPA are not confined to lay purchasers: developers and other construction professionals may be owed precisely the same duties by professionals responsible for design and construction. That the Supreme Court came to that conclusion is unsurprising, and is on all fours with the BSA’s central purpose of holding those responsible for building safety defects accountable.
The corollary is that liabilities under the DPA will be considerably broader in scope. That will inevitably open the floodgates for more claims against construction professionals.
How the insurance market will respond remains to be seen. Watch this space.
Alex Rosenfield is a Partner at Fenchurch Law.
Court pours cold water on insurer’s fraud claims: Malhotra Leisure Ltd v Aviva
Court pours cold water on insurer’s fraud claims: Malhotra Leisure Ltd v Aviva
During the Covid-19 lockdown in July 2020, water escaped from a cold-water storage tank at one of the Claimant’s hotels causing significant damage.
Aviva, the Claimant’s insurer under a property damage and business interruption policy, refused to indemnify the Claimant on the basis that:
1. the escape of water was deliberately and dishonestly induced by the Claimant; and
2. there were associated breaches by the Claimant of a fraud condition in the policy.
The Commercial Court dealt with each of the issues as follows.
Was the escape of water accidental or deliberate?
Aviva bore the burden of proof and had to show that, on a balance of probabilities, the escape of water was the result of an intentional act carried out either by, or at the direction of, the Claimant or its agents.
In considering whether the escape of water was accidental or deliberate, the Deputy Judge, Nigel Cooper KC, held that there was a distinction to be drawn between whether the Claimant’s witnesses were credible, and the question of whether they were sufficiently dishonest that they were prepared to deliberately cause the incident and thereafter lie about their involvement both during the investigation and then throughout the litigation. In reaching that view, he considered the following established principles:
a) if fraud is to be made out, the evidence must exclude any substantial plausible explanation for how the escape of water may have occurred accidentally; and
b) when assessing the evidence, the Court should take into account as probative tools the following factors:
i) whether there is evidence of a plausible financial motive for the Claimant to damage its own property;
ii) the fact that owners of property do not generally destroy their own property and an allegation that they have done so is a serious charge to make;
iii) instances of lesser wrong-doing may not be probative of an allegation that an insured has deliberately destroyed property to defraud insurers; and
iv) in considering where the balance of probabilities lies, it is important to consider the evidence as a whole, putting the available evidence as to the physical cause of the escape of water into the context of the surrounding circumstances and commercial background.
In considering (a) the Judge was satisfied that it was possible, based on the plumbing evidence and the fact that Aviva’s own expert accepted that the escape of water could have been accidental, that the incident was fortuitous.
Evidence of a plausible financial motive
In circumstances where there was no direct evidence as to how the escape of water was caused, the question as to whether there was a financial motive became correspondingly more significant. Aviva submitted that there was a “preponderance of evidence” that the Claimant was struggling financially in the lead up to the incident, and that from March 2020 onwards the Claimant and its wider group had been placed under significant financial pressure as a result of the pandemic. To the contrary, the evidence showed that the Claimant’s group had extensive cash reserves (£7.5 million in cash and £150 million in tangible assets at the time of the incident) with a turnover of £38 million.
The Court held that the cash reserves represented a substantial hurdle to Aviva’s case that the Claimant’s controlling shareholder, Mr Malhotra, had motive to commit fraud to obtain a payment in relation to damage to the hotel. To that end, the Judge pointed out that any payment made would have been diminished in covering the immediate clean-up costs (which had already been incurred by the Claimant) and the costs of repair and refurbishment. There was therefore no evidence of a financial motive sufficient to explain why the Claimant would have caused the incident. In fact, all necessary steps to reinstate the hotel had been taken, without the benefit of an interim payment from Aviva.
The proper approach to the construction of fraud conditions
The Fraud Condition
The policy included a fraud condition, which read:
"If a claim made by You or anyone acting on your behalf is fraudulent or fraudulently exaggerated or supported by a false statement or fraudulent means or fraudulent evidence is provided to support the claim, We may:
(1) refuse to pay the claim”
(the “Fraud Condition”).
In addition to the allegation that the escape of water was deliberately induced by the Claimant, Aviva made various submissions in respect of statements made by the Claimant’s employees and associates to Aviva’s loss adjusters. Those allegations included:
1. That the Claimant’s Estates Manager, Mr. Vadhera, who discovered the escape of water, was not an honest witness and had good reasons to be willing to lie in order to support the Claimant's insurance claim, including that:
a) he had been the Claimant’s Estates Manager since 2019, overseeing 20 members of staff, and was responsible for 20 - 30 properties;
b) there was a close personal relationship between Mr Malhotra and Mr. Vadhera dating back nearly three decades;
c) Mr Vadhera was personally and financially indebted to the Claimant, due to various substantial loans;
d) Mr Vadhera was the sole director of a construction company owned by Mr Malhotra;
e) his testimony was that, upon discovery of the escape of water, he saw the cold water tank overspill, which on Aviva’s case, would not have occurred without the connected tanks also overspilling (when in fact, the Judge found that the tank in question did overspill); and
f) he told loss adjusters that he had apologised to Mr Malhotra for disturbing his birthday on the day of the incident, when in fact it was not Mr Malhotra’s actual birthday (incidentally, it was found that Mr Malhotra was indeed celebrating his 60th birthday on that day).
2. That Atul Malhotra, Mr Malhotra’s son and the sole director of the Claimant, had lied about the whereabouts of the valve that had caused the escape of water (when in fact, he had simply not appreciated what the plumbers had handed him during the cleaning works, it being in a dissembled state and in a plastic bag).
3. That Mr Malhotra lied to loss adjusters about Mr Vadhera finding insulation in the overflow of the cold-water tank (when in fact, the evidence supported that there was indeed insulation in the overflow, there was no benefit to the Claimant in it being Mr Vadhera who discovered it, and in any event who discovered it was immaterial to the claim).
4. That Mr Malhotra told loss adjusters that Mr Vadhera told him of what he had discovered on 12 July 2020, when it must have been 11 July 2020 (which was immaterial to the claim and provided no benefit to the Claimant).
Regardless, Aviva’s position was that the Fraud Condition had been breached such that it was entitled to refuse the claim.
An extension of the common law position
The common law has long prohibited recovery from an insurer where the insured’s claim has been fabricated or dishonestly exaggerated, a principle known as the fraudulent claims rule. In The Aegeon [2002] EWHC 1558 (Comm) Mance LJ extended that rule to apply to ‘collateral lies’ (i.e. fraudulent statements made in support of claims which are otherwise valid) which are material in that they:
a) directly relate to the claim;
b) are intended to improve the assured’s prospects of obtaining a settlement or winning the case; and
c) if believed, are objectively capable of yielding a not insignificant improvement in the insured’s prospects of obtaining a settlement or better settlement.
However, Versloot Dredging BV v HDI Gerling [2017] 1 AC 1 abolished that doctrine, establishing that the fraudulent claims rule does not apply to collateral lies. Giving a dissenting judgment, Lord Mance indicated that he would have upheld the test in The Aegeon, subject to potentially raising the threshold of materiality from a requirement for 'a not insignificant improvement' to the insured's prospects, requiring instead ‘a significant improvement’.
After Versloot, policy provisions purportedly allowing an insurer to reject a claim pursuant to collateral lies go further than the common law position. In Malhotra Leisure, the Judge accepted the Claimant’s submission that - in the absence of very clear words to the contrary - fraud conditions which seek to write in a power to decline claims on the basis of collateral lies should be read as taking effect subject to the limitations of the old common law doctrine, as set out in The Aegeon and modified in Versloot.
The specific wording of the Fraud Condition
The Judge further considered whether, by referring to a 'false' as opposed to 'fraudulent' or 'dishonest' statement in the Fraud Condition, the parties were intending that any false statement, including a statement made carelessly or without knowing it to be untrue, should be enough to entitle Aviva to reject a claim.
In finding that this was not the intention, he referred to the language of the Fraud Condition, which makes clear that it is dealing with fraudulent claims and collateral lies. In other words, the Court held that the Fraud Condition intended to address a situation where there was dishonesty, and did not apply to false statements made carelessly or innocently. Further, the wording of the Fraud Condition required that any false statement support the Claimant’s claim. In other words, it only applied to false statements made to assist in persuading Aviva to pay the claim, consistent with the common law position (both before and after Versloot).
Since there was no evidence of dishonesty on behalf of Mr Malhotra or any of the Claimant’s employees and/or associates, the Judge held that the Fraud Condition had not been breached and the Claimant was entitled to an indemnity in respect of the claim.
Key takeaways for policyholders
The obiter guidance in Malhotra Leisure on the interpretation of fraud conditions in insurance policies provides welcome protection for policyholders and reads as a cautionary tale for insurers. Allegations of dishonesty and fraud cannot be pleaded lightly, and there are professional obligations on insurers to first ensure that reasonably credible evidence exists establishing a prima facie case of fraud.
Following Malhotra Leisure, it is clear that courts will interpret conditions seeking to provide an insurer with the power to decline claims on the basis of collateral lies, subject to limitations of the old common law doctrine. In short, any collateral lie covered by a fraud condition must directly relate to the claim, be intended to improve the insured’s prospects and be capable of yielding a significant improvement in the insured’s prospects of obtaining a settlement or better settlement. Many of the allegations made in this case, including immaterial points such as whether Mr Malhotra was celebrating his birthday, and whether he was told certain facts on one day or the next, were never going to pass that test, and only served to distract from what was an otherwise covered claim.
Citation: Malhotra Leisure Ltd v Aviva Insurance Limited [2025] EWHC 1090 (Comm)
Abiigail Smith is an Associate at Fenchurch Law
Win for policyholder in triple insurance case
Watford Community Housing Trust v Arthur J Gallagher Insurance Brokers Limited [2025] EWHC 743 (Comm)
In a judgment favourable to policyholders delivered on 8 April 2025, the Commercial Court upheld a policyholder’s right to choose on which policy to claim where cover was provided under multiple policies. The Court also confirmed that, where insufficient cover is provided by an individual policy, the policyholder may claim sequentially under two or more policies.
Background
The Claimant was responsible for a serious data breach, the financial consequences of which were covered under three separate insurance policies arranged by the Defendant broker (a Cyber Policy, a Combined Policy, and a PI Policy, which contained indemnity limits of £1m, £5m and £5m respectively).
Each Policy contained an ‘Other Insurance’ clause, which provided that, where multiple policies covered the same loss, the Policy would only cover losses in excess of those covered by the other policy.
Following the breach, and on the Broker’s advice, the Claimant notified the Cyber Insurer but not the Combined or PI Insurers, resulting in late notification. The Combined Insurer eventually affirmed cover despite this; but the PI Insurer maintained a declinature, and it was common ground that it had been entitled to do so. As a result, the Claimant had £6m of available cover under the Cyber and Combined Policies.
The Broker subsequently accepted that its advice had been negligent.
As its losses arising from the data breach exceeded the £6m of available cover, the Claimant sued the Broker, alleging that but for its negligence, the Claimant would have been entitled to a total indemnity of £11m (being the sum of the indemnity limits of all three policies).
The Broker’s position
The Broker argued that the maximum total indemnity to which the Claimant would have been entitled, even absent its Broker’s negligence, was the maximum liability under any one Policy, i.e. £5m. The Broker further argued that, since the Policyholder had already received £6m from the Cyber and Combined Policies, it had suffered no loss in not being covered under the PI Policy, as it had already recovered more than the maximum indemnity to which it would have been entitled.
In support of its case that the maximum recoverable indemnity was only £5m, the Broker submitted, and the Court accepted, that the ‘Other Insurance’ clauses in each of the Policies all cancelled out one another. Accordingly, argued the Broker, this was a case of triple insurance where the Policies provided primary cover for £1m, £5m and £5m respectively.
The Broker then argued that. in such a case of triple insurance, a general principle of ratable contribution applied, such that the maximum indemnity to which the Claimant was entitled was the maximum liability under any one policy. As a result, each Insurer’s liability would be limited to an equitable proportion of that capped liability. For example in the current situation, the Cyber, Combined and PI insurers would each be liable for one-third of the first £1m of the Claimant’s loss, and (ii) the Combined and PI insurers would each be liable for one-half of the next £4m of the Claimant’s loss, such that the Claimant would be entitled to £333,333, £2,333,333 and £2,333,333 from the Cyber, Combined and PI Insurers respectively - ie, a total of £5m.
In addition, the Broker had an alternative argument that, since the Policies were worded such that none of the insurers had agreed to provide primary coverage when another primary policy existed, effect should be given to that intention, by limiting the total indemnity available to the maximum indemnity under any one policy, thus reducing each individual insurer’s liability.
Decision
In finding for the Claimant, the court held that, contrary to the Broker’s principal submission (which the court said had been mistakenly based on cases involving claims between insurers) ,there was no general principle of rateable contribution in cases involving double (or triple) insurance whereby a policyholder’s indemnity was capped at the highest limit of any one policy. Further, the policyholder could choose the order in which to claim under the available policies, and, if it failed to recover the whole loss from one, it could recover the balance from the other(s). It would then be a matter for the insurers to establish contribution between themselves.
In addressing the Broker’s alternative argument that the wording of the policies operated to restrict the total indemnity to the highest single limit, the Court accepted that the general proposition that the wording of the policies could have displaced the usual rule outlined above, but held that, as a matter of construction, that was not the effect here.
As the Judge explained:
“It seems to me that if an insured has paid more than one premium for more than one primary policy against liability incurred above a specified attachment point and up to a specified limit, absent an express contractual provision that provides otherwise, as a matter of general principle the insured should be able to recover the whole of its loss under one or more of the policies up to a maximum of the combined limits. Contribution, if it arises, is a matter for the insurers inter se and absent a rateable proportion clause in the policy is of no concern to the insured”.
The Broker was therefore liable for the Claimant’s losses which subsisted after payment by the Cyber and Combined Policies, subject to the limit of indemnity under the PI Policy.
The full judgment can be read here:
https://www.bailii.org/ew/cases/EWHC/Comm/2025/743.pdf
Authors
Matthew King, Associate (Foreign Qualified Lawyer)
Fenchurch Law warns the clock is ticking for Covid-19 Business Interruption claims
Fenchurch Law, the UK’s leading firm for insurance policyholders, has issued a warning to brokers to ensure their clients file any Covid-19 business interruption (BI) claims now, before they are time-barred.
Five years on from the pandemic, experts at Fenchurch Law are highlighting that the limitation period for Covid-19 BI claims will expire in March 2026, leaving affected businesses with less than a year to act.
Over the last five years, a series of high-profile battles between insurers and policyholders in the UK over BI wordings have expanded the scope of BI policies. The result is that policyholders now have more potential opportunities to receive compensation for the loss of business during the early months of the pandemic.
Fenchurch Law’s Managing Partner, Joanna Grant, warns that brokers need to act now to give their clients the best chance of success:
“Many industries were decimated by the pandemic that swept the world in 2020, with few more severely impacted than the hospitality industry, the long periods of lockdown taking a significant toll.
“During the last five years, we’ve fought for clients to get a fair outcome from their insurers. Though the pandemic was unprecedented, insurance policy wordings should be fair, proportionate and transparent, and we have found time and time again, that this was not the case. We’re still coming up against legal challenges regarding how to apply policy wordings, most recently the Non-Damage Denial of Access appeal brought by Liberty, which found for policyholders in holding that in composite policies, 'any one loss' limits applied separately to each policyholder rather than in aggregate across all policyholders. We are also involved in new cases being issued in court, including most recently a claim brought by the owner of the Franco Manca chain of pizzerias against QIC in respect of their Covid-19 losses.
For some businesses, there may be a long road ahead, so we urge brokers start talking to clients now, long before the liability period runs out.”
Joanna Grant is the Managing Partner of Fenchurch Law UK
Neurodiversity Celebration Week – Ayo Babatunde
As part of our continued support of Neurodiversity Celebration Week (NCW), we asked associate Ayo Babatunde to share his personal experiences with dyslexia and dyspraxia. NCW is a global initiative aimed at challenging stereotypes and misconceptions about neurological differences.
Hello, my name is Ayo. I am an associate solicitor at Fenchurch Law, and I am dyslexic and dyspraxic.
If you are not familiar with dyspraxia, it’s a disability that affects movement, co-ordination and working memory. Our Deputy Managing Partner, Dan Robin, also has it, and has spoken about it as part of Neurodiversity Week (Q&A with Daniel Robin).
I was diagnosed with dyslexic and dyspraxic when I was 19. One of the things I have found hardest is acknowledging that my brain processes information differently. Part of my journey has been figuring out how my brain works to allow me to do my best in university and more recently the workplace.
I have put in a lot of time and effort (much through trial and error!) into understanding what specific techniques work for me. I’ve discovered that I really like mindmaps, tables and schedules, as they neatly organise information in a way that I can always refer back to (sort of like a crib sheet).
Part of managing my neurodiversity has been putting in place processes and frameworks to help me. For example, I love my regular walks around the City on my lunchbreak, as this gives time for my brain to reset (sort of like a brain-break!) which in turn allows me to be more productive.
For people with neurodiversity who have just been diagnosed, I would offer the advice that it’s important to understand what specifically works for you. We are all very different, even people with the same neurodiverse disability, so it is about putting in the time to figure out what best helps you individually. As alluded to above, this is unlikely to be a hole-in-one, but through trial and error you’ll get there. When you do, it is very rewarding.
Since joining Fenchurch Law, the conversation around neurodiversity is has been really honest and I’ve felt that I can be vulnerable about how my disabilities affect me in my day-to-day life. Through having a great support network at work and my own coping mechanisms, I have the confidence that I can achieve whatever I put mind to.
Thanks for reading!
Ayo Babatunde is an Associate at Fenchurch Law
Neurodiversity Celebration Week – Q&A with Daniel Robin
Neurodiversity Celebration Week (NCW) is a global initiative aimed at challenging stereotypes and misconceptions about neurological differences. As part of NCW, Deputy Managing Partner Dan Robin takes part in an open and insightful Q&A with Associate Dru Corfield, sharing his personal experiences and perspectives.
Dru: Hi Dan, thank you for agreeing to speak about your neurodiversity as part of neurodiversity week. It is an important conversation and something that the firm is big on supporting. I suppose the obvious first question is in what way are you neurodiverse?
Dan: I have dyspraxia.
Dru: And what does that mean to a layman? How does your dyspraxia manifest?
Dan: It affects my co-ordination, particularly hand-eye as my wife found out when we went (or tried to go) motorbike riding when we first met in Australia. Workwise it makes organisation challenging and has in the past affected my ability to write. It has also occasionally had an adverse effect on my time management.
Dru: How old were you when you were diagnosed, and what gave the game away?
Dan: 12. I think my parents sought a diagnosis based on issues with coordination and how disorganised I was with schoolwork.
Dru: What was the most difficult part of being dyspraxic as a teenager?
Dan: Back when I was in teenager in the late 90’s/early 00’s (don’t let the hairline fool you, I’m only 38) there was a real lack of awareness about dyspraxia, and at school the perception was that I was lazy and sloppy rather than ascertaining whether there was another reason behind it. It was also a challenge when first learning to drive, I started to learn on a manual car but quickly learnt that was not going to happen.
Dru: And how has public awareness of neurodiversity improved since you were diagnosed / a teenager?
Dan: It’s come on loads in the last 20 years. I think the biggest change is that neurodiversity has gone from being seeing as detrimental, to being accepted, to being seen in some circumstances as an asset.
Dru: How can being neurodiverse be an asset?
Dan: Where you have to work on certain things that don’t come naturally, it can make you better at then than those to whom it came naturally. As a Spurs fan (unfortunately), I will use Harry Kane as an analogy, had he not had setbacks and had to work on parts of his performance, he would not be the best striker in the world that he is today. There are also some neurological differences that lend themselves to the skills needed for professional services, running business etc.
Dru: How has it affected you rise at Fenchurch Law from an Associate in 2018 to the Deputy Managing Partner in 2024?
Dan: I think having to work on organisation skills and other elements of the roles I have had puts me in a unique position to help others / young members of staff – because simply put there were areas of my role which I wasn’t good at it but had to improve in order to develop. I would like to think that I am a good example of the fact that there are no barriers to progression if you are neurodiverse.
Dru: How have Fenchurch been with your neurodiversity?
Dan: The support has always been incredible; I was open from start and they immediately tried to put measures in to help me. I felt comfortable being able to tell the firm and they didn’t take it as a negative, because even 7 years ago the way neurodiversity was viewed in wider society was different to how it is seen today.
Dru: And finally, what advice would you give to neurotypical people when dealing with people with dyspraxia?
Dan: Take the time to understand. Particularly because it can manifest in a way that can be misinterpreted as someone having a lack of care, attention to detail or even laziness. There are measures in place to help with nearly all aspects needed for a professional services role, and it’s about working with the individual to work out what support they require. For example, with a junior lawyer, it may be accepting that they struggle with note taking in meetings, and finding a way to work with that, or they require instructions to them in a certain way.
Dru: Thanks very much for sharing, Dan.
Daniel Robin is the Deputy Managing Partner at Fenchurch Law.
Climate Risks Series, Part 4: California Wildfires – Insurance Insights
Fenchurch Law firmly believes that an outstanding approach to claims payment is fundamental to the health of any insurance market. In fact, Lloyd’s of London’s modern reputation for excellence owes much to its response to the San Francisco earthquake in 1906, when leading underwriter Cuthbert Heath famously instructed his local agent to “pay all of our policyholders in full, irrespective of the terms of their policies”.
With extreme weather events including earthquakes, hurricanes and storms on the rise, the most recent wildfires in Los Angeles present a number of challenges, and also opportunities, for California’s insurance market.
Background
The fires originated in the canyons above the Hollywood Hills and were swept into residential areas by notoriously strong Santa Ana winds. Although the areas affected are known to be at risk of wildfires, it is unusual for them to occur in the winter months. This year, however, a combination of drought and abundant vegetation (the result of above average rainfall in the previous two years) resulted in there being ample fuel for the fires to spread.
Evidently, climate change is increasing the risk of wildfires in the area, with a study from Stanford University predicting that the frequency and potency of these fires will only continue to escalate in the future.
Now contained, the most significant fires were located in the Pacific Palisades and Eaton, primarily upscale residential areas surrounding the Hollywood Hills. The Pacific Palisades, in particular, is home to a wealth of high-value residential property, with average sale prices above $3 million. The impact of this is that insured losses are set to be the highest in California’s wildfire history, with JP Morgan’s most recent estimates at $20 billion. For context, California’s most expensive wildfire to date, the 2018 Camp Fire, resulted in insured losses of around $10 billion.
Beyond their initial response to claims payment, insurers will need to reconsider their approach to wildfire risk and implement resilience measures in order to continue to do business in the area, while maintaining adequate capital reserves and managing cumulative exposures.
A fragile home insurance market
In recent years, several leading insurers, including AIG and Chubb, have stopped issuing new home insurance policies in the state of California due to persistent losses against a backdrop of rising construction costs and property prices, with one deciding to reduce cover for 72,000 homes in the Pacific Palisades area. Underinsurance is a widespread problem.
At the end of last year, the California Department of Insurance sought to entice insurers back into the market by allowing them to use sophisticated catastrophe modelling and artificial intelligence to evaluate risk in fire-prone areas. That risk, together with the cost of any reinsurance, could then be factored into premiums. Unfortunately, the effect was that premiums soared, and it became increasingly difficult to obtain adequate cover at an affordable price.
In response, many homeowners opted to take out policies with the State-backed insurer of last resort, Fair Plan. Fair Plan distributes losses among a number of insurers based on their respective market share. If insufficient funds are available to cover its losses, Fair Plan can issue assessments requiring insurers in the voluntary market to contribute. If that happens, the Plan will impose a special assessment on home insurance policyholders across the State.
It is estimated that Fair Plan’s exposure in the Pacific Palisades alone is almost $6 billion, with luxury property specialists Allstate, Travelers and Chubb the most exposed. Post-Covid-19 construction prices could further increase final payouts, in addition to living expenses claims, typically capped at 30% of a property’s value. It has already been reported that regulators are allowing Fair Plan to collect $1 billion from private insurers to cover its recent losses.
The future
Following initial focus on the safe evacuation of residents, the State’s Insurance Commissioner has taken steps to mitigate the impact on California’s already fragile home insurance landscape, by issuing a moratorium preventing insurance companies from cancelling or not renewing policies in the affected areas for the next year. The Commissioner has also issued a notice to insurers urging them to go beyond their legal obligation and pay policyholders 100% of their personal property coverage limits without requiring them to itemize everything that has been lost.
The insurance industry has, historically, supported risk management in the aftermath of catastrophic events. It was the London market that established the first organised firefighting services when insurers hired their own firefighters to protect policyholder properties during the Great Fire of London in 1666, and it was Hurricane Andrew that changed the way insurers looked at hurricanes, and at natural catastrophes in general.
Following the 2018 Camp Fire, the Californian town of Paradise implemented a number of measures to build resilience to future fires, such as burying all power lines underground to reduce the risk of electrical sparks causing fires, requiring residents to remove vegetation in close proximity to their homes, and making grants available to homeowners willing to use fire-resistant materials in their rebuilding efforts.
At a property resilience level, the Insurance Institute for Business & Home Safety (IBHS) provides science-backed mitigation measures for homeowners to reduce the risk of wildfires igniting in their homes. The IBHS is an independent body, supported by the insurance industry to advance building science in order to reduce risk from natural hazards.
It remains to be seen whether the local insurance market will step up to deliver on the Commissioner’s request to pay out full policy limits without requiring proof of loss for every individual item, and how far mitigation measures will be implemented to respond to the difficulties that policyholders are likely to face in the coming months.
Given the impact of climate change, losses resulting from wildfires and other natural perils are likely to increase in severity in the future, highlighting the critical importance of a strategic approach to consumer protection and insurance market sustainability.
Abigail Smith is an Associate at Fenchurch Law
Climate Risk Series:
Part 1: Climate litigation and severe weather fuelling insurance coverage disputes
Part 2: Flood and Storm Risk – Keeping Policyholders Afloat
Part 3: Aloha v AIG – Liability Cover for Reckless Environmental Harm
Fenchurch Law Appoints Abigail Smith as an Associate
Abigail Smith joined the London Fenchurch team earlier this year, on January 6th. With her she brings a wealth of experience, after working as an Associate in the Financial Services Disputes and Investigations team at Eversheds.
In her previous role, Abigail specialised in resolving high value and complex insurance disputes on behalf of policyholders, brokers and other large corporates. Abigail has experience in the global legal insurance market, working representing leading international brokers, firms, and banks.
Managing Partner at Fenchurch Law, Joanna Grant, commented: “We are very pleased to welcome Abigail to the team. Her legal expertise will be invaluable to Fenchurch Law as we look to deliver on our commitment to provide the highest quality insurance advice to both brokers and policy holders here in the UK, and across the globe.”
Abigail Smith added: “I was attracted to Fenchurch Law initially by the firm’s excellent reputation within the legal insurance market, and unwavering commitment to levelling the playing field for policyholders in coverage disputes. Upon joining the firm, I was delighted to find myself part of a collegiate team of genuine insurance specialists whose values and culture are as impressive as their level of expertise.”
Fenchurch Law - Annual Coverage Review
A panoply of coverage disputes reached the English courts in 2024 across diverse industry sectors, highlighting the London market’s sophisticated role in managing risk and boosting commercial resilience through geopolitically turbulent times.
Several judgments from the Court of Appeal reflect the trend for literal policy interpretation and a reluctance to interfere with unambiguous wording, including in marine cargo, offshore construction and W&I claims. The first reported decision on section 11 of the Insurance Act 2015 (‘IA 2015’) provides insight on the requisite causal connection. And guidance was provided on the scope of recovery for loss sustained over extended periods of time, in relation to construction projects and Covid BI losses.
The Invasion of Ukraine in February 2022 has led to a deluge of claims in the Commercial Court for losses arising from aircraft stranded in Russia, and damage to or expropriation of strategic assets including energy, mining and manufacturing interests. Several aircraft leasing companies are pursuing claims under contingent & possessed policies, case managed alongside parallel proceedings against various reinsurers, with related trials taking place in Ireland and the US.
Collectively these cases demonstrate the importance of precise language throughout insurance policies, with particular attention on key provisions around the description of insured parties, triggers for non-damage perils, aggregation, dispute resolution and any opt-out from statutory protections. Recent claims experience helps to inform best practice on pitfalls to avoid for policyholders and brokers, to secure coverage as broad as market conditions might realistically allow and minimise the prospect of disputes.
BUSINESS INTERRUPTION
Various Eateries v Allianz [2024] EWCA Civ 10
The latest decision on coverage under the Marsh Resilience wording considered various issues concerning the scope of prevention of access clauses, and aggregation of loss. Following settlement of related cases in Stonegate and Greggs, important questions on the treatment of furlough payments and additional increased costs of working were not included in continuing points of appeal and these matters are due to be revisited by the Court of Appeal in January 2025.
The remaining grounds of appeal from the first instance decision in Various Eateries were dismissed. The position remains that policyholders are entitled to claim for multiple sub-limits by reference to particular government actions, such as the nationwide lockdowns and regulations imposing restrictions on operation of different industry sectors; and those with ‘composite’ policies i.e. a number of separate contracts recorded in a single document, can recover individual sub-limits per company or per premises, depending on the insuring clauses and aggregation wording.
Gatwick Investment v Liberty [2024] EWHC 124 (Comm)
This case considered a number of preliminary issues in relation to coverage under prevention of access (‘POA’) or non-damage denial of access (‘NDDA’) clauses for policyholders operating in leisure, hospitality and retail industries.
The Commercial Court held that: (i) the Supreme Cout ruling on concurrent causation applies to POA / NDDA clauses in the same way as disease clauses, (ii) government action was that of a ‘statutory authority’, (iii) there was cover in respect of regulations imposed in response to a nationwide pandemic, (iv) furlough payments fell to be deducted from any sums otherwise due to policyholders, and (v) policy limits apply separately to multiple insured entities under a composite policy.
Bellini v Brit UW [2024] EWCA Civ 435
The claimant sought indemnity for Covid losses under a policy extension providing cover for: “interruption of or interference with the business caused by damage … arising from … any human infectious or human contagious disease … manifested by any person whilst in the premises or within a 25 mile radius …”
The Court of Appeal upheld the first instance decision, that there was no cover under this extension in the absence of physical damage. The claimant’s argument that something had gone wrong with the language, so that it was necessary to correct the error through contractual construction (applying Chartbrook v Persimmon Homes [2009]) was rejected. ‘Clumsy drafting’ resulting in limited cover did not mean that the provision was absurd, nor justify rewriting the contract. Where the parties have used unambiguous language, the courts must apply it, following the Supreme Court decision in Rainy Sky [2011].
London International Exhibition Centre v Allianz [2024] EWCA Civ 1026
The Court of Appeal considered coverage under insuring clauses triggered by disease ‘at the premises’ and held that the Supreme Court’s approach to causation applied to radius clauses in the FCA Test Case [2021] was equally applicable. The nature of the insured peril informs the causation test agreed between the parties and it must have been contemplated that an outbreak of disease could spread rapidly and widely. The appropriate causation test did not involve a ‘but for’ analysis and each individual case of illness resulting from Covid may constitute a separate and equally effective cause. Unfortunately, the judgment did not discuss in any detail the evidential requirements for policyholders to prove the presence of Covid at their premises and this remains contentious, given the limited availability of testing services in the early stages of the pandemic.
UnipolSai Assicurazioni v Covea Insurance [2024] EWCA Civ 1110
Covea provided cover for many children’s nurseries forced to close between March and July 2020. The Court of Appeal upheld the first instance decision that Covea, having paid out substantial sums in respect of BI losses, were entitled to indemnity under property catastrophe excess of loss policies with reinsurers. The pandemic did constitute a ‘catastrophe’ giving rise to the insured losses, and there was no requirement in the policy for ‘suddenness’ or occurrence of a time-limited ‘event’.
On the issue of aggregation, pursuant to the Hours Clause in the reinsurance policy, the Court affirmed that, when the covered peril is the loss of an ability to use the premises, the individual loss occurs at the same time, regardless of how long the financial loss continues. Provided the individual loss occurs within the indemnity period, the totality of that loss is covered and all of its financial consequences (consistent with the approach taken by Mr Justice Butcher in Stonegate and Various Eateries). An apportionment of financial loss would be impractical and was deemed to be incorrect.
International Entertainment Holdings v Allianz [2024] EWCA Civ 1281
The Court of Appeal decided that restrictions brought in by the UK government, preventing or hindering access to the claimants’ theatres around the country, were not actions of a ‘policing authority’ and there was no indemnity available under policies imposing this requirement within the insuring clauses. Further, it was held that Covid can qualify as an ‘incident’ and coverage may be available on a per premises basis, in the absence of clear wording to the contrary.
CONSTRUCTION ALL RISKS
Technip Saudi Arabia v MedGulf Insurance [2024] EWCA Civ 481
Technip was the principal contractor for an energy project in the Persian Gulf. A vessel chartered by Technip collided with a platform within the project site, leading to a damages settlement of $25 million agreed with the platform owner, KJO.
Technip claimed under the liability section of its offshore construction policy, written on the WELCAR wording, which named both Technip and KJO as ‘Principal Insureds’ (the words Insured and Assured were used interchangeably in the policy). The insurer refused indemnity on grounds that the Existing Property Endorsement excluded cover for damage to existing property owned by any of the ‘Principal Assureds’, including the platform owner KJO, and this was upheld by the High Court.
Technip appealed, arguing that the policy was composite, and the exclusion only applied to property owned by the particular insured claiming the indemnity. The Court of Appeal refused, based on the natural meaning of the wording and how this would be understood by a reasonable person. Each insured under the policy was deemed to have separate insurance cover, but the term ‘Principal Assureds’ had the same meaning in each case.
Sky UK & Mace v Riverstone [2024] EWCA Civ 1567
The timber roof of Sky’s headquarters in West London suffered extensive water ingress, due to a design defect in failing to incorporate temporary waterproofing during installation. The building was constructed by Mace as main contractor and insured under a CAR policy. The damage occurred prior to practical completion in April 2016, but continued to develop thereafter, including subsequent to expiry of the period of insurance in July 2017.
The Court of Appeal affirmed that ‘damage’ means an adverse change which impairs the relevant property’s use or value. The roof was damaged as soon as it suffered water ingress. Insurers were held liable to indemnify both Sky and Mace for all damage that occurred during the period of insurance but deteriorated or developed thereafter, overturning the trial judge’s decision that the claimants were only entitled to recover for the cost of repairing damage in existence at the end of the insured period. Investigation costs reasonably incurred to determine how to remediate damage were also covered, whether or not damage was revealed.
The roof was made up of 472 modular ‘cassettes’ covering an area of 16,000 square metres. The policy deductible of £150,000 applied per any one event and the Court of Appeal held that the relevant event was the decision to build to a design that did not include temporary waterproofing, so that only one deductible applied.
Mace had pleaded and proved damage at practical completion and was entitled to a monetary judgment in addition to and distinct from Sky. Matters have been remitted to the trial judge, for determination of the sums due to each claimant under the policy.
INSURANCE ACT 2015
Scotbeef v D&S Storage [2024] EWHC 341 (TCC)
Scotbeef pursued a claim against D&S Storage in relation to the supply of defective meat. After D&S Storage became insolvent, its liability insurer was added to the proceedings pursuant to the Third Parties (Rights against Insurers) Act 2010 (‘TPRIA 2010’).
The insurance policy contained a ‘Duty of Assured’ clause, described as a condition precedent to liability, requiring Scotbeef to take reasonable steps to ensure that the Food Storage & Distribution Federation’s standard terms were incorporated into commercial contracts. The terms were not incorporated to the agreement with D&S Storage, and the insurer applied to strike out the insurance claim, based on Scotbeef’s non-compliance with the policy term. The High Court considered: (a) whether the construction of a condition precedent affects its enforceability; and (b) when terms which depart from the IA 2015 are enforceable.
On the first issue, it was held that construction of the entire clause must be evaluated in the context of the whole policy, to determine whether the provision would operate as a condition precedent, regardless of any label applied. In this case, the disputed term included a write-back for cover, where the policyholder acted reasonably in seeking to incorporate the standard terms, and the consequences of breach were detailed in a later section of the policy. This meant the provisions were difficult to reconcile and ambiguous in effect, so that the purported condition precedent was unenforceable.
On the second issue the Court held that, while it is possible to depart from the IA 2015, any such terms must be clearly brought to the policyholder’s attention prior to inception of the policy. The insurer had not done so and therefore could not rely on the purported opt-out term to deny indemnity.
Delos Shipholding v Allianz (“the WIN WIN”) [2024] EWHC 719 (Comm)
The claim arose from the ‘illegal parking’ of a bulk carrier just inside Indonesian territorial waters off Singapore. This minor infraction led to the vessel being detained by the Indonesian authorities for over a year, while the Master was prosecuted under local shipping laws. The claimants claimed under a war risks policy, which provided that the vessel became a constructive total loss after 6 months’ detainment.
The Insurers denied liability on grounds that (i) the loss was not fortuitous, as resulting from voluntary conduct to anchor in that location, (ii) an exclusion applied, for arrest restraint or detainment ‘under customs or quarantine regulations’, and/or (iii) the claimants had breached the duty of fair presentation, by failing to disclose that the sole director of the registered owner of the vessel was the subject of criminal charges in Greece.
The Commercial Court held that the exclusion did not apply, and the loss was fortuitous, since the crew did not realise the vessel had strayed into Indonesian territory or consciously chosen to do so. On alleged material non-disclosure, the Court held that the claimants did not have actual or constructive knowledge of the criminal charges, because the director was not ‘senior management’ for the purposes of section 4(3) of the IA 2015, instead being merely a nominee director with no decision-making powers. In any event, the defendants were held not to have been induced by the alleged non-disclosure.
The claimants’ separate claim for damages for late payment, pursuant to section 13A IA 2015 was dismissed. Based on the expert evidence, the Court was not satisfied that another similar vessel would have been available for the claimants to purchase, as alleged, and the claim for loss of trading profit, as a result of late payment of the insurance claim, was not made out.
MOK Petro Energy v Argo [2024] EWHC 1935 (Comm)
A cargo of gasoline loaded onto a tanker in Oman was insured under an all risks marine open cover on the ICC (A) wording. The gasoline was blended with methanol and the sale contract between MOK (the buyer) and PetroChina (the seller) required the cargo to have a phase separation temperature (‘PST’) below a stated level. On arrival at the discharge port, the cargo was found to significantly exceed the agreed limit. This meant that the octane rating was negatively affected, although the blend did not actually undergo phase separation, and the cargo was rejected by the end purchaser.
Insurers declined indemnity, on grounds that (a) no damage had occurred, and (b) a warranty in the policy, requiring inspection and certification of the cargo at the load port, had not been complied with. The cargo had been inspected, but there was no contemporaneous evidence of certification. MOK sought to rely on section 11, IA 2015, which provides that insurers cannot rely on breach of terms (such as warranties or conditions precedent) intended to reduce the risk of loss, if the insured can show that the breach “could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred”. MOK argued that its failure to comply with the certification element was irrelevant and would not have reduced the risk, since inspection of the cargo had taken place.
The Commercial Court held that no damage, i.e. adverse physical change, had occurred simply by mixing the blend in proportions which resulted in a defective product with propensity for a higher PST than contractually stipulated, applying Bacardi v Thomas Hardy [2002]. The comments on breach of warranty were therefore ‘obiter’, i.e. unnecessary to the decision and not binding in subsequent cases. The Judge agreed with the insurer that section 11 “is directed at the effect of compliance with the entire term and not with the consequences of the specific breach”. It was not disputed that compliance with the warranty as a whole was capable of minimising the risk of water contamination, so that the breach of warranty was made out.
This is the first judicial guidance on the operation of section 11, since the enactment of the IA 2015. There has been much debate as to whether this provision introduced a strict causation test, allowing policyholders to argue that the specific breach would have made no difference in the particular circumstances, even if compliance with the term would generally decrease the risk of that type of loss occurring. The decision in this case suggests a more onerous test for policyholders, and it will be interesting to see how the arguments are developed in subsequent cases.
JURISDICTION
Zephyrus Capital Aviation v Fidelis Underwriting [2024] EWHC 734 (Comm)
The defendant reinsurers applied to stay claims against them based on exclusive jurisdiction clauses (‘EJC’s) in favour of the Russian courts. The Commercial Court held that it was unlikely the claimants would receive a fair trial in Russia, in circumstances where the Russian state had a direct interest in the outcome of the litigation, and several claimants are from the UK and EU, which Russia had designated as ‘Unfriendly Foreign States’. The Court had regard to the multiplicity of proceedings and the risk of inconsistent judgments, as additional factors supporting its decision. This is a rare example of the English courts deciding that there are strong reasons not to apply an EJC.
AerCap Ireland v PJSC Insurance [2024] EWHC 1365 (Comm)
By contrast, the defendant reinsurers in this case were successful in obtaining a stay of English court proceedings on grounds that the policies, containing all risks and war risk coverage, included an EJC in favour of the Ukrainian courts. The Commercial Court held that the jurisdiction clauses were binding and enforceable, and the ongoing conflict was unlikely to result in substantial delays or other issues in litigating these claims in Ukraine.
‘PAY FIRST’ CLAUSES
MS Amlin v King Trader (“the Solomon Trader”) [2024] EWHC 1813 (Comm)
The policyholder chartered a ship, which became grounded in the Solomon Islands. The owner of the vessel, King Trader, obtained an arbitration award against the charterer in excess of $47 million. The charterer entered insolvent liquidation and King Trader sought to recover the loss from the charterer’s insurers, under the TPRIA 2010. The charterer’s liability insurance contained a clause stating: “it is a condition precedent to the Assured’s right of recovery … that the Assured shall first have discharged any loss, expense or liability.”
The insurers were successful in obtaining a declaration that they were not liable to indemnify the claim, because the insolvent charterer had not discharged the underlying liability. The High Court held that the ‘pay first’ clause was not repugnant to the purpose of the insurance or inconsistent with the other policy terms (including the right to terminate on insolvency, while preserving the insured’s right to indemnity for prior incidents). The clause was clearly worded and prominently stated, not a “fox in the henhouse … hidden away in the thickets of the Policy”.
The decision is a salutary reminder for policyholders to be wary of similar provisions. The Judge acknowledged that: “The state of English law on this issue in the light of the 2010 Act is not particularly satisfactory… Prudent operators seek to insure against those liabilities, and a range of third parties who suffer loss and damage as a result of accidents at sea will look to insurances of this kind to be made whole. ‘Pay first’ clauses reduce the efficacy of that protection when it is most needed”.
POLITICAL VIOLENCE
Hamilton Corporate Member v Afghan Global [2024] EWHC 1426 (Comm)
Following seizure of a US military warehouse by the Taliban, the owners sought to claim under a political violence reinsurance policy. The insurers declined cover in reliance on an exclusion for loss: “directly or indirectly caused by seizure, confiscation, nationalisation … expropriation, detention … nor loss or damage to the Buildings and/or Contents by law, order, decree or regulation of any governing authority, nor for loss or damage arising from acts of contraband or illegal transportation or illegal trade.”
The Commercial Court held that ‘seizure’ in this context was not restricted to seizure by law, order, decree or regulation of any governing authority, and the cover was limited to physical damage or destruction – not loss by way of deprivation. It was noted that ‘seizure’ has a settled legal meaning, namely “the act of taking forcible possession either by a lawful authority or by overpowering force”, following Kuwait Airways [1999]. The Judge rejected the claimant’s submission that the clause should be construed in light of factual matrix evidence addressing the market’s understanding of the differences between political risks and political violence insurance, and the history of similar clauses.
PROFESSIONAL INDEMNITY
Axis Specialty Europe v Discovery Land [2024] EWCA Civ 7
Discovery Land became interested in acquiring and developing Taymouth Castle in the Scottish Highlands. The solicitor instructed by Discovery Land on the purchase fraudulently misappropriated surplus client funds and then, nine months later, secretly mortgaged the castle to a third party.
The fraudulent solicitor was senior partner in a two-partner firm, which became insolvent, and Discovery Land pursued a claim against the firm’s PI insurers pursuant to the TPRIA 2010. A dispute arose as to whether the second partner in the firm had ‘condoned’ the dishonest acts of the fraudster, which would have engaged the following exclusion under the SRA Minimum Terms: “The insurer shall have no liability for … any claims … involving dishonest or fraudulent acts … committed or condoned by the insured, provided that: (a) the policy shall nonetheless cover the civil liability of any innocent insured; and (b) no dishonest or fraudulent act … shall be imputed to a body corporate unless it was committed or condoned by all directors of the company … or [LLP] members”.
The trial judge held that, while the second partner’s standards fell well below those required in the profession, he was not aware of and had not approved the fraud, or other acts in the same pattern of dishonest behaviour leading to the claim and nor was there any ‘blind-eye knowledge’ on his part. Further, the Court rejected insurers’ argument that the claims relating to (i) surplus funds and (ii) the secret mortgage should be aggregated, for purposes of the limit of indemnity.
The Court of Appeal upheld the first Instance decision as entirely rational. The aggregation clause in the policy provided that: “similar acts or omissions in a series of related matters or transactions will be regarded as one claim”. Applying the Supreme Court decision in AIG v Woodman [2017], it was necessary to consider whether the degree of similarity was real or substantial, and whether the claims fitted together, based on a thorough analysis of the underlying facts. Here, the trial judge had reviewed the evidence ‘painstakingly’, and while the two claims involved the same property and affiliated company victims, this was insufficient to provide the necessary link between the two transactions.
SUBROGATION
Dassault Aviation v Mitsui Sumitomo [2024] EWCA Civ 5
Dassault supplied aircraft to Mitsui Bussan Aerospace (‘MBA’) pursuant to a contract governed by English law including a non-assignment provision, as follows: “… this Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party”.
Following a delay in supply of aircraft on to the Japanese coastguard, Mitsui Sumitomo Insurance (‘MSI’) indemnified MBA for a liquidated damages claim from the coastguard and then sought to recover the loss by subrogated proceedings against Dassault. It was common ground that MBA’s claims against Dassault would be transferred to MSI by Article 25 of the Japanese Insurance Act, reproduced by the insurance policy, subject to operation of the non-assignment clause.
The Court of Appeal unanimously allowed the insurer’s appeal against the High Court decision, concluding that the language of the sales contract, in prohibiting an assignment ‘by any party’, did not prevent an assignment that took place by operation of law.
RSA Insurance v Textainer Group [2024] EWCA Civ 547
Textainer, a global supplier of shipping containers, incurred a loss of around $95 million following the collapse of Hanjin Shipping, in respect of thousands of missing and damaged containers and lost rental income. Textainer secured $70 million from primary and excess layer insurers and later recovered $15 million in Hanjin’s liquidation.
The Court of Appeal reaffirmed the well-established principle that recoveries are allocated on a ‘top-down’ basis, not proportionately (applying the House of Lords decision in Lord Napier and Ettrick [1993]). Sums obtained from third parties were therefore to be applied towards uninsured losses first, then paid down from the highest to the lowest layer of cover, before reimbursing the policy deductible. This approach applies to aggregate or excess layer placements and unitary losses alike. It confirmed that the concepts of under-insurance and average have no relevance to insurance written in layers.
WARRANTY & INDEMNITY
Project Angel Bidco v Axis Managing Agency [2024] EWCA Civ 446
The claimant sought indemnity under its buyer-side W&I policy for loss in value of the shares in a target company, on the basis that warranties given by the seller were alleged to be untrue. The relevant warranties stated that the company was not involved in legal proceedings or under investigation and had not committed any breach of contract or acts of bribery or corruption (‘ABC warranties’).
After the transaction completed, the target company became the subject of police investigations relating to compliance with anti-corruption and bribery legislation, and lost its key client, Liverpool City Council, resulting in insolvency of the target company and the policyholder. The insurers declined cover in reliance on a policy exclusion for “any liability or actual or alleged non-compliance with … [anti-bribery or anti-corruption laws]”. The policyholder argued that there was an obvious mistake in drafting of the exclusion, as it contradicted coverage provided in a cover spreadsheet listing the ABC warranties as insured obligations.
By a 2:1 majority, the Court of Appeal upheld the Commercial Court decision, that the policyholder’s proposed correction to the exclusion clause should not be permitted. While accepting that there was an obvious contradiction, the Court held it was not clear any mistake had been made in the drafting and nor did any clear remedy exist to correct the alleged mistake. There was a plain commercial rationale for the broad effect of the exclusion, from the insurer’s perspective, and the ordinary meaning of the words applied. In a dissenting judgment, Phillips LJ preferred the policyholder’s argument and would have allowed the appeal, based on the commercial purpose and intended effect of the insurance in the overall context of the Sale & Purchase Agreement.
This case illustrates the high bar for establishing a mistake in the drafting of commercial contracts, particularly a bespoke W&I policy, to justify rectification of a disputed provision.
Authors:
Catrin Wyn Williams, Associate
Pawinder Manak, Trainee Solicitor
The Sky is the limit: Developments in relation to damage under CAR policies
On 16 December 2024 the Court of Appeal delivered judgment in the case of (1) Sky UK Ltd and (2) Mace Limited vs Riverstone Managing Agency Ltd and Others, a decision which will provide welcome clarity to the construction community, as well as being of interest to the insurance market more widely in terms of its analysis of the nature of an indemnity policy. The judgment discusses a number of important points, notably the rights of insured parties under a Construction All Risks (“CAR”) policy to recover in respect of “deterioration and development damage” which occurred after the policy period as a result of damage which had occurred during the policy period.
The factual background
The claims were in respect of extensive water damage to the roof of Sky's global headquarters building in West London, which was constructed for Sky in 2014 to 2016 by Mace as main contractor under a JCT 2011 Design and Build Contract dated 17 March 2014. Sky and Mace were named insureds under the Policy.
The roof was comprised of 472 wooden cassettes, into a substantial number of which water had entered before final waterproofing had taken place and had remained for periods of construction, leading to wetting and, so Sky and Mace alleged, irreversible swelling and structural decay by the end of the period of insurance (or “POI”, which ran from commencement of the project to one year after practical completion).
In the period between expiry of the POI and the drying out works (which arrested any further damage) the condition of the timber already damaged had worsened, and moisture had spread to other parts of the roof construction. The Court of Appeal termed these types of damage as “deterioration damage”; i.e. damage, such as further swelling, in parts of the timber already damaged, and “development damage”; i.e. damage to additional, previously undamaged timber by way of spread.
It is important to note, as the Court of Appeal stated, that the vast majority of water ingress had occurred during the POI and there was little, if any, ingress after the POI. Secondly, there was no allegation by the defendant insurers that Sky or Mace had failed to mitigate their loss prior to the hearing, given the complexity of designing, agreeing and implementing a remedial scheme.
The underlying decision
In the underlying decision, HHJ Pelling held that Sky was only entitled to damage which had occurred during the POI, and not development or deterioration damage which occurred thereafter. In reaching this decision, the Judge relied on the House of Lords decision in Wasa International Insurance Co Ltd v Lexington Insurance Co [2009] and statements in that decision that in a policy covering losses occurring during a policy period, the cover does not extend to damage occurring before or after the policy period.
The Judge had found that the entry of moisture into the cassettes during the POI was a tangible physical change to the cassettes as long as the presence of water, if left unremedied, would affect the structural strength, stability or functionality of the cassettes during the POI.
The arguments on appeal
All of the parties were granted permission to appeal on numerous grounds, but in this article we discuss the primary point of contention, which was whether Sky could claim for deterioration and development damage.
On this point, the cover identified in the insuring clause of the policy was in respect of “damage to Property Insured occurring during the Period of Insurance” and insurers argued that damage occurring after the POI was not covered. Insurers relied on the decision in Wasa as authority for the proposition that, under “time policies”, the cover is in respect of damage occurring during the period of cover, and not occurring before or after.
In summary, Sky and Mace’s arguments in reply were that:
- An insurance claim is a claim for unliquidated damages and, as such, the measure of recovery is for all the loss suffered by reason of the insured peril occurring during the POI, including loss caused after the POI.
- The Policy contained a Basis of Settlement clause, as below, and the measure of recovery contended for was supported by the underlined words in the clause:
“Basis of Settlement
In settlement of claims under this Section of the Contract of Insurance the Insurers shall, subject to the terms and conditions of the Contract of Insurance, indemnify the Insured on the basis of the full cost of repairing, reinstating or replacing property lost or damaged (including the costs of any additional operational testing, commissioning as a result of the physical loss or damage which is indemnifiable hereunder) even though such costs may vary from the original construction costs …."
The Court of Appeal decision
Development and deterioration damage
Lord Justice Popplewell delivered the leading judgment, which was rooted in the principle, long established in the authorities, that a contract of insurance is a contract of indemnity, often described as a contract to hold someone harmless. Such a contract was not, however, a promise by the insurer to pay money upon the happening of the insured event, but rather a promise to hold harmless, i.e. a promise that the insured will not suffer the damage in the first place. This promise to hold harmless was the insurer’s primary obligation and, when breached, it was under a secondary obligation to pay damages for breach of the primary obligation.
In light of this, damages payable under an insurance policy fell to be assessed on the basis of established common law principles as to foreseeability, remoteness and mitigation that applied to any other contract; namely damages to put the innocent party in the position it would have been but for the breach, subject to express terms in the policy modifying the general position (e.g. limits or deductibles, exclusions such as for consequential loss or if caused by certain perils), but only if such modification was excluded by clear wording.
Lord Justice Popplewell found that the temporal limit in the insuring clause was insufficiently clear to modify the ordinary rule that insurers were liable to pay the reasonably foreseeable costs of remedying development and deterioration damage.
This conclusion was supported by the wording of the Basis of Settlement clause.
Further, Lord Justice Popplewell found that the authorities, including the House of Lords’ decision in Wasa was distinguishable on the facts, predominantly because it did not relate to development or deterioration damage of the type suffered in this case.
Investigation Costs
Mace also claimed the costs of “lifting the lid”, namely the upper surface of the cassettes in the roof upslope above the gutters, as reasonable investigation costs. The trial Judge, at first instance, denied these costs as being recoverable under the Policy and characterised them as “speculative opening up works”. Additionally, the Judge found that any investigation costs not revealing physical damage would not be recoverable under the CAR Policy.
Nevertheless, based on the normal common law principles that apply to contractual damages claim, aimed at putting the innocent party back in the position it was before the breach (to hold harmless), the Court of Appeal found that reasonable costs of investigation were recoverable if they were reasonably incurred in determining how to remediate the insured damage which has occurred. This was the case, even if the result of the investigation may be to identify the absence of damage in certain areas.
Meaning of physical damage
On a separate point, the Court of Appeal also rejected insurers’ appeal in relation to the meaning of “damage”, and upheld the trial Judge’s findings that damage meant any change to the physical nature of tangible property which impaired its value or usefulness to its owner or operator. There was no need for the physical change to compromise the performance of an individual cassette, as insurers argued.
Retained Liability
The Policy contained a deductible (or “Retained Liability”) of £150,000 “any one event but this will only apply to those claims which are recoverable under DE5…”. It was common ground that the claim was recoverable under DE5 by reason of defective design being a proximate cause, and the trial Judge had found therefore that a single deductible of £150,000 applied to the whole of the claim, as opposed to applying separately in respect of damage to each cassette.
The Court of Appeal also upheld the trial Judge’s findings on this point that, based on the long established authorities, an event refers to the cause of the damage, and not the damage itself, supported by the fact that the deductible was specifically linked to the cause of the loss being defective design.
Comment
As the Court of Appeal stated, on the principal point of contention, the fact that development and deterioration damage was recoverable, would accord with business common sense. In the context of a major construction claim, an insured party would reasonably expect to be compensated for the consequences of insured damage which occurred during the policy period, to a part of the works already damaged (deterioration) or to some other part of the building not yet damaged (development), after this period had expired, in the absence of any policy terms limiting recovery. This is especially so in relation to complex claims where a remediation scheme may not be finalised until sometime after expiry of the policy period, and where the state of the building may deteriorate in the meantime.
Of course, development or deterioration damage would be unlikely to be covered under a buildings policy, since this would exclude damage which first occurred prior to the building policy period, meaning the Court of Appeal judgment is crucial in helping insureds to transfer this risk to the insurance market.
The outcome is consistent with the approach taken in recent cases on non-damage business interruption claims, that provided the policy “trigger” occurs within the indemnity period, the totality of loss is covered including that which continued to be suffered after the policy period (UnipolSai Assicurazioni SPA v Covea Insurance plc [2024]).
The Court of Appeal decision will therefore be welcomed by employers and contractors alike. It remains to be seen whether permission to appeal to the Supreme Court is granted.
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