News

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 

Jonathan Corman, Partner 

Eugene Lee, Senior Associate 

Matthew King, Associate (Foreign Qualified Lawyer)

by 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

by Abigail Smith

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:

1. 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.
2. 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.

Author:

Chris Ives, Partner

by Christopher Ives

Camden Contribution Curtailed: TPRA 2010 Developments

Recent cases highlight potential difficulties for insurers in handling claims under the Third Parties (Rights against Insurers) Act 2010 (“the TPRA”).

By way of reminder, the TPRA allows a third party claimant to pursue a recovery directly against an insolvent insured’s liability insurer, both to establish the insured’s liability to the claimant, and coverage under the policy, in the same action, without the need to join the insured to the proceedings. In relation to the underlying liability claim, the insurer is permitted to rely, as against the third party, on any defences that would have been available to the insolvent insured.

In Riedwig v HCC International Insurance plc & another [2024], the High Court (Master Brightwell) dismissed a liability insurer’s application to bring a Part 20 claim against the claimant’s professional advisors, seeking a contribution in respect of the insurer’s potential liability to the claimant under the TPRA.

The claim arose from alleged negligence by Goldplaza Berkeley Square Ltd (“Goldplaza”) in producing a valuation of property on Camden High Street. The claimant sought to recover her consequent losses from Goldplaza, and subsequently its professional indemnity insurers, HCC, following Goldplaza’s insolvency in 2021.

HCC applied to join the solicitors who had acted for the claimant on the original property transaction to the TPRA proceedings. The parties agreed that Goldplaza and the solicitors were potentially liable for the “same damage”, based on section 1 of the Civil Liability (Contribution) Act 1978 (“the CLCA”), which provides that:

“any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)”    

However, the Court held that the insurer and the solicitors were not liable for the same damage. The insurer was potentially liable under the policy, while the solicitors were allegedly liable for financial loss resulting from the property transaction. Following Bovis Construction v Commercial Union [2001], approved by the House of Lords in Royal Brompton Hospital v Hammond [2002], “an insurer does not inflict damage on anyone … the only damage it is capable of inflicting is in refusing to meet its obligations under the policy of insurance”.

The Judge noted that the purpose of the TPRA is to enable a claimant to pursue an insurer directly in respect of the liability of its insured, and for the claimant to stand in the insured’s place for that purpose, not the insurer. The insurer does not become liable for damage caused by its insured, and the fact that the insured might have a contribution claim against third parties does not mean that the insurer also has that right.

Depending on the type and stage of insolvency proceedings, insurers may be able to apportion loss with third parties by a more convoluted route of joining the insolvent insured to TPRA proceedings (as HCC had intimated an intention to do) or else by way of subrogated recovery, after settling a policy claim. Alternatively, an assignment of the insured’s contribution rights could potentially be made to the insurer, through policy wording or subsequent agreement.

Liability insurers are generally required nowadays to take a more proactive approach to defence of litigation against an insolvent insured, since judgment in default may suffice to establish liability under the TPRA, even if it does not follow consideration on the merits of the underlying claim. This was confirmed by the Scottish Inner House, Court of Session, in the recent appeal decision Scotland Gas Networks plc v QBE [2024], upholding the first instance findings considered in our previous article.

While the intention behind the CLCA is to broaden the class of potential contributing parties, where a number of defendants share responsibility for a claimant’s loss, the ability of an insurer to seek contribution from third parties is limited in the context of TPRA claims.

Authors:

Amy Lacey, Partner

by Amy Lacey

Reinsurance Cover for Covid BI Losses Upheld on Appeal

In UnipolSai Assicurazioni SPA v Covea Insurance PLC [2024] EWCA Civ 110, the Court of Appeal has upheld the first instance finding that the reinsured (Covea), having paid out substantial sums in respect of Covid business interruption (BI) losses, were entitled to indemnity under property catastrophe excess of loss policies with reinsurers. The decision provides clarification on the operation of aggregation clauses and the proper interpretation of a “catastrophe” in treaty reinsurance arrangements.

Covea provided cover for a large number of children’s nurseries which were forced to close between 20 March 2020 and July 2020, as a result of the pandemic. The factual background and outcome at first instance are explained in detail in our earlier article. The decision was appealed by reinsurers and the following questions arose for re-evaluation:

1. Whether Covid-19 losses arose out of, and were directly occasioned by, a “catastrophe”; and

2. Whether the “Hours Clause” - by which the duration of any “Loss Occurrence” was prescribed depending on the nature of the underlying peril - meant that:

(i) an “individual loss” occurs on the date the covered peril strikes, including where the insured peril is the loss of ability to use premises; and

(ii) where the (re)insured first sustains indemnifiable BI loss within a nominated 168-hour period, subsequent losses after that period fall to be aggregated as part of a single “Loss Occurrence”.

Meaning of Catastrophe

At first instance, Mr Justice Foxton held that Covid-19 did amount to a “catastrophe,” as required under the reinsurance wording. On appeal, the reinsurers argued that a catastrophe must be a sudden or violent event, capable of causing physical damage, whereas the pandemic was an ongoing state of affairs.

The Court of Appeal rejected these submissions, highlighting the absence of any reference to an “event” within the policy wording, and noting that the unities test in Axa v Field [1996] is merely an aid to be used with broad application. Their Lordships also rejected the argument that “suddenness” was a pre-requisite for all catastrophes, and, in any event, the “exponential increase in Covid 19 infections in the UK […] did amount to a disaster of sudden onset.” The attempt by reinsurers to rely on an ejusdem generis argument, in relation to the alleged need for physical damage, was flawed, as the types of catastrophes mentioned in the policy were not intended to be a prescribed class. The expert evidence that BI cover may include cover for non-damage BI was unchallenged.

Operation of the Hours Clause

The central question for consideration under the Hours Clause was when the relevant loss occurred. If it fell outside the period stipulated, then it would not be recoverable. It was also noted that the term “Loss Occurrence” was defined in the policy to mean “individual losses”. Discussing this further, the Court of Appeal emphasised that the term “occur” means when a loss first happens during a period of time. In relation to BI specifically, it was held 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 - consistent with the approach taken by Mr Justice Butcher in Stonegate and Various Eateries. Provided the individual loss occurs within the indemnity period, the totality of that loss is covered and all of its financial consequences. An apportionment of financial loss would give rise to considerable practical difficulties and was deemed to be incorrect.

Implications for Policyholders

The decision is welcomed by cedants with the benefit of similarly worded reinsurance policies. The implications are far-reaching, with total payouts for Covid BI claims estimated in the region of £2 billion, according to the Association of British Insurers. This policyholder-friendly precedent is particularly helpful, since most reinsurance disputes are resolved in confidential arbitrations.

Authors:

Amy Lacey, Partner

Pawinder Manak, Trainee Solicitor

by Fenchurch Law