Property Risks

Challenging times for Zurich: insurer ordered to pay out on Covid 19 claim

World Challenge Expeditions Limited v Zurich Insurance Company Limited [2023] EWHC 1696 (Comm)

The court has held that, having operated a business travel policy in a certain way for nearly four years, Zurich was estopped from denying that it provided cover on that basis.

An estoppel by convention had arisen such that it would be inequitable for Zurich to resile from the common assumption between the parties as to the operation of the policy.

As such, the successful policyholder, World Challenge (represented by Fenchurch Law), was entitled to an indemnity of almost £9m, being the amount of refunds paid to its customers following the cancellation of its global programme of expeditions necessitated by the pandemic.

The court further criticised Zurich for its handling of the claim and the time that it taken to clarify its position.  This was a matter of utmost importance and urgency in circumstances where it was critical to World Challenge’s business and customer relations that it was able to confirm whether it had a covered claim.  Mrs Justice Dias commented that: “This is not an impressive performance even in the difficult circumstances of early 2020 and ordinary policyholders might well be appalled to think that a reputable insurance company could treat a long-standing and supposedly valued customer in this way”.

A full copy of the judgment can be found here.

Background

The policyholder, World Challenge, provides adventurous, “challenging” expeditions worldwide for secondary school students, or “challengers”.  As a result of the pandemic it was obliged to cancel nearly all of its booked expeditions for 2020.

The insurer, Zurich, provided World Challenge with wide ranging cover including cover for cancellation of trips by the challengers.

Prior to the pandemic, Zurich had handled and approved more than one hundred cancellation claims since 2016 in the amount of the refund paid to challengers. The amount of the refund, less an administration fee, was recorded against the aggregate deductible in the event of a trip cancellation. Prior to the onset of Covid-19, that aggregate deductible was never exhausted.

When the pandemic struck in early 2020, Zurich faced substantial claims for refunds to challengers for trips that would be cancelled in the coming months, and which would significantly exceed the aggregate deductible. World Challenge’s position was that Covid-19, and the mass trip cancellations which could eventuate, was precisely the type of ‘black swan’ event that it thought it had insurance cover for.  It sought confirmation of that cover from Zurich prior to cancelling the relevant trips and exposing itself to the millions of pounds of refunds to its customers that it would need to make as a result.

In light of the significant losses it now faced, Zurich, after an extended period of delays in confirming its position, in a complete volte-face sought to depart from the “common assumption” of cover for refunds and instead informed World Challenge that it only had cover (and only ever had cover) for irrecoverable third party costs (for example, hotel or airline costs which World Challenge had paid out and was unable to recover).

The claim

The issue before the court was the correct construction of the policy and whether Zurich was precluded by estoppel or collateral contract from denying that the policy provided the cover that World Challenge thought it had.

Mrs Justice Dias concluded that, although the policy in fact only covered irrecoverable third party costs,  Zurich’s previous conduct in agreeing claims in the amount of the refunds and setting them against the deductible had clearly conveyed to World Challenge that they shared its assumption as to the scope of cover and World Challenge was strengthened and confirmed in its own reliance on that assumption.

Zurich’s argument that the subjective understanding of its claims handlers was insufficient to establish any assumption on the part of the company was rejected.

Further, the court found that the delays in cancelling trips caused by Zurich’s delay in confirming its position on cover caused World Challenge to lose its opportunity to explore other avenues in order to maintain customer goodwill and manage its exposure.

It was therefore inequitable for Zurich to resile from the common assumption. Zurich had every opportunity to correct the error in handling claims, but took no steps to do so until such time as it became apparent that the aggregate deductible would be exceeded.

Conclusion

This judgment provides a welcome reminder to insurers about the importance of handling claims in a timely manner that responds to the needs of its customers, particularly in the face of a devastating loss with significant repercussions for the continued operation of its business.

Also welcome is the confirmation that the conduct of claims handlers in approving or rejecting claims will bind an insurer as they are the people charged with handling the claims on the company’s behalf.

From a legal perspective, in addition to being essential reading for anyone interested in the requirements of a variety of types of estoppel, practitioners will do well to take note of the comments made about the witness evidence and the dangers of putting forward statements that are inconsistent with the contemporaneous documents.  This made for an uncomfortable time for Zurich’s witnesses in the box, and should be a salutary tale, particularly given the spotlight on witness evidence in light of the recent changes to the rules in respect of trial witness statements.

Authors:

Joanna Grant, Partner

Rob Goodship, Associate Partner

Anthony McGeough, Senior Associate 

by Fenchurch Law

Not so peachy – a disappointing Covid-19 decision for policyholders

Bellini (N/E) Ltd trading as Bellini v Brit UW Limited [2023] EWHC 1545 (Comm)

In a month where Covid-19 decisions are coming in thick and fast, policyholders will be disappointed by the most recent judgment concerning a disease wording. A copy of the judgment can be found here.

On this occasion the policyholder, Bellini (N/E) Ltd, was issued with a policy by its insurer, Brit UW Limited, that contained an extension to business interruption cover for business interruption caused by damage arising from a notifiable disease manifested by any person whilst in the premises or within a 25-mile radius.

Disease wordings like these will be familiar to those who are acquainted with the FCA test case and Covid-19 litigation, but in this particular case the quirk is a reference to the defined term “damage” in the introductory paragraph to the extension. Damage within this policy was defined as “physical loss, physical damage, physical destruction”. However, it was common ground between the parties that there had been no physical loss of or damage to the policyholder’s premises or property.

The policyholder argued that policy provided both basic cover for physical damage and also extensions of cover for other matters that would not ordinarily result from or in physical damage. In particular, the provision of a radius clause of 25 miles for the manifestation of disease went beyond the basics of physical damage to the premises or property therein, which the policyholder asserted was reinforced by the court’s analysis of similar wordings in the FCA test case.

Among other arguments on the construction of the policy, the policyholder contended that if the extension only responded to physical damage it would “render any cover it provided illusory, and negate the purpose of the clause in providing cover for a notifiable disease that could manifest itself miles away”.

The court, however, was unpersuaded by the policyholder’s arguments, instead relying upon the “ordinary meaning” of the clause, which provided no cover in the absence of physical loss, damage or destruction. In particular, the court considered it to be significant that the clauses dealt with in the FCA test case were not expressed as to cover interruption caused by damage, and had been recognised as non-damage in that cover was not contingent on physical damage.

The court considered that the policyholder’s arguments effectively required it to re-write the policy contrary to the parties' express agreement and the established approach to contractual construction.

Comment

Recognising that the impact of a notifiable disease will be non-damage related losses, many wordings make it clear that the extension is intended to be triggered in the absence of physical damage, and that is how the clause would be understood to operate.

In circumstances where the parties agreed that a disease at the premises or within 25 miles of the premises does not cause physical damage, it is difficult to see what purpose, if any, can served by a clause that only provides cover for physical damage.

It is therefore difficult to reconcile the court’s attempts to give effect to the wording of the policy with what most policyholders (and we assume those insuring them) would expect to be covered when offering a 25-mile radius clause as part of the policy cover.

It is notable that the courts in the FCA test case grappled with similar difficulties on wordings where the standard form of certain clauses assumed the paradigm case of business interruption by reference to physical damage. The Supreme Court, albeit in the context of trends clauses, came to the view at [257] that the “reference to “damage” is inapposite to business interruption cover which does not depend on physical damage to insured property such as the cover with which these appeals are concerned. It reflects the fact that the historical evolution of business interruption cover was as an extension to property damage insurance. It was held by the court below, and is now common ground, that for the purposes of the business interruption cover which is the subject of these appeals, the term “damage” should be read as referring to the insured peril”. It appears that in the right circumstances the courts are not opposed to manipulating the wording of a policy to give it proper effect, and one might have expected the court in this matter to have taken a similar approach to the 25-mile radius clause.

Undoubtedly the market will be watching this one closely for any signs of an appeal, especially in light of the body of Covid-19 case law that appears to support a disease clause such as the one in dispute here.

Authors:

Anthony McGeough, Senior Associate

Joanna Grant, Partner

by Fenchurch Law

Reinstatement 101 – (rein)stating the obvious?

Reinstatement can be a difficult issue for a policyholder to navigate in the wake of a loss.

The answers to what might seem like obvious questions such as: what is it? who does it? and, do the costs actually have to be incurred? are in actual fact far from straightforward, and have been the subject matter of a number of legal cases in recent years.

This short article summarises some of the key principles that are involved.

What is it?

Reinstatement is the repair or replacement of property so that it is in the same condition or a materially equivalent condition to that which it was in prior to the loss occurring.

Of itself that seems clear enough. However, as ever the devil is in the detail, and the wording of reinstatement clauses varies from policy to policy with very different outcomes for the policyholder.

For example, depending on the precise wording, the policyholder may or may not be entitled to a cash settlement, may or may not be required to rebuild, and may or may not have to rebuild on the same site. Also, many policies give the insurer the option to reinstate.

Who does it?

As might be expected, more often than not the policyholder reinstates. However, many policies give the insurer the option to reinstate at its election. Why might an insurer choose to do so?

There are several reasons why an insurer might elect to reinstate, rather than have the policyholder reinstate or pay them an amount equivalent to the cost of reinstatement. Certainly, one reason identified by the courts is to avoid what other might be “the temptation to an ill-minded owner to set fire to the building in order to pocket the insurance money” (Reynolds v Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep 440).

If an insurer elects to reinstate, it must give unequivocal notice to the insured, whether expressly or by conduct. Following a valid election to reinstate, the policy is no longer treated as one under which payment is to be made, and instead stands as if it had been a contract to reinstate in the first place. The consequence of this is that if the insurer fails to perform the contract adequately, it will be liable to the policyholder for damages.

Do the works have to take place?

Whether, and if so, when the reinstatement works have to be carried out, or whether the policyholder is entitled to an indemnity for what the works would cost if carried out, is again going to turn on the precise wording of the policy.

The starting position is as set out in the following extract from the judgment in Endurance Corporate Capital Ltd v Sartex Quilts & Textiles Ltd ([2020] EWCA Civ 308):

“How the claimant chooses to spend the damages and whether it actually attempts to put itself in the same position as if the breach had not occurred – for example by reinstating lost, damaged or defective property – or whether the claimant does something else with the money, is – in accordance with the general principle mentioned earlier – irrelevant to the measure of compensation.”

Therefore, subject to any contrary wording in the policy, a policyholder is entitled to recover the cost of repairing their property, regardless of whether they in fact carry out such repairs, but instead decide, for example, to sell their property or to use the money to build elsewhere on site.

Insurers often look to limit that entitlement, and reinstatement clauses often provide that the work must be commenced and carried out “with reasonable despatch”, and that “no payment is to be made until the costs of reinstatement have actually been incurred”. This presents something of a chicken and egg situation for insureds, since an impecunious policyholder will not have the funds available to pay for reinstatement without first receiving the costs of reinstatement from the insurer.

In Manchikalapati & Others v Zurich [2019] EWCA CIV 2163, the insurer contended that where the policy provided an indemnity for “the reasonable cost of rectifying or repairing damage …”, the term “reasonable cost” should be read as meaning “actual” or “incurred” costs. Therefore, because that cost had not yet been incurred, the insurer argued that its liability under the policy had not been triggered. The court rejected that argument, finding that there was nothing about the wording which indicated that the cost must be incurred before the policyholder was entitled to an indemnity.

An insurer can limit its liability to costs actually incurred, provided it uses clear language to that effect. However, absent clear language, or where the clause is neutral as to whether the cost must already be incurred or may be incurred in the future, the courts have made it clear that insurers are no longer able to able to withhold the indemnity pending the works being carried out.

To what extent are intentions relevant?

One thorny issue that has come up time and again in the context of reinstatement is the relevance of a policyholder’s intentions. This first arose in a case where the policyholder intended to sell the property at the time of the fire. In that case, the court found that the indemnity to which the policyholder was entitled was the price at which it was prepared to sell at the time of the fire. This is because a policyholder is entitled to be indemnified for its loss, and in quantifying that loss, an insured’s intentions may impact on an assessment of the value of the property to them.

This issue most recently came before the court in Endurance v Sartex [2020] EWCA Civ 308. The insured, Sartex, claimed an indemnity on the reinstatement basis following a fire at its premises. The insurers asserted that that this was inappropriate because Sartex did not have a genuine intention to reinstate, placing reliance on the fact that Sartex had not carried out reinstatement in the many years after the fire occurred. As such, the insurer said that Sartex was only entitled to the considerably lower sums representing the diminution in market value of the property as a result of the fire. The court found that the question of whether Sartex actually intended to reinstate the buildings was, in most cases, of no relevance to the measure of indemnity.

Standard of repair

Another issue that frequently arises, particularly in the context of older properties, is what happens when the reinstatement results in the property being in a condition better than it was before. This is known as betterment. The principle of betterment requires the policyholder to account to the insurer for the improved or better aspects of the new property.

Sometimes, a policyholder has no practical alternative but to replace the original property with modern, upgraded property. This is known as involuntary betterment, and in those circumstances the policyholder is entitled to the actual replacement cost.

If an insurer does look to apply a discount for betterment, a policyholder would be advised to require the insurer to identify precisely what betterment the policyholder would enjoy and to serve evidence in support, as where an insurer fails to adequality quantify and evidence its case on betterment, no deduction should be applied.

Summary

Reinstatement clauses are intended to place policyholders into a materially equivalent position to that which they would have been in had the loss not occurred. Quite how that works in practice can be a minefield, but recent case law has helpfully cleared up some misconceptions around the policyholder’s intentions and the extent to which the works have to be carried out – both of which will be of assistance to policyholders in getting their claims paid.

Alex Rosenfield is a Senior Associate at Fenchurch Law

by Alex Rosenfield

No Time To Be Without Cover

This short article considers a handful of the possible insurance claims that arise in the latest James Bond outing, No Time to Die, as well as paying homage to Daniel Craig’s brilliant 5-film stint as 007.

Warning: this article contains major spoilers. So, to all those who are yet to see the film, read no further.

Matera – the prologue

The film opens with Mr Bond enjoying some downtime in Matera, Italy, with his beloved Madeleine Swann. It’s an idyllic scene. Glorious weather; a spectacular backdrop; and a stylish cave hotel. What could possibly go wrong here? Quite a lot, sadly.

After visiting the grave of his first (and perhaps one) true love, Vesper Lynd, Bond is attacked by scores of Spectre henchmen. There’s then a frantic car chase through Matera’s ancient streets, before Bond casually disposes of said henchmen by turning the headlights of his Aston Martin DB5 into revolving machine guns. Very cool.

Sadly, the Aston Martin takes quite a battering, and presumably is no longer road-worthy. That’s a fairly chunky insurance claim, which gives rise to some non-disclosure issues. At inception of the Policy, Mr Bond’s insurers would have most likely asked: “have you or any person who will drive the motorhome had any accidents, claims, damage, theft or loss involving any vehicle during the past 5 years”.

Unfortunately for Bond, he’s had his fair share of rotten luck behind the wheel. In particular, if one assumes that the events of Skyfall and Spectre were within the last 5 years, the following incidents come to mind: –

• Aston Martin DB5 – destroyed at the end of Skyfall, after a fist-fight with Raoul Silva (estimated damage of £850,000);
• Aston Martin DB10 – sank at the bottom of the River Tiber in Spectre, after Bond is chased by one of Blofeld’s henchmen (estimated damage of £2.6m).

Given the above, a failure to disclose these incidents would probably be treated as a deliberate breach of Bond’s duty of fair presentation under the Insurance Act. Insurers would invariably avoid the Policy, refuse all claims and keep the premium. Bond could always try arguing that it wasn’t a qualifying breach, because Insurers would have written the Policy anyway, but that seems speculative.

Another issue to address is the duty to take reasonable precautions. As many of us will be aware, such provisions mean no more than the insured must avoid reckless behaviour (Sofi v Prudential Assurance [1993] 2 Lloyd’s Rep. 559). So, in order to rely on a breach, Insurers would need to demonstrate that Bond was indifferent about looking after his vehicle. Acting carelessly will not be sufficient. Once again, that poses something of a conundrum for Bond. At the time of the incident, he’s clearly courting danger by inviting Spectre’s goons to shoot at him, and makes very little effort to conduct his affairs in a prudent and businessmanlike manner. All in all, this doesn’t smell like a winner.

Cuba – Bond comes of retirement

Five years after the events in Matera, Bond is blissfully retired in Jamaica. Not before long, one of MI6’s brightest and best shows up, who tells Bond that she now stands in his shoes as the new 007, and has been tasked with recovering a Russian scientist (a subrogated recovery, one might say). Bond, suitably unimpressed, decides to buddy up with the CIA’s Felix Leiter to try and get to the scientist first.

This leads Bond to Cuba, where literally all hell breaks loose. The number of insurance claims that could arise here is mind-boggling. Those include:

• Cuban drinking establishment/Property damage – there’s fairly significant damage here, after Bond gate-crashes a birthday party held in the honour of his arch-nemesis, Ernst Stavro Blofeld;
• Cuban drinking establishment/BI Loss – more hefty losses, one would imagine;
• Cuban drinking establishment/Public Liability – given that all of the attendees meet their maker after being infected by DNA-targeting nanobots (more on that below), this could give rise to another sizeable claim.
• Property damage/boat & helicopter – catastrophic damage to a boat after a terse fist-fight between Bond and Leiter’s duplicitous associate, Logan Ash (Rest in peace, Felix). Presumably the helicopter which Bond pilots to get to the boat is also a write-off.

Lytusifer Safin – he’s been expecting you, Mr Bond

In the film’s third act, we’re properly introduced to Bond’s main adversary, Lyutsifer Safin, played by the brilliant Rami Malek. We’d seen precious little of Mr Safin until this point, but all the familiar Bond-villain tropes are there. He’s creepy as hell, has set up shop on a secret island, and has a name which literally sounds like Lucifer (definitely evil, then).

Mr Safin, it would seem, has had a bit of a chip on his shoulder since Spectre murdered his family as a boy. Having recently wiped out Spectre, thusly achieving his revenge, Safin now wants to conquer the world by using the aforementioned nanobots as a biological weapon. Bond obviously isn’t having any of this, and heroically stops Safin in his tracks; but not, in a surprising and devastating turn, before he’s inflicted with mortal wounds. Sadly, this really is the end for Bond, who shortly afterwards succumbs to his injuries whilst he’s blown to smithereens by a British warship.

We assume that Mr Bond was sensible enough to procure a policy of life insurance before his untimely passing, and that he named Ms Swann as his beneficiary. To make a claim, Ms Swann would need to provide, as a minimum: (i) the name of the deceased (Bond, James Bond); (ii) the Policy number; and (iii) the cause of death.

The price and cover available would depend on a number of factors, which include the nature of Bond’s profession, as well as the fact that he indulges in what some would say is an unhealthy lifestyle i.e. a heavy alcohol intake. One can only imagine how high the premium must have been.

Mr Bond’s estate would also need to satisfy that his death wasn’t the result of reckless or dangerous behaviour. Whether that’s the case here is debateable, but we’d argue that Bond is just on the right side. Indeed, having agreed to cover Mr Bond, the underwriter would be ‘presumed to be acquainted with the practice of the trade he insures’ (Noble v Kennaway [1780]), and therefore should have appreciated that taking on a megalomaniac and his machine-gun wielding disciples was merely an occupational hazard. In circumstances where Bond quite literally saved the world, paying this claim feels like the right thing to do.

Given that Ms Swann is seen happily driving an Aston Martin V8 Vantage at the end of the film, we’re going to assume that the claim succeeded. Happy days for all. Well, apart from Bond, of course. May his memory live on.

Alex Rosenfield is a Senior Associate at Fenchurch Law

by Alex Rosenfield

Ristorante Limited t/a Bar Massimo v Zurich¬ [2021]: – Food for thought about the questions in insurance applications

This recent High Court decision considers the proper construction of questions put to an insured in insurance applications, and the circumstances in which they can amount to waiver.

Background

Ristorante Limited (“Ristorante”) was the leaseholder of a bar and restaurant in Glasgow (“the Property”). Ristorante took out an insurance policy with Zurich in 2015, which renewed in 2016 and 2017 (“the Policy”). Prior to inception of the Policy, and at each renewal, Ristorante confirmed that the following state of affairs was true:

“No owner, director, business partner or family member involved with the business:

i) ...

ii)...

iii) Has ever been the subject of a winding up order or company/individual voluntary arrangement with creditors, or been placed into administration, administrative receivership or liquidation

iv) ...

(“the Insolvency Question”)

On 3 January 2018, a significant fire broke out at the Property. After being notified of a claim, Zurich purported to avoid the Policy on the basis that Ristorante failed to make a fair presentation of the risk. In particular, it asserted that Ristorante misrepresented/failed to disclose that three of its directors had been directors of companies which previously entered liquidation (“the Other Insolvencies”), and that cover would not have been provided had they been disclosed.

Issues

There were two issues for the Court to determine at a trial of preliminary issues:

1. Whether, on the true construction of the Insolvency Question, there was a misrepresentation/non-disclosure; and
2. Whether, by asking the Insolvency Question in the way that it did, Zurich waived disclosure of the Other Insolvencies.

The Decision

The Judge, Mr Justice Snowden, found for Ristorante on both issues.

On the first issue, the Judge observed that the Insolvency Question limited its enquiry to any “owner, director, business partner or family member involved with the business”. There was no express enquiry in relation to any corporate bodies, and, accordingly, a person completing the Insolvency Question would not come to it “with any predisposition to think that the Defendant was interested in that information.”

The Judge also relied on cases such as R&R Developments v AXA [2010] 2 All ER (Comm) 527 (see our previous article on the case here) and Doheny v New India Assurance [2005] 1 All ER (Comm), both of which also addressed the proper construction of insolvency questions. The Judge found that a reasonable insurer in 2015 would be expected to know of those decisions, and to have understood the importance, if it wished to make enquiries of the insolvency of companies with which the insurer’s directors were involved, of using language which referred to those companies.

Zurich made a number of further arguments about the correct interpretation of the Insolvency Question, which included an argument that the words “has ever been the subject of” were sufficient, without more, to require disclosure of companies with which Ristorante’s directors were involved. Unsurprisingly, the Judge rejected that construction, noting that it made neither grammatical nor legal sense.

Zurich also said that, regardless of the precise wording used, a reasonable broker would have understood the Insolvency Question to mean that the Other Insolvencies were material facts which needed to be disclosed. However, absent any evidence on what a “hypothetical reasonable broker” would have done, the Judge rejected that argument.

On the second issue, the Judge, having regard to the authorities on the effect of asking a limited question, held that Zurich waived disclosure of the Other Insolvencies. Although Zurich contended that past insolvencies was a relevant moral hazard from the perspective of an insurer and “certainly information about which they would ordinarily expect to be told”, the Other Insolvencies related to a different set of persons identified in the Insolvency Question. Therefore, it was reasonable for Ristorante to infer that Zurich had no interest in them.

Summary

Ristorante v Zurich is another in a recent run of policyholder friendly decisions, and a timely reminder that Insurers’ attempts to re-write questions in insurance applications, when doing so would require a completely different meaning to be given to them, will be impermissible.

Alex Rosenfield is a Senior Associate at Fenchurch Law

by Alex Rosenfield

If your name’s not down…: no policy cover where developer incorrectly named

Sehayek and another v Amtrust Europe Ltd [2021] EWHC 495 (TCC) (5 March 2021)

A failure to correctly name the developer on a certificate of insurance has entitled insurers to avoid liability under a new home warranty policy.

The homeowner claimants had the benefit of insurance that covered them for the cost of remedying defects in their new build property at the Grove End Garden development in St John’s Wood.

Under the policy, “developer” was a defined term, being an entity registered with the new home warranty scheme from whom the policyholder had entered into an agreement to buy the new home, or who had constructed the new home.  Cover was available under the policy for the cost of rectifying defects for which the developer was responsible, but had not addressed for various reasons including its insolvency.

Following the discovery of significant defects at their property, the claimants sought to bring a claim under the policy.

The certificate of insurance named a particular company called Dekra Developments Limited (Dekra) as the developer.  Dekra was an established developer and had been registered with the new home warranty scheme since 2005. One of Dekra’s directors had confirmed to insurers that it was the developer of the Grove End Garden development. However, in fact, the developer was an associated company of Dekra set up for the purpose called Grove End Gardens London Limited.

Insurers therefore declined the claim on the basis that Dekra did not meet the policy definition of developer, being neither the entity named as seller on the sale agreement, nor the builder of the new homes. Its insolvency was not therefore a trigger for cover.

The homeowners sought to argue for an implied term extending the definition of developer to include its associated companies, and brought alternative claims based on estoppel and waiver.

Their claims did not succeed.  The court found that this was not a “misnomer” case, in that the claimants were not able to demonstrate that there was a clear mistake on the face of the certificate of insurance as an objective reading of the evidence was consistent with cover having been agreed between Dekra and the insurer.  Further, the proposed correction to imply the words “associated companies” was not a clear correction nor one that would be understood by an objective reader as needing to be made.

The alternative case based on estoppel and waiver also failed as no representation was made by the insurers to the effect that the cover extended to associated companies of Dekra.  Nor did the initial rejection of the claim by insurers on other grounds amount to a waiver of the right subsequently to refuse cover on a different ground.

While undoubtedly legally correct, this was a harsh result in circumstances where Dekra effectively held itself out as being the developer, both to insurers and the world at large. This case highlights some of the challenges claimants under new home warranty policies can face as a result of the fact that, despite being the policyholders and having the benefit of the insurance, they are not involved in placing the policies. Nor will they necessarily be aware of the complex corporate structures common in the construction industry, including the use by developers of special purpose vehicles for different projects. The mismatch between the entity named on the sale agreement and that referred to on the certificate of insurance may however be one that they, or their conveyancing solicitor, might have been expected to identify and query at the time of purchase.

Joanna Grant is a partner at Fenchurch Law

by Joanna Grant