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