Construction Risks

Mind the Gap: Owners Corporation 1 Plan No. PS 640567Y v Shangri‑La Construction Pty Ltd [2026] VSC 117

Introduction

A recent decision of the Supreme Court of Victoria poses an important question for the construction sector in particular: where statutory and/or strict liability regimes which concern actions taken by directors or officers are not covered by professional indemnity (“PI”) insurance, is directors’ and officers’ (“D&O”) insurance able to plug any gap in cover?

Background

Shangri‑La Construction Pty Ltd (“SCP”) was appointed to design and construct a residential development in Victoria, Australia. SCP’s Managing Director, Mr Naqebullah, recommended that the external façade incorporated expanded polystyrene (“EPS”) cladding, which was later determined to be non‑compliant with applicable building regulations. Following remediation works funded by the State of Victoria (the “State”) (similar to the Building Safety Fund here in England & Wales), it pursued an action to recover such costs under Section 137F of the Building Act 1993 (Vic) (“Section 137F”), which was enacted in 2019. Section 137F is a strict liability provision which grants the State rights of subrogation against officers and/ or directors of contractors for the cost of cladding rectification work.

Pursuant to Section 137F, the State obtained summary judgment against Mr Naqebullah in the sum of approximately $3.17 million plus interest. Mr Naqebullah then sought indemnity under two consecutive “claims made and notified” professional indemnity policies taken out by SCP (the “Policies”).

Key questions

The Court was required to determine:

1. Whether Mr Naqebullah was an “Insured” under the Policies;
2. Whether a “Claim” had been made and notified within the relevant periods of insurance; and
3. Whether the liability fell within the insuring clause, which responded to civil liability incurred in the conduct of the insured’s professional business.

Judgment

Insured status

The Court held that Mr Naqebullah was an insured person under the Policies. Although he was not named individually on the certificates of insurance, the policy documents, read as a whole (including the proposal forms), demonstrated that directors were intended to fall within the class of insureds.

Claims made and notified

The Policies were written on a strict claims made and notified basis. However, the State’s ability claim under Section 137F did not come into force until after the expiry of the Policies. As a result, and unsurprisingly, the Section 137F claim against Mr Naqebullah could not have been made during the relevant periods of insurance. Moreover, attempts to treat earlier proceedings involving SCP as the relevant claim, or to attach the Section 137F claim back to earlier notifications, were rejected as undermining the commercial purpose of claims made insurance.

Scope of the professional indemnity cover

Most interestingly from our perspective, the Court found that the liability imposed on Mr Naqebullah was not incurred in the conduct of professional business. “Professional Business” was defined by the Policies as design, including advice in relation to design in accordance with all relevant building, construction or engineering codes and standards.

It was Mr Naqebullah’s case that providing services as a registered building practitioner in drafting a specification under a design and construct contract constituted the provision of professional services of a skilful character as contemplated by the Policies.

However, no element of the State’s case against Mr Naqebullah involved provision of any design, specification or advice as contemplated by the “Professional Business” definition under the Policies, nor did Mr Naqebullah’s liability to the State depend in any way upon breach of a professional duty by him or by SCP. Instead, his liability arose solely (and strictly) under Section 137F as he was an officer of SCP at the time of the non‑compliant work.

Analysis and implications

This decision highlights an area of tension between statutory and/or strict liability regimes and professional indemnity insurance. Even where the factual background involves professional services, insurers will inevitably look closely at the legal basis on which liability is imposed. Where that basis arises in statute and/or by strict liability, PI insurance policies may not respond.

When that liability concerns actions taken by directors or officers, the question then becomes whether D&O insurance is able to plug any gap in cover.

Whilst there are no analogous strict liabilities directly arising from the design or construction of buildings here in England & Wales, sections 40 and 161 of the Building Safety Act 2022 (the “BSA”) did introduce offences for officers who commit, consent to or negligently fail to prevent breaches of the Building Act 1984 (including contravention of the Building Regulations) and breaches of Part 2 or Part 4 of the BSA (including obstructing building control or failing to manage Higher Risk Buildings).

While liability imposed on an individual by virtue of holding office might ordinarily be expected to fall within the scope of D&O insurance, such policies often contain broad professional services exclusions. This creates a real risk that policyholders may find themselves without cover under either policy.

Conclusion

For policyholders and brokers, the decision underlines the importance of reviewing PI and D&O cover together, rather than in isolation. Particular attention should be paid to the scope of the professional services definition and insuring clause alongside the breadth of professional services exclusions in D&O policies, and the extent to which programmes are designed to respond coherently to building safety liabilities.

Authors

Abigail Smith, Associate

Pawinder Manak, Trainee Solicitor

by Fenchurch Law

The Grenfell & Champlain Towers: Risk Management Considerations in the Wake of Catastrophic Loss — A UK/US Comparison

1. Introduction

As part of the multinational collaborative relationship between Saxe Doernberger & Vita, P.C. and Fenchurch Law, we continually find ourselves in conversations about the sometimes subtle but sometimes drastic differences between risk management and coverage considerations from one country to the next. These differences are often highlighted by the fallout from large catastrophic losses that are widely publicized and illuminate sometimes widespread risks and perils that many others may be facing in the coming years.

The response of governments and their subdivisions to the needs of victims and/or commercial parties, and insurance markets’ evaluation of and reactions to catastrophic losses vary widely from country to country and jurisdiction. In this article, we discuss these responses and reactions in the cases of the Grenfell Tower Fire in London, England, and the Champlain Tower collapse in Surfside, Florida, within the United States. These two widely publicized losses involved different risk management and insurance considerations based on where they occurred. They also saw substantially different government responses and raised varied questions about what the next steps are for their respective commercial and insurance markets.

This comparison highlights the variation in considerations that policyholders face when examining risks across national and international operations. What to expect and what to look out for depends heavily on where you do business, and we are excited to continue these conversations to support policyholders across the globe.

Whilst our joint analysis has identified some significant differences in the risk and insurance landscape for contractors and construction professionals operating in these key markets (largely, and perhaps unsurprisingly, driven by key regulatory and legislative differences), there are common themes including the effect of public response and awareness, insurance market reactions and risk management considerations.

2. The Grenfell Tower Fire

A. Background

On 14 June 2017, a catastrophic fire ripped through a high-rise residential building in Central London known as Grenfell Tower, resulting in the tragic deaths of 72 people. Prior to the fire, Grenfell Tower had undergone significant refurbishment, which included new windows and a rainscreen cladding system being fixed to the outside of the reinforced concrete structure. Many of the materials and components used were either combustible or not of limited combustibility, which is thought to have significantly contributed to the intensity of the fire and the speed with which it spread around the 24-storey structure.

The fire has had a seismic impact on owners, leaseholders, and tenants of buildings with unsafe cladding, many of which were, and continue to be, faced with huge challenges in relation to the cost of remediation and the interim fire safety measures.

The tragedy has also had a significant effect on those operating in the construction industry, including the availability and applicability of their insurance when faced with claims from parties seeking to fund the cost of removing and replacing unsafe cladding. That work of itself has, in some instances, revealed other defects, in turn leading to increased claims against those involved in the design and construction of buildings.

B. Immediate Implications

The focus after the tragedy was rightly to try and identify the cause of such an intense fire, with the refurbishment being the obvious starting point. The UK Government commissioned the Building Research Establishment to undertake a series of tests on aluminium composite material (“ACM”) panels in combination with a number of other common external wall components in order to test compliance with the Building Regulations. Only one of the tests passed, which included mineral wool insulation. Although the initial focus was on ACM, subsequent tests and investigations revealed similar non-compliances caused by the use of non-ACM materials.

The Government also immediately announced a Public Inquiry into the tragedy, which began hearing evidence in September 2017, leading to the Phase One report (dealing with the events on the night of the tragedy) being issued in October 2019, followed by Phase Two (concerned with the refurbishment of the tower) in September 2024. To date, the criminal and civil proceedings in relation to the Grenfell Tower itself remain ongoing, although that is most likely due to those proceedings needing to await the conclusions from the Inquiry.

External wall systems similar to those used on Grenfell Tower (both ACM and non-ACM) had been commonly used in both residential and commercial developments for many years (if not decades). Given the sudden attention which these systems were now receiving as a result of the public outcry following the tragedy, many involved in the design and construction of buildings using similar systems were facing immediate requests for information on the materials used and the threat of claims if the buildings were unsafe and/ or non-compliant with the Building Regulations.

C. Insurance Implications

Non-compliant cladding systems present an issue in relation to first-party insurance coverage, which is almost exclusively by damage. Absent a definition in the policy, damage will likely be determined by reference to common law authority, which is concerned with a physical change that has impaired the use or value of the insured property. Non-compliant cladding has not undergone a physical change – its condition has remained stable, and its unwanted quality comes from its non-compliance, which renders it defective (not damaged). Policyholders therefore had to look to other sources for insurance cover, including latent defect policies which provide first-party cover absent damage if there is a present or imminent danger.

From a liability perspective, contractors and construction professionals had little choice but to consider the nature and extent of their exposure to claims and their coverage for professional negligence claims, particularly in view of more restrictive cover being introduced on policy renewal, many of which included full or partial exclusions for fire safety and/ or cladding claims. Some policyholders were therefore placed in an unenviable position – either notify circumstances which could give rise to claims to an expiring policy knowing those notifications were likely to be challenged, or face the risk of any claims being excluded from subsequent policies as a result of either fire safety and/ pr cladding exclusions or known or prior circumstance exclusions.

In practice, many policyholders made ‘block notifications’ to their professional indemnity insurance policies in an attempt to salvage some insurance cover in the face of restrictive cover on renewal. Whilst relatively unusual prior to Grenfell, block notifications enable a policyholder to, as the name suggests, notify a large number of related circumstances at one time, although the validity of each will be assessed individually. Although there is a practical benefit to a policyholder in notifying circumstances in this way, it does attract suggestions from insurers that the subsequent claims aggregate as they are related (given that they lent themselves to a block notification).

D. Ensuing Litigation and Government Reactions

In the years that followed the Grenfell tragedy, a wave of claims were brought against contractors and construction professionals in relation to allegedly defective and/ or unsafe buildings. Solomonic reported in September 2024 that over 100 such claims were issued in the Technology & Construction Court since the Grenfell fire[1], although many more are likely to be in the pre-action phase. Policyholders were typically faced with challenges to cover under policies they might expect to indemnify them in respect of liability arising from such claims for numerous reasons, including that:

a) the validity of the notification (block or otherwise) – either that by reference to the applicable threshold and/ or requirements, notifications were made too soon or too late;

b) the claims arose from known circumstances if they were notified to the policy, which renewed in the months following the Grenfell tragedy;

c) some or all of the alleged issues were caused by poor workmanship, as opposed to design or specified, such that the claim was excluded; and/ or

d) even if the policy did respond, then any claims would aggregate as they arose from the same originating cause or the same act or series of acts.

To date, there have not been any significant reported judgments concerning disputed insurance cover for cladding or fire safety claims, although that is potentially a result of policyholders compromising claims when settling the underlying liability claim, or coverage claims being resolved by arbitration (which is a confidential dispute resolution process).

More generally, the necessary work to remove unsafe cladding / external wall systems has led to the discovery of wider issues, including internal fire safety defects (such as poor compartmentation or fire stopping) and structural defects (which were hidden behind external wall systems). These have been the subject of numerous and significant claims of their own right, including BDW Trading Limited’s claim against structural engineer, URS (now part of AECOM), which went all the way to the Supreme Court in 2025.

The drive to remediate unsafe buildings (with reports suggesting that 4,630 residential buildings over 11m still have unsafe cladding[2]) resulted in both the Government having to introduce public funding for those works, including the Building Safety Fund and the Developer Remediation Contract which required developers to remediate unsafe residential buildings or face being excluded from development work or denied building control approval on new developments.

However, notwithstanding the positive action taken by the Government, there were calls to improve the rights and remedies of affected owners, leaseholders, and tenants, as well as avoid repeated instances of systemic failures going forward – both of which were purposes of the Building Safety Act 2022.

E. The Building Safety Act 2022

The first formal step towards legislative change as a result of the Grenfell tragedy was the ‘Building a Safer Future’ publication in June 2019, although it took until 28 June 2022 for the Building Safety Act 2022 (“BSA”) to be implemented. The BSA introduced a raft of retrospective and prospective changes to building safety legislation, with the most significant from an insurance coverage perspective being:

a) Extension of the retrospective limitation period for claims under the Defective Premises Act 1972 (“DPA”) from six years to thirty years (fifteen years prospectively); and

b) The implementation of new remedies in the form of Remediation Contribution Orders (“RCOs”) and Building Liability Orders (“BLOs”) which, in prescribed circumstances, can ‘pierce the corporate veil’ and pass liability for the cost of remediating unsafe buildings from the original contracting party to its ‘associates’

Whilst it typically takes longer for the insurance coverage implications of such significant legislative changes to appear compared with the often more immediate impact on underlying liability claims, the following are already presenting issues in practice:

a) Given the surge in claims being made under the DPA, insurers are adopting a more restrictive approach to coverage under PI policies, including arguing that the duty under the DPA is strict and therefore does not trigger the reasonable skill and care requirement of most PI insuring clauses;

b) That liabilities arising from RCOs or BLOs are similarly uninsured as the act, error or omission giving rise to the liability is that of the associated entity, not the RCO or BLO defendant; and

c) That in any event, any claims which are now available pursuant to the BSA, arise from known or prior circumstances (and are therefore excluded) and/ or do not attach to any existing notifications in the years following the Grenfell tragedy.

These disputes are likely to take many years to resolve, although it seems inevitable that policyholders facing these new claims/ remedies will have little choice but to pursue their insurers given the sums at stake.

3. The Champlain Towers South Collapse

A. Background

In the middle of the night on June 24, 2021, a twelve-story beachfront condominium tower called Champlain Towers South in the Miami suburb of Surfside partially collapsed, killing nearly one hundred people and injuring almost a dozen more. An effort to recover survivors of the collapse began in earnest and continued through late July. Many people had to be rescued from the un-collapsed portion of the building, but only four people were rescued from the building’s rubble, and only three of them ultimately survived.

Champlain Towers South was originally built in the early 1980s, along with two other towers completed in the late 80s and early 90s. In the days leading up to the collapse, emerging cracks and other indications of structural stress were observed, including water leaking into the underground parking garage from an area that had been the site of many cracks and repairs over the years. One resident reported that minutes before the condominium tower fell, the pool deck and street-level parking collapsed into the underground garage.

The U.S. National Institute of Standards and Technology (“NIST”) assigned a team of scientists and engineers to investigate the cause or causes of the collapse, and their work continues to this day. Preliminary findings in 2021 indicated the collapse started in the pool deck rather than in the tower itself. NIST’s subsequent years of investigation determined that the collapse likely started in a pool deck slab-column connection and then progressed through the condominium tower. Their reports also indicate that there were indications of the building’s distress that were visible in the weeks before the partial collapse.

B. Litigation, Investigation and Government Action

Almost immediately, a lawsuit on behalf of the residents of the building and their survivors was brought against the Champlain Towers South Condominium Association’s board in the local trial court. Shortly thereafter, the court appointed class counsel for separate groups of those injured or killed in the collapse, survivors, and former residents. Subsequently, numerous other defendants that were involved in development, maintenance, management, security, or repairs for the tower, as well as their insurers, were added to the suit.

Just before the one-year anniversary of the collapse, the named defendants, as well as some unnamed defendants, and their insurers reached a $1.02 billion settlement with the plaintiffs in the class action. Despite the ultimate cause of the collapse being unknown, nearly half of the settlement came from a single company and its insurers, in relation to an on-duty security guard not triggering a building-wide alarm before exiting the building. Subsequent investigations into the causes of the collapse also raised concerns about significant deferred maintenance of the structure’s concrete components, waterproofing, saltwater corrosion of exposed rebar, inadequate original construction, impacts of construction at an adjacent site, and years of subsidence in the area.

Government reactions to the collapse have been focused locally and regionally, rather than nationally. There are hundreds of high-rise condominiums with thousands of units like those in the Champlain Towers all across Florida. In the wake of the collapse, Florida passed condominium reform legislation creating a state-wide inspection program for condo buildings taller than three stories. Buildings will go through a milestone inspection certification process upon reaching thirty years of age, or twenty-five if they are located within three miles of the coast. They will be inspected again every ten years afterward. Inspection records will be made public, and condominium associations will not be able to waive structural maintenance fund reserve requirements. That statute was later amended to give the local authorities discretion on whether to inspect at 25 or 30 years.

C. Insurance Implications

On the first party side, there is no real dispute that there was physical loss or damage to the Champlain Towers, but common issues in the property insurance markets are worth noting. Collapse has been a peril of focus for many years, and policies vary widely on whether they cover collapse, whether collapse is limited to certain causes, or whether it is subject to lower sublimits. Wear and tear, inherent vice, subsidence, or exclusions related to defective construction can also be problematic in situations like the Champlain Tower collapse. Undoubtedly, we will see more restrictive variations in these terms emerging as insurance markets react to the risks highlighted by this tragedy. Lenders, property owners, and developers must keep a keen eye on the markets in light of their portfolios’ risk profile to ensure buildings are properly underwritten.

In terms of liability, the collapse implicated a wide swath of operations, from property management and security to maintenance, professional consulting and improvements, and all of the insurance underwriting those operations. Through their association by management control, maintenance or upkeep operations, security services, or otherwise, numerous companies and their insurers were brought into the suits seeking damages caused by the tower’s collapse. Those managing or providing services at the site, or who performed maintenance or construction at the site, would rely on commercial general liability as the primary source of contribution. Any professional service providers, including architects or engineers that might have been involved, were also relying on professional errors and omissions liability insurance. The condominium’s board may also have been relying on errors and omissions coverage for decisions associated with allegedly deferred maintenance.

Although a swift settlement was reached in this case, there are some common and emerging issues in liability insurance that are worth highlighting. One of the most concerning is the market’s creeping limitations on completed operations coverage. Exclusions have started to pop up in liability insurance for work performed before the current policy period, despite no injury or damage ever occurring before the current policy period. So, for example, assume a waterproofing contractor worked at Champlain Towers two years before the collapse. If their insurance in place at the time of the collapse had an exclusion in it for work performed during a previous policy period, the insurance in place at the time of the collapse would not respond. Nor would the policy in place at the time of the work respond, because liability insurance typically requires bodily injury or property damage that did not occur until the collapse itself.

Over the years, we have seen incidents like this driving subtle changes in the market that do not get scrutinized until a loss has occurred and it is already too late. Given the jurisdictional and situational variability in the U.S., commercial parties must take a proactive approach to insurance placement and renewal to ensure they are keeping up with market shifts.

D. Broader Legislative and Commercial Considerations

Unsurprisingly, insurance premiums for condominiums in the area have increased by orders of magnitude since the collapse. Unlike the UK’s response of ensuring remedies for aggrieved survivors, Florida’s responses to increased insurance costs have been “tort reform,” with major legislation coming in the form of HB 837 in 2023. Amongst other things, the bill implemented a modified negligence system, reduced the statute of limitations for negligence claims, eliminated one-way attorney fees for bad faith in many cases, and placed other limitations on attorney fees as well as damages evidence. Insurers have benefited heavily from these reforms, and Florida touts the bill as a tremendous success in their favor.

In the United States, each state has its own scheme of statutes of limitations and statutes of repose. The former being the amount of time after which a claim can no longer be brought by an injured party. The latter being the amount of time after construction operations are completed beyond which construction defect claims cannot long be brought by anyone. In Florida, the statute of repose is seven years from, amongst other things, the date of a certificate of occupancy or completion, or when construction is abandoned. As with the reduced remedies under Florida’s “tort reform” bill, the statute of repose was actually shortened from ten years to seven.

Also, unlike the UK, there is no national corollary to the Building Safety Act, and public funding for proactive remediation of potential risks like those associated with the Champlain Tower collapse is rare. Sometimes, federal disaster relief is granted for specific catastrophes, but not since the implementation of superfund site support has the US seen proactive national support for risk remediation. Further, the general rules regarding corporate immunity and veil piercing, along with statutes of repose, can shield entities historically affiliated with a building like Champlain Towers if they are removed in time or association. The localized administrative requirements issued by Florida in response with respect to building inspections were the only meaningful government response to the tragedy. In the U.S., states and local governments vary significantly in how they balance the interests of builders, property owners or managers, and tenants or buyers.

Without comprehensive remedies to address the serious considerations raised by an event like the collapse, the focus has been on commercial reactions. Property owners and developers are taking stock of their profiles and reassessing risks based on the lessons learned. The operations and decision-making of property managers and boards with respect to needed and deferred maintenance of older buildings are getting a second look in light of known issues at Champlain before the collapse. Certainly, with respect to older concrete buildings near the ocean, contractors engaged in maintenance and upkeep operations are also highlighting the implications of the Champlain collapse in their transactions with owners. The collapse likely impacts the value and risk associated with older buildings, pushing owner and equity groups toward new construction generally, whereas the Grenfell issue is easier to identify as a prospective buyer.

However, commercial entities should also be looking out for changes in the insurance markets. As with other large-scale historic losses, such as Exterior Insulation and Finish Systems, we have seen changing terms creeping into policy terms. New forms and endorsements related to concrete, subsidence, wear and tear, or other similar items should get a second look in light of a company’s portfolio and risk profile. Without a close eye on the market, new exclusions have a habit of popping up when it is already too late.

4. Observations and Conclusions

While remedies available and governmental responses to catastrophes like Grenfell and Champlain vary considerably from country of jurisdiction to another, some risk management considerations are more normalized.

One significant difference we see in Grenfell as compared with Champlain is the relative speed at which survivors of the Champlain collapse settled their claims as compared those of the Grenfell catastrophe. Some observers noted that the Champlain suits settled relatively quickly due to the potential publicity associated with delaying compensation for the victims. This is in part a function of the ability of survivors to bring and establish a class action so quickly and verdict escalation in the U.S., with many potential parties at risk, each with limited insurance and assets to contribute and not wanting to get left out of a settlement. Compensation for Grenfell survivors will take longer, arguably because the criminal and civil proceedings needed to wait for the Public Inquiry to conclude. On the other hand, the UK saw national governmental implementation of new remedies in response to Grenfell, where no such national response occurred in the U.S. after Champlain. Instead, Florida’s pressure from the insurance markets actually eroded policyholder remedies.

In part, the sheer size of the U.S., but also its more recent historical political tendencies, make it unsurprising that national remedies in response to a tragedy like Champlain would be unlikely. As such, changes in remedies tend to be more localized, though still influenced by large commercial interests lobbying power. Additionally, proactive risk management is much more of a commercial exercise rather than adjusting to legal changes. Policyholders in the U.S. benefit substantially from robust reviews and vigorous engagement in the insurance procurement and contractual risk management processes. This should include keeping an eye on insurance markets for reactions to publicized risks and addressing these risks up front through business practices.

By comparison, the national remedies in response to Grenfell in the UK may have taken time to implement, but their impact has been widespread both in terms of the rights and remedies of those effected by unsafe cladding in the built environment, as well as the building safety regime and regulations for new buildings. Those changes have dramatically increased the liability landscape for contractors and construction professionals, inevitably resulting in increased insurance coverage disputes in relation to historic projects. However, at the same time, those measures seek to reduce the building safety risks in future projects, which should, in turn, lead to improved design, procurement, and risk management measures and, ultimately, reduce the liability exposures of those operating in the construction industry.

Despite the jurisdictional differences, there are some risk management and insurance considerations that will be more universal. Policyholders must still pay close attention to managing retrospective dates, aggregation clauses, and notification provisions in claims and risk management practices. Policyholders should also take stock of statutes of limitations or repose in jurisdictions where they have operations, and trends in completed work or continuing damage terms in their insurance markets to stay current on best practices.

Authors

Rob Goodship, Partner Fenchurch Law

Eric Clarkson, Senior Associate, SDV Law

[1] 100+ cladding and fire safety claims seven years on since Grenfell Tower fire — Solomonic

[2] Housing block residents still caught in cladding crisis after Grenfell tower fire | The Independent

by Fenchurch Law

A Vivid Reminder: Fire Safety Defects Can Trigger Cover

Ten years on from Grenfell, fire safety defects remain one of the defining issues in the built environment. Against that backdrop, the recent decision in Vivid Housing Ltd v Allianz Global Corporate & Specialty SE [2025] offers important guidance on how the courts approach ‘imminent damage’ and reinforces the need for insurers to be part of the solution rather than an obstacle to remediation.

At Fenchurch Law, we have advised on several imminent danger cases, an example being Nova House, Slough – which involved a variety of fire safety and structural issues. The decision in Vivid, which involved an application for summary judgment, sits squarely within this developing line of authority and offers policyholders helpful clarity.

The Policy

The operative clause at the heart of this application is Clause 3(a), which states:

Clause 3(a) Operative Clause
"The Insurers agree to indemnify the Insured against the cost of repairing, replacing and/or strengthening the Premises following and consequent upon a Defect which becomes manifest and is notified to Insurers during the Period of Insurance and not excluded herein causing any of the following events:
(i) destruction of the Premises; or
(ii) physical damage to the Premises; or
(iii) the threat of imminent destruction or physical damage to the Premises which requires immediate remedial measures for the prevention of destruction or physical damage within the Period of Insurance."

The Dispute

Vivid submitted a claim in May 2019, contending that several building safety defects had manifested at the Property, and that they all fell within the Policy's definition of "Defect", thereby triggering the Operative Clause. Allianz denied that contention.

The summary judgment application focused solely on the meaning and scope of sub-clause(iii):

"the threat of imminent destruction or physical damage to the Premises which requires immediate remedial measures for the prevention of destruction or physical damage within the Period of Insurance."

The key question here, assuming that there were such “Defects”, was whether there was a risk of imminent damage.

The Defects

• Defect 1 (Rockpanel cladding): Vivid alleged that combustible RP cladding and foam insulation were used on a building over 18m high without proper testing or barriers. It also said that combustible debris in cavities could enable fire and smoke to spread externally.
• Defect 2 (vertical cavity barriers): Vivid contended that required vertical cavity barriers were missing, allowing fire or smoke to spread unnoticed throughout the building.
• Defect 3 (horizontal cavity barriers): Vivid claimed that missing or faulty cavity barriers at party walls, slab edges, and window openings could allow fire and smoke to spread undetected throughout the development.
• Defect 4 (Rockclad bracketry): Vivid states that RP cladding panels were not properly secured to vertical rails, with brackets that were inadequately supported or overstressed, posing a risk of detachment or damage.
• Defect 5 (building debris): Vivid claimed that debris left in building cavities created a fire hazard, facilitated fire spread, and enabled water to enter flats, causing further damage.

Allianz’s Position

Allianz argued that “imminent” required a serious and immediate likelihood of damage occurring soon, which it said was not the case as of August 2019.

In their view, the clause did not cover threats that would materialise only if a non-imminent event occurred, nor extend to circumstances where remedial measures are not immediately necessary to prevent destruction or damage within the policy period.

There was no likelihood of damage occurring soon as at August 2019, Allianz said, because:

(i) Vivid’s response in the notification to whether urgent repairs were required was “N/A.”

(ii) The only measures implemented during the policy period were “Waking Watch” arrangements, which were not intended to prevent property damage.

(iii) No damage occurred during the policy period, despite the absence of remedial works.

Vivid’s Position

Vivid, by contrast, contended that “imminent damage” should be assessed objectively, and that there was no requirement that the destruction or physical damage should happen soon. On its proper construction, they said that sub-clause (iii) applied where a reasonable observer would conclude that there was a realistic prospect of physical damage requiring immediate remedial measures to prevent it.

As to each of the defects, Vivid argued that:

(i) Defects 1, 2, 3 and 5 made the development vulnerable to physical damage in the event of fire, giving rise to a realistic prospect that imminent physical damage might occur. That risk was constant given the frequency of fires, supported by evidence of similar incidents.

(ii) Defect 4 put the cladding panels and bracketry at risk of deformation and detachment, giving rise to a realistic prospect that imminent physical damage might occur.

The Court’s Decision

The Court considered whether the defects created a threat of imminent destruction or damage sufficient to engage the policy.

As to the fire safety defects, the Court held that it could not be said there was no realistic prospect of establishing a serious risk of fire and imminent damage, particularly given the implementation of Waking Watch measures, which reflected an ongoing fire concern. Put differently, the presence of a Waking Watch did not undermine the concern of a present or imminent danger. Quite the opposite, it was that very concern which required the Waking Watch to begin with.

The court emphasised that the policy required not only an imminent threat but also that immediate remedial works are necessary to prevent destruction or damage within the period of cover. Whether this threshold is met is fact-sensitive; typically, imminent threats necessitate immediate repair or mitigation. Temporary measures such as Waking Watch do not negate the need for remedial works.

Ultimately, the court concluded:

"Vivid’s case on the construction of the policy clause and whether the policy responds has a real prospect of success in relation to all Defects other than Defect 4, and the application for summary judgment is refused."

In respect of Defect 4 (Rockclad bracketry), which was unrelated to fire risk, the Court found in Allianz’s favour and granted summary judgment.

For Defects 1, 2, 3 and 5, the Court accepted that the fire‑related risks created a realistic prospect of imminent damage.

ANALYSIS

Why Did the Court Exclude Defect 4?

Defect 4 involved the risk of deformation and detachment of cladding panels and bracketry. Intuitively, one might say this creates a clear risk of physical damage. However, the court held that the defect did not amount to a fire‑related risk and did not require “immediate remedial measures” to avoid destruction or damage within the policy period.

Two nuanced reasons are at play:

• Immediacy: the deformation risk was progressive, not acute.
• Requirement for immediate works: unlike fire safety defects, the defect did not necessitate urgent intervention to avoid catastrophic loss.

This highlights a key theme in imminent danger cases: the immediacy of required remedial work often drives the outcome more than the nature of the defect itself.

Why Vivid Matters

Similar wording has been scrutinised before, most notably in Manchikalapati & others v Zurich Insurance plc & others [2019] (“Zagora”), and the court’s approach in Vivid aligns with and develops that earlier guidance.

In Zagora, the court held that imminence requires a real and present risk, not a remote or hypothetical possibility. Vivid adopts that framework but clarifies how it applies to fire safety defects, emphasising:

• fire events are inherently unpredictable;
• where fire‑related defects exist, the risk of damage is constant; and
• temporary measures (e.g., Waking Watch) do not remove the underlying risk.

CONCLUSION

The decision in Vivid is consistent with previous case law and provides helpful confirmation that:

• Fire safety defects can constitute imminent danger;
• Temporary measures such as Waking Watch do not exclude immediacy;
• The courts will continue to apply the principles developed in Zagora; and
• Insurers must recognise their role in enabling, rather than hindering, fire safety remediation.

For policyholders, the judgment offers helpful reassurance. For insurers, it is a reminder that narrow constructions of imminent danger are increasingly difficult to sustain.

Importantly, policyholders should not be required to wait for an actual fire incident before their insurance coverage becomes applicable. The judgment clarifies that waiting for harm to occur before responding to the risk is both unreasonable and contrary to the purpose of fire safety provisions.

Chloe Franklin is an Associate at Fenchurch Law

by Chloe Franklin

New Guidance on the Scope of RCOs: The Upper Tribunal’s Judgment in Edgewater (Stevenage) Limited and Others v Grey GR Limited Partnership

Last week, the Upper Tribunal (Lands Chamber) (“UT”) handed down its judgment in a highly-anticipated appeal against a swathe of Remediation Contribution Orders (“RCOs”), providing further guidance on the scope of section 124 of the Building Safety Act 2022 (“BSA”).

In dismissing the appeal on all grounds, Mr Justice Edwin Johnson confirmed that:

1. The First-tier Tribunal (“FTT”) have jurisdiction to make RCOs against multiple parties on a joint and several basis, provided that it is just and equitable to do so (which, he was careful to note, will be a “very fact sensitive exercise”);
2. The factors which the FTT may take into account when considering whether it is just and equitable to make the order under section 124(1) of the BSA are “very wide” and are not capable of exhaustion;
3. Whilst the initial burden is on the applicant to put forward a case as to why it is just and equitable to award an RCO, the evidential burden is ultimately shared between the parties;
4. Reference to a building safety risk in section 120(5) of the BSA is a reference to “any risk” which satisfies the conditions of the BSA, and is not a reference to risks above a particular level; and
5. The question of whether remedial costs are reasonable will depend on a number of factors, including any reliance on expert reports as to the scope of the works and the time pressure that stakeholders are under to remediate continuing risks to residents.

We highlight our key takeaways for those operating in the construction and property sectors below.

Background to the appeal

The appeal relates to the development of Vista Tower, a residential high-rise building in Stevenage, the freehold of which was sold to the Respondent, Grey GR Limited Partnership (“Grey”) in 2018.

Soon after, post-Grenfell investigations led to the discovery of significant fire safety defects in the building’s external walls and a Remediation Order was issued requiring Grey to remedy those defects by 9 September 2025.

On 24 January 2025, Grey was granted RCOs against 76 corporate entities associated with the developer, Edgewater (Stevenage) Limited (the “Appellants”). Controversially, those RCOs declared each of the 76 Appellants jointly and severally liable for the total sum payable, which was in excess of £13 million.

The RCOs were appealed on a number of grounds.

Joint and several liability for RCOs

The first ground of appeal concerned whether the FTT had the jurisdiction to issue an RCO on a joint and several basis.

The Appellants, in arguing that it did not, relied on the fact that section 124(2) of the BSA describes an RCO as an order against “a specified body corporate or partnership” in the singular, rather than in the plural. In other words, the Appellants said that whilst it is open to the FTT to make a series of orders against different entities, it cannot impose a joint liability under the same order.

Interestingly, in parallel with the RCO application, Grey has commenced proceedings in the High Court (Technology and Construction Court), against the developer and two other Appellants, for a Building Liability Order (“BLO”) pursuant to section 130 of the BSA. Those proceedings have not yet come to trial, but the Appellants’ argument as to the scope of the wording in section 124(2) lead to an interesting analysis of the distinction between RCOs and BLOs.

The UT confirmed that section 130 has a different jurisdiction to section 124, and works in a different way. Section 130 applies where a body corporate has a liability under (a) the Defective Premises Act 1972 or section 38 of the Building Act 1984, or (b) as a result of a building safety risk, and is “fairly rigid in its operation”: the liability to which the original body is subject can be made transmissible to associated parties.

In contrast, under section 124 RCOs are “more flexible and open ended”: it is for the FTT to decide what amount should be paid, and by whom, and on what basis.

Ultimately, Mr Justice Johnson held that the Appellants’ singular interpretation of section 124(2) was too narrow, identifying no reason why it could not be read as a plural. Most significantly, however, he identified an obvious problem with enforcement where one or more respondent is impecunious:

“If one then assumes a situation, which will not be uncommon, where some of the respondents are or may be unable to pay, the applicant party or parties will be left with something resembling a colander, in terms of their ability to recover the total sum ordered to be paid.”

In that scenario, where an applicant is prevented from obtaining the necessary funds for remediation, the statutory purpose of the BSA is clearly frustrated. For that reason, the UT has held that the FTT does have the power to make joint and several RCOs, noting that it will not be the starting position in every case, and that it must carefully consider whether it is just and equitable to do so (which is likely to be a “very fact sensitive exercise”).

Notably, the Appellants also argued that their inability to seek contributions from others in FTT proceedings (pursuant to the Civil Liability (Contribution) Act 1978) was another reason why joint and several liability should not be imposed. However, the UT rejected that argument on the basis that Parliament had intended not to concern itself with the question of contribution in relation to RCOs (but presumably had done so in relation to BLOs, which are pursued via court proceedings) and, in any event, the issue of apportionment/contribution could be dealt with as part of the just and equitable analysis, where circumstances required.

The “just and equitable” test

The Appellants’ secondary position was that it was not just and equitable to grant an RCO as some of the Appellants did not participate in the development, nor profit from it.

The FTT had considered the very limited evidence provided by the Appellants in relation to their corporate structure, and had found that they were part of a “fluid, disorganised and blurred network” which, rather than being financially separate, most likely had a tendency to take from whichever company had money when it was needed by another. The Appellants’ evidence on this point did not impress the UT, with Mr Justice Johnson describing it as “incomplete and unsatisfactory”, a factor which appears to have weighed heavily on him when considering the grounds of appeal.

In rejecting the argument that it was not just or equitable for the FTT to award the RCO on a joint and several basis, Mr Justice Johnson confirmed that the FTT’s discretion is “very wide” and that, in drafting section 124(1), Parliament had chosen not to list or limit the factors to be taken into account. He remarked that, if he were to try and list the factors on which the FTT might rely, he “would be at risk of committing the basic error of attempting to re-write Section 124(1)”.

Mr Justice Johnson also highlighted that, whilst the initial burden is on an applicant to put forward its case as to why it is just and equitable to make an RCO, that burden is not to be overstated, and it is for a respondent to put its case in response.

The meaning of “building safety risk” in section 120(5) of the BSA

One area in which the UT disagreed with the FTT was the meaning of “building safety risk” under section 120(5) of the BSA.

The FTT had defined a “building safety risk” restrictively, as any risk which exceeded the “low” or tolerable category used in PAS9980 assessments. Mr Justice Johnson was careful to correct that interpretation however, advising that section 120(5) “means what it says”.

In other words, it does not refer to any particular level of risk and refers instead to any risk which is captured by the BSA. If Parliament had intended to refer to risk at a particular level, it would have done so (as it had in other parts of the legislation). As no particular level of risk had been referenced in section 120, it was not for the FTT to rewrite the BSA.

Whilst not mentioned in the judgment, that analysis is consistent with the FTT’s recent decision of 6 January 2026 in Canary Riverside Estate (LON/00BG/BSA/2024/0005 LON/00BG/BSB/2024/009) which held that “any risk” of fire spread or structural collapse, however small, is enough to constitute a building safety risk under section 120.

The reasonableness of remedial costs

Finally, the Appellants challenged the reasonableness of one aspect of the costs incurred. Namely, the removal of combustible foam insulation from cavity walls.

Expert witnesses had agreed that, from a purely technical perspective, it had been disproportionate to remove the foam altogether, and a cheaper and simpler solution would have been to leave it in place with the addition of a cavity barrier as effective fire stopping.

In considering the reasonableness of the works, the FTT had placed “significant weight” on the agreement of the experts, but had also considered other factors that may have affected the scope of the works, including the need to implement the remedial scheme quickly in order to minimise the continuing risk to residents living in unsafe conditions, and the fact that Grey’s PAS9980 report had concluded that the foam insulation was “high risk” and needed to be removed.

The Upper Tribunal held that the costs incurred in removing the insulation were reasonable on the basis that it was not for Grey to question the advice of its fire engineers. Rather, it was reasonable for Grey to have relied upon the PAS9980 report and not to have revisited it later in order to reduce the scope of works, especially considering the time pressure it was under from the Secretary of State to minimise the continuing risk to residents.

Implications

The decision reads as a salutary tale to developers and their associates: not only does the FTT have jurisdiction to award RCOs on a joint and several basis, but that jurisdiction may extend to associates who have not participated in the development, or profited from it.

Clearly, that is more likely to be the case where (a) there is a question mark over whether the developer is financially able to meet its responsibility under the RCO, or (b) where respondents fail to provide a comprehensive explanation of corporate structures, or are part of financially fluid networks that cannot easily be isolated, all of which were significant factors in the UT’s reasoning.

Whether the Courts adopt the same analysis in relation to BLOs remains to be seen, although that is a significant possibility given how other UT judgments have been upheld by the Courts (for instance, Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point [2025] EWCA Civ 856).

Authors

Rob Goodship, Partner

Abigail Smith, Associate

by Fenchurch Law

Understanding Common Construction Exclusions: Lessons for brokers and policyholders

At our recent London Symposium, Daniel Robin, Deputy Managing Partner at Fenchurch Law hosted a session on the principles and importance of interpreting policy exclusions, both within construction, and across the insurance industry.

The session focused on four key areas: contractual liability exclusions, cladding and fire safety exclusions, exclusions relating to liquidated damages, and finally whether Section 11 Insurance Act can apply to Exclusions. It is often said that a policy is only as good as its exclusions, and a good proportion of coverage disputes turn on the correct interpretation of its exclusions. An understanding of these exclusions is essential for brokers to help their clients navigate and mitigate these risks to avoid being left uncovered.

1. Contractual liability exclusions managing assumed risks

Contractual liability exclusions are one of the most common exclusions in liability insurance. These clauses prevent insurers from covering risks that arise because the policyholder has assumed ‘obligations by contract’ through indemnities, guarantees, or warranties given to third parties.

Daniel clarified: “Insurers don’t generally want to be on the hook for liabilities that wouldn’t exist under common law or statute, or for promises that go beyond what’s legally required.”

When an insured professional takes on a larger liability than legally required, like guaranteeing an outcome, which is a larger promise than simply the duty to exercise reasonable skill and care, that liability may fall outside insurance cover.

Often claimants will go down the path of least resistance and pursue strict liability contractual breaches, which will leave policyholders having to prove that they would still have been liable under common law, usually for a breach of reasonable skill and care. However, building regulations or planning requirements can be amended retrospectively, sometimes making previous designs non-compliant, which could fall foul of a strict liability contractual provision, but not a breach of a reasonable skill and care.

To protect clients, brokers should scrutinise client contracts for any indemnities, guarantees, or warranties that extend liability beyond common law, and ensure the policy either aligns with those obligations, or that clients understand the potential uninsured exposures, or that the appropriate extensions to cover are purchased.

2. Cladding and fire safety exclusions

Cladding and fire safety exclusions are potentially the most topical and complex exclusions facing construction professionals. “One exclusion that is very common; insurers limit their liability for anything arising out of or connected to combustibility or fire protection.”

Fire safety exclusions are standard in many professional indemnity and construction all-risk policies, and they often appear deceptively simple. However, their breadth can leave significant coverage gaps.

Ultimately, interpretation can hinge on small wording distinctions. In an example, Daniel suggested that the exclusion might not apply where the issue concerned a lack of design detail rather than the choice of combustible material. The key was whether the clause referred to the form of materials used or the design or omission itself.

Daniel cautioned: “It’s a fine line, but the burden will always be on the insurer to prove that an exclusion applies. Still, brokers and insureds must be alert to the fact that even design omissions may fall foul of broadly drafted fire safety exclusions.”

Other types of cladding provisions, that limit the scope of cover but do not outright exclude it, can also raise challenges; where exclusions limit indemnity to the “cost of rectifying defective work,” policyholders may find that consequential losses or replacement costs are uninsured.

Brokers must therefore review policy wordings in line with regulatory developments to make clients aware of any gaps in coverage due to evolving building standards or retrospective safety amendments, and ensure that their policyholders are aware of what cover is in place.

3. Exclusions relating to damages: liquidated and consequential losses

Furthermore, insurance does not automatically follow the contract, particularly when contracts allocate risk through liquidated damages.

Liquidated damages clauses are a common feature of construction contracts, predefining the amount payable in the event of delay or breach, reflecting an agreed estimate of loss. However, insurers typically exclude these liabilities, viewing them as ‘punitive’ or ‘beyond the scope’ of compensatory loss.

“Insurers exclude them because they don’t allow for an assessment of actual loss and can operate more like penalties even though in reality they can limit the policyholders exposure that they would have in any event under other contractual provisions.”

Exclusion clauses still remain even when liquidated damages are a genuine pre-estimate of loss, meaning that policy coverage generally extends only to direct, compensatory loss, not to sums agreed pre contract.

The knowledge that delay or contractual penalty exposures are unlikely to be insured, even if they seem commercially reasonable, is essential to clients, and brokers should therefore always draft limitation of liability clauses that cover liquidated damage risks too.

4. Section 11 Insurance Act and exclusions

Daniel finally discussed an increasingly important area of insurance law: how S.11 Insurance Act 2015 interacts with policy exclusions and warranties.

Section 11 of the Act clarifies that an insurer cannot rely on a breach of warranty or condition precedent if the breach did not actually increase the risk of the loss that occurred. It is not yet tested in Court if this principle could also apply to exclusions, as it may “catch other types of contractual provisions such as conditions precedent or similar rules.” However, the wording of the Act, and the guidance notes suggest that it can apply to exclusions that impose an obligation on the policyholder as a pre-requisite to cover.

Brokers should therefore challenge insurers who decline claims by considering section 11; if the decline is purely technical and unrelated to the loss event, policyholders may still be entitled to claim cover.

Key lessons for brokers

Exclusion clauses are more than technicalities, they define the boundaries of insurance protection. For brokers, several practical lessons emerged: primarily, brokers must scrutinise contractual obligations and identify warranties, indemnities, or guarantees that extend liability beyond ‘duty of care’. It is also important to monitor regulatory shifts, and educate clients on the difference between compensatory damages (insurable) and liquidated or penalty-based damages (typically excluded).

Good communication is essential, not just with your client, but with experts from every industry involved. Effective dialogue between legal, technical, and insurance teams while forming a contract is one of the easiest ways to ensure risk cover is coherent and insurable. The interpretation of an exclusion depends not only on precise wording but also on how contracts are drafted, executed, and aligned with the policyholder’s duties.

Mastering these subtleties and leaning on the expertise of other teams is central to a broker’s role as an adviser. A proactive, detail-oriented approach, combining legal awareness with practical foresight, enables brokers to anticipate exclusions, bridge gaps, and ultimately keep their clients covered.

Daniel Robin is the Deputy Managing Partner at Fenchurch Law.

by Fenchurch Law

The underinsurance crisis: legal repercussions, broker responsibilities, and growing solutions

Underinsurance is still a major, pressing issue in the UK insurance market, with recent figures revealing that a huge 76% of commercial buildings are currently underinsured. While this is an improvement from 81% in 2023 and 83% at its peak, the statistics reveal a systemic issue which affects businesses, policyholders, and every facet of the insurance ecosystem.

In a recent webinar on Underinsurance and the Insurance Act 2015, Alex Rosenfield, Partner at Fenchurch Law, delved into the world of underinsurance, why it’s become such a huge problem for our industry, the remedies that insurers may apply under the Insurance Act 2015, the legal and financial consequences for policyholders and brokers, and finally, some suggested strategies to mitigate the risks of underinsurance.

What is underinsurance?

Taking it back to basics, underinsurance arises when the total sum insured cannot cover the full cost of rebuilding or repairing a property. The gap between the true value, and the insured value can be created for many reasons.

• Failure to factor in full rebuild costs: Including demolition, debris removal, professional fees (e.g. architects and builders).
• Inflation: Rising costs of labour, materials, and equipment may not be reflected in outdated valuations.
• Forgetting VAT: This can be especially problematic for businesses that cannot reclaim VAT.
• Intentional underinsurance: The deliberate choice to disclose lower values to reduce premiums, a risky choice which can have detrimental implications on the policy holder.

Even financially educated clients and policyholders can end up underinsured, and one of the biggest reasons is a lack of diligence.

The implications of being underinsured can be very serious. Insurers tend to apply an average clause, and the policyholder may find themselves in financial crisis, needing to fund the difference between the sums insured, and the true asset value.

Alex stressed, “Underinsurance can be disastrous with large claims, but even partial losses can still leave policyholders under-compensated.”

As an alternative (and potentially in addition) to applying average, the insurer can apply a remedy for a breach of the duty of fair presentation under the Insurance Act 2015 (“the IA 2015”), which will depend on whether the breach was deliberate or reckless, or merely carless. If it was deliberate or reckless, the insurer can refuse to pay the claim, or void the policy altogether.

If this happens, the policyholder would most likely have to share this information with a future insurer, and they may be marked as a ‘moral hazard’, reducing  their perceived capacity to suffer a loss of a particular kind.

It could also frustrate business continuity in some cases, as the insured may need to wait for financial stability, and in another commercial sense, beyond the financial hit, the act of underinsuring may put directors in breach of their statutory duties.

Insurer remedies for underinsurance

Alex explained that insurers most commonly utilise one of two remedies:

The Average Clause is the most common contractual remedy, proportionally reducing the claim to  discourage underinsurance and reinforce the importance of accurate valuations.

There is also the possibility of the insurer applying a remedy for a breach of the duty of presentation under the IA 2015. If the breach was deliberate or reckless, the insurer can avoid the policy and refuse all claims, and keep the premium. If it was careless or negligent, the insurer’s remedy will be proportionate, and turn on what the underwriter would have done differently had the true insured sums been disclosed.

Can insurers apply both remedies?

Alex addressed a nuanced and (currently) legally untested question: Can an insurer apply both average and a proportionate remedy under the Insurance Act to the same failure?

While technically possible, Alex argued this would likely be seen as commercially unfair and commercially unattractive, creating a double punishment. A more reasonable response, he argues, is a single repercussion based on the circumstances and severity of the breach.

“To my mind, applying both remedies cumulatively doesn't sound very attractive, because policyholders effectively be punished twice for the same failure. I think a better analysis, which I think sounds a lot more commercial, is that the insurer picks one or the other, which may just depend on how this has all happened.”

Declaration-linked and waiver of average cover

Declaration-Linked Cover (a premium based on estimated gross profit), avoids average application, unless dishonesty is involved, and is especially useful for those businesses with changeable values and success. Traditional Sum Insured with Waiver of Average promises full claim payouts without average deductions, which is also ideal for businesses that struggle with accurate valuations. However, with a waiver of average, not disclosing ‘material’ changes, such as business value growth, may still be considered a breach of the duty of fair presentation.

“Average and the remedies that insurers have under the Insurance Act can be targeted for very different things. Where an average deals with inactive, inadequate cover that the insured chooses, which is a contractual term, the values of the Insurance Act address inadequate disclosure, which affect the risk so they do address different things.”

Having covered the insurer’s and policyholder’s responsibilities at length, where does the broker stand, what are their responsibilities?

The broker’s role

Alex went on to highlight the role of the broker in helping clients to mitigate the risk of underinsurance. The Infinity Reliance v Heath Crawford case serves as a significant warning to brokers about the importance of comprehensive client advice and clear communication about insurance terms.

Infinity Reliance, an online retailer, experienced a devastating warehouse fire, but after realising that the business was underinsured, the covered value was only 26% of the actual rebuild cost (which was around £33m). The insurer, Aviva, decided to apply average, leaving the business £3 million out of pocket.

But how was the broker implicated? Infinity alliance sued their broker, Heath Crawford, claiming that he had shared misleading documentation, failed to provide proper advice on the insurance calculation, and that he had not considered the alternative premises and additional costs in his advice.

The court agreed with the policyholder, finding the broker had breached his duty. How?

• Not explaining the potential downsides of the chosen insurance type
• Failing to clarify the implications of average and coverage limits
• Not ensuring that the client’s insurance choice was informed and genuine.

Indeed, while Infinity Reliance expressed that they didn’t want to suffer a premium change, the broker was ultimately in breach of duty, as a reasonable broker would recommend a declaration of cover.

“The broker must ensure the client understands any disadvantageous consequences, such as the risk that underinsurance would lead to any claim being reduced by average... even when a preference isn't expressed, the reasonable broker should check that it remains a genuine and informed choice,” Alex clarified.

Today’s legal landscape and practical solutions

While the Insurance Act 2015 introduced clearer frameworks, case law is still limited, leaving policyholders and insurers uncertain, especially on the potential for “double dipping” and the full implications of negligent misrepresentations.

So, what does Alex suggest to help combat the major issue?

1. Address the root cause: diligence

There are many reasons for underinsurance, but there is one key theme amongst all reasons: a lack of diligence. It is of the highest importance to express the need for regular evaluations make sure that the policy covers all the necessary rebuild elements, and also to take account of inflation. It is also imperative that the policy holder reviews these figures annually.

"Never assume that the figures and costs that were adequate yesterday will be relevant today."

2. Clarify remedy application

Insurers can, theoretically, apply cumulative remedies to the same ‘failure’, even if it feels “very draconian”. A practical solution is to actually discuss the remedy that might apply with insurers, and in what circumstances. That therefore creates certainty for all parties involved.

3. Educate clients thoroughly

Brokers must explain the consequences to the policyholder of not insuring adequately; “It does go about saying that policyholders do need to be aware that other insurance can lead to serious shortfalls, even for partial losses.”

“Concepts such as average or declaration linked cover won't be obvious to everybody, so it is important to make sure that your policyholder clients know precisely what those terms mean.”

Underinsurance is not just a hidden gap in coverage, but a systemic vulnerability that has the capacity to shake business stability. With 76% of buildings underinsured, this is a problem that demands urgent attention from the entire insurance ecosystem: from insurers to policyholders to brokers.

The combined force of regulatory obligations, court decisions like Infinity Alliance, makes it clear: accurate valuation, diligent disclosure, and client education are necessities to combating this widespread issue in the current risk market.

Alex Rosenfield is a Partner at Fenchurch Law

by Fenchurch Law

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.

by Alex Rosenfield

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.

Authors

Chris Ives, Partner

by Christopher Ives