Category Archives: Insurance

Getting terrorism cover was reasonable exercise of insurance discretion

In the Upper Tribunal Lands Chamber case of Odime Ltd v Bath Building (Swindon) Management Co Ltd and Others [2014] the appellant was the landlord of a four-storey building containing l3 flats let on leases.

The landlord had an obligation under the leases to “keep the Building including the Demised Premises insured to its full reinstatement value against loss or damage by fire and the usual comprehensive risks in accordance with the Council of Mortgage Lenders (“CML”) recommendations from time to time and such other risks as the landlord may in its reasonable discretion think fit to insure against”.

The insurance obtained by the appellant’s insurance broker placed the building in “Zone B”, which carried the same risk as central London and other similar places.

Furthermore, the RICS Code, said serious consideration should be directed to the taking out terrorism insurance.

The respondents here were the flat management company and 11 of the tenants.

They disputed the cost of terrorism insurance for the years 2010/11, 2011/12 and 2012/13 by an application to the Leasehold Valuation Tribunal (“LVT”) under section 27A of the lord and Tenant Act 1985.

The LVT disallowed that item on the ground that terrorism insurance was not a matter covered by the insuring obligations in the leases or in respect of which the appellant had exercised its “reasonable discretion”.

The Upper Tribunal ruled that the “usual comprehensive risks” against which the landlord was obliged to insure included terrorism as per the CML recommendations.

Where those recommendations referred to insuring against explosion, that included insuring against a terrorist attack. In its ordinary meaning “explosion” included explosions caused by terrorism.

The obligation was to insure against explosion, without differentiation being made between any particular methods by which an explosion might be caused.

If the tribunal were incorrect to think the above, the appellant was nevertheless entitled in the exercise of its power to insure against “such other risks as the Landlord may in its reasonable discretion think fit to insure against”, to insure against terrorism.

The test was whether, in the circumstances, a lawful decision had been reached falling within a range of reasonable decisions – as opposed to being perverse.

The absence of any particular terrorist threat did not make the appellant’s decision to insure against terrorism necessarily unreasonable.

The exercise of a discretion in accordance with the RICS Code was a reasonable exercise of that discretion.

It followed that the appellant had been entitled to recover the cost of insuring against terrorism, either because it had to obtain such insurance under the terms of the leases, or, because it’s decision to do so had been a proper and reasonable exercise of it’s discretion under the leases.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Zurich insurance claim survived accepting insolvent developer’s repudiation

In Bache & Ors v Zurich Insurance Plc [2014] the new property buyers benefited from an insurance policy which said:

“We will pay where, due to the developer’s bankruptcy, liquidation or fraud, the developer fails to complete the construction of the new home in accordance with the requirements and the buyer loses a deposit paid to the developer under the terms of the purchase contract for the new home, we will at our option

(a) Pay the reasonable cost of completing the home to the original specification; or

(b) Pay to the buyer the amount of any such lost deposit.”

The Claimants treated the non-commencement and non-completion of Block A as repudiatory and sought recovery of their deposits.

Zurich refused to pay out because the vendor was in administration and not yet in liquidation. Though it did later go into liquidation.

Looking at the commercial purpose underlying the insurance the High Court declined to accept as significant a temporal difference between those purchasers, such as the Claimants, who treated the non-commencement and non-completion of Block A as repudiatory, and those purchasers who did not do so but simply waited until the liquidation.

Zurich had paid and would pay out on the latter. This implied that the timing was important. However, the court rejected this as a distinction without a commercial difference.

The reality was that the construction project was never going to be completed by the vendor – particularly during the recession. There was no obvious or logical reason why there should be a distinction between the two types of purchaser i.e. the purchaser who was prepared to wait or who could not be bothered to do anything about the failure to complete the work and the purchaser who felt that he or she could not wait, possibly, for a very long time.

A purchaser in the latter category could only try to secure the recovery of his or her deposit by accepting any repudiation on the part of the developer vendor.

The commercial reality, envisaged as at the date of the insurance policies in question, was that the purchasers’ right to secure the return, by the vendor, to the purchasers of the deposits would only arise on either a repudiatory failure by the vendor to start or complete the development, or a refusal or inability on the part of the vendor to complete the long leases.

In practice the latter case would only arise where the flat construction had been substantially completed. So the parties to the policy must be taken to have foreseen the possibility of the deposits being recoverable by the purchasers from the vendor if the latter had repudiated the agreements for lease by being unable or unwilling to proceed with construction of the flats.

Furthermore the policy wording had to be construed in this way to enable it to fulfill its commercial purpose for it would be relatively uncommon that the formal bankruptcy or liquidation caused the developer’s inability to complete the construction. Mostly the developer’s inability to complete will be the actual or impending insolvency of the developer which will lead to either a creditor or lender or the developer itself putting the developer into liquidation.

Whilst the final liquidation of the developer would finally rule out any theoretical possibility of the developer actually completing the development, the underlying cause of the failure to complete the development would be the actual or impending insolvency of the developer beforehand.

The court did accept that the insolvency of the vendor was not in itself an event which engaged the policy. The relevant section of the policy was not engaged unless and until there was a bankruptcy, liquidation (including dissolution) or fraud. Otherwise, there would have been no need to mention those contingencies.

However the fact that the insured purchasers have accepted a repudiation on the part of the developer vendor was not in any way a bar to recovery under the policy after liquidation had occurred because the failure of the developer “to complete the construction” was not reliant on their being “a subsisting contractual obligation”. That would require an unnecessary gloss on the word “fail” and in effect require the addition of words. The words: “the developer fails to complete the construction” meant simply that the developer did not complete the construction. It tied in with the Introduction to the policy which summarised the commercial purpose of the relevant part of the policy. If there was an ambiguity as to what “fails to” meant then it should be construed in favour of the insured.

The case would have been decided the same whether or not the developer was insolvent at the time of the acceptance of the repudiation.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

No preventative representations could get round failure to execute deeds properly

Where documents were not in fact executed in accordance with the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”), does the fact that documents were described as deeds and meant to be such prevent (“estop”) the signatories from denying that the defective deeds were validly executed?

Briggs & Ors v Gleeds (Head Office) & Ors [2014] concerned a pension scheme (“the Scheme”) for employees of partnerships and companies within the Gleeds group (“Gleeds”).

As will be seen later the case is an important one on the 1989 Act and estoppel and deeds – all of which play an important role in property law.

The Scheme’s case that the signatories could be prevented (estopped) from denying that the defective pension deeds were validly executed failed on factual and legal grounds.

The Facts

Gleeds argued that:

1. By supplying the draft deeds and, perhaps, instructions as to how they should be executed, the Scheme’s Pension Adviser (“Aon”) impliedly represented to Gleeds and Scheme members that, legally speaking, execution in the manner indicated by the drafts would suffice; and

2. Gleeds and Scheme members relied on the representations to their detriment; and

3. Aon were acting on instructions from the Scheme trustees at the relevant times and so the representations should be attributed to the trustees; and

4. In the circumstances, an estoppel had arisen precluding both the trustees and Gleeds and Scheme members from challenging how the deeds were executed.

Fatally to Gleeds case the court found that Aon could not be said to have made such representations for the trustees, or on the trustees’ behalf, to the Gleeds and Scheme members in relation to the execution of the defective deeds.

Main Legal issue

The main legal issue was “how far could the principle of estoppel be invoked to prevent a party from asserting that the statutory requirements for a deed (under the 1989 Act) have not been satisfied?”

The court concluded that estoppel cannot be invoked where a document does not even appear to comply with the 1989 Act on its face or, in any event, could not be so invoked in the particular circumstances of that case. For the following reasons:

i) Parliament had imposed the evidential requirement that an individual must sign “in the presence of a witness who attests the signature” otherwise his deed was not validly executed as such; and

ii) The “deeds” at issue here were not “apparently valid”. It could be seen from each document that it had not been executed in accordance with the 1989 Act.

Had it been otherwise a person can sometimes be estopped (or prevented) from denying due attestation.

But if estoppel could be invoked in relation to documents that were not “apparently valid” people would not know where they stood with them and there would be uncertainty. The validity of a deed may remain important for many years. In relation to older “deeds” people without personal knowledge of the circumstances in which they were executed would not know whether they were valid or not.

A party to a “deed”, who had not himself executed the document in compliance with the 1989 Act, would have an election as to whether the document should be regarded as valid. If the document turned out inconvenient to him he could deny its status as a deed. But if it proved advantageous he could invoke estoppel.

So, if a “deed” provided for a pension scheme to change to money purchase instead of a final salary scheme, an employer who had not had his signature to the document witnessed could wait and see whether the change had actually been favourable to him; and

iii) if estoppel could be invoked in circumstances such as these Parliament’s and the Law Commission’s aims, behind the 1989 Act, to address those kinds of issues would be seriously undermined.

So, the members of the Scheme were not estopped (prevented) from refuting that the defective deeds had been validly executed since (a) Aon could not be said to have made representations on the Scheme trustees’ behalf to Gleeds or Gleeds Scheme members as to the execution of the defective deeds; and (b) estoppel could not be invoked to get around the 1989 Act in circumstances where it was quite apparent that the documents were not validly executed as deeds.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Nuisance and negligence claim against Council fails

No physical damage usually means no claim for negligence – except in limited cases there is no such claim for purely economic loss.

In CSG (Stratford) Ltd & Ors v London Borough Of Newham & Ors [2013] EWHC 2868 (TCC) (02 October 2013) the Complainant alleged negligence on the part of Newham in failing to remove a pool of water outside its restaurant. The presence of the pool of water was also alleged to have been dangerous and to have constituted a nuisance.

Both of these allegations were ruled without substance. Photographs identified the existence of a pool of water on the concourse outside the restaurant.

However no allegation was made that the area where the water lay was under the ownership or control of Newham.

Even if it was, a claim in negligence would fail because there was no allegation that the water caused any physical damage to the Claimants’ property.

Any claim in negligence must therefore be solely in respect of pure economic loss, in the absence of physical damage, and as such must fail.

The claim in nuisance faced the insuperable hurdle that there was no allegation of an escape from Newham’s land to the Claimants’ land and no other allegation of facts that would support the existence of a cause of action in nuisance.

The Court found the allegation of danger unproven either way.

Trees are Unpoplar

In Robbins v London Borough of Bexley [2013] EWHC 1233 (Civ) (17 October 2013) Mrs Robbins was the owner of a semi-detached house with a part 2-storey and part single storey extension at the rear at 6 Radnor Avenue, Welling, Kent (“No 6”). To the East and rear of No 6 was Danson Park, owned by the Council. A row of poplar trees (the “poplars”) ran roughly North/South behind the houses in Radnor Avenue, at a perpendicular distance of a little over 30 metres from the rear of the extensions to those properties. The judge found that roots emanating from two of these poplar trees known as “T1” and “T2” were responsible for causing damage to the foundations of No 6, by soil desiccation. In particular, he found that T2 (30.7 metres from No. 6) was the major contributor to the removal of moisture from the clay beneath the foundations of No 6, and that T1 (between 32 and 36 metres from No. 6) also made a material contribution to this extraction of moisture.

The Council’s appeal rested on two main submissions. The first was that the judge was wrong to ask himself what the Council would have done if it had taken steps to prevent damage to Mrs. Robbins’ house by the encroachment of tree roots. Rather, the Council said, he should have asked himself what it should have done.

Since the accepted practice, at least until the summer of 2005, was to reduce the size of the crown by not more than 30% (significantly less than 70% of total volume) every three or four years, the Council submitted that it could not reasonably have been expected to do more than that. It follows that its duty had extended no farther than to take measures which, as it turned out, would not have prevented the damage that was caused to Mrs. Robbins’ house in 2003 or 2006. It said it would be contrary to principle and unfair to hold the Council liable for doing nothing if it could not have been held liable had it taken such steps as were reasonable at the time.

The Court ruled that the question the judge had had to decide was what would have happened if the Council had proceeded with a proper crown reduction programme and that involved deciding with what frequency and to what extent the exercise would in fact have been repeated.

It was no answer to say that the damage would have occurred anyway had the Council pursued the lesser level of pruning then thought to have been adequate.

The Court was impressed by the severity of the pruning that in fact occurred too late in 2006 and felt the same level of pruning would in practice have been applied earlier had a proper programme been applied.

In practice any crown reduction carried out between 1998 and 2006 would have been as extensive as that carried out in 2006 and thus sufficient to prevent damage.

On the evidence before him the judge was entitled to find that the Council would have adopted a four-year cycle and that if the work had been carried out in early 2002 and early 2006 the damage which occurred in the summer of 2003 and 2006 would not have occurred.

Accordingly the Council were liable for the damage.

Get your insurance form right!

Insurance companies tell us the importance they attach to the information on our insurance proposal forms. Well guess what? They mean it! As the claimant in Genesis Housing Association Ltd v Liberty Syndicate Management Ltd [2013] EWCA Civ 1173 (04 October 2013) found.

In that case the claimant had taken out insurance to cover the work of a contractor named in the proposal form. In fact the contractor that did the work was another similarly named company.

The court had no problems disposing of the notion that the insurance proposal was not part of the insurance contract.

Which had been a contract to insure another contractor not the one who did the work so no surprises…….the claimant was not awarded any insurance pay out.

If all material facts aren’t correct (and all material facts disclosed) in the proposal form your insurance’s probably not worth the paper its written on.

Corporate Veil applied in Construction Case

Oakapple Homes (“OH”) used sister company Oakapple Construction (“OC”) to convert an old Derbyshire Mill to a large flat and retail complex. As part of the build contract arrangement OH novated the appointment of their Architect, DTR, over to OH. As the novation substituted OC for OH as Employer under the appointment DTR gave OH the usual duty of care warranty.

The Mill burnt down and also DTR went into liquidation and the liquidator disclaimed their appointment. So the issue arose to what extent DTR’s indemnity insurers were liable for DTR’s duty of care warranties that had been given to OH and some occupiers.

DTR tried to say that OC had contributed to the building being destroyed by negligently departing from their designs.

They said the beneficiaries of the warranties had to have their damages reduced because the warranties DTR gave them said that DTR owed them no greater liability than it did to the Employer under the Employer’s appointment of them, and that Employer was contributorily negligent for departing from their designs.

The court ruled that, even if OC had been contributorily negligent, and, even if OC were OH’s sister company, they were separate bodies and OH could not have had its damages affected by what another company had done. That principle applied whether OH’s damages had been under the appointment, had it never been novated, or under the collateral warranty it had got from DTR at novation.

Secondly the court said that when the warranties talked about the Employer under the appointment, they meant the original appointment, before the novation changed the Employer under that appointment from OH to OC, and, since OH wasn’t guilty of any contributory negligence that would have reduced its damages (on whichever basis), neither would the beneficiaries suffer any such reduction under their warranty claims. Also it was that original unreduced liability DTR’s insurers had agreed to insure, under the indemnity policy, not the measure of DTR’s liablity to OC, which the insurer’s were claiming to have been reduced by OC’s alleged contributory negligence.

As if that wasn’t enough the court thought the relationship between the beneficiaries of the warranties and DTR was totally contractual so statutory damages reduction for contributory negligence did not apply any way. DTR and their insurers would have had to show that the beneficiaries claims against DTR and their insurers were based common law of negligence (which it could not) and that to the extent there was also the contractual duty under the warranties that it was coextensive with, and triggered by, what was in all other respects common law negligence.

Professional indemnity insures will have taken note of a case which has potentially wide implications for them and perhaps greater protection for occupiers and other beneficiaries where property developers offer a one stop shop of development, construction and sometimes design, quantity surveying and project managment from subsidiaries within their Group.

At the same time insurers can be expected to vigorously contest claims where a professional has accepted no supervisory or inspection obligation to pick up a third party’s failure to adhere to its competent designs.