BLG Construction and Property Professionals' Briefing - Notification Under The Spotlight
Professionals engaged in the construction and property sectors
will know that the landscape has been changing over the course of
the last 18 months. The economic climate is deteriorating and there
has already been a significant downturn in the property development
sector. This will bring greater pressure on funding and profit
margins for larger construction projects and is likely to increase
the risks in relation to the solvency of suppliers and
sub-contractors.
We expect these factors will exacerbate the number of claims and
disputes within the industry, which in turn will likely lead to an
increase in the incidence of construction and property
professionals turning to their indemnity insurance for
protection.
On renewal
Laker Vent Engineering Ltd v Templeton Insurance Company
Ltd (2008)
The insured, Laker Vent, notified its insurers, Templeton, of a
claim which took the form of an arbitration that had arisen under a
construction contract between Laker Vent and a third party
contractor. Laker Vent sought an indemnity from Templeton in
respect of its legal costs arising out of the arbitration.
Templeton rejected the claim on the grounds that Laker Vent had
knowingly failed to disclose a material circumstance (the
escalation of the dispute) prior to renewal of the policy, and said
that this failure meant that Laker Vent had not adhered to the
contractual notification procedure under the policy, which entitled
Templeton to decline cover.
The High Court rejected Templeton's arguments and found in
Laker Vent's favour. Laker Vent was entitled to insurance cover
since, at the time of renewal, it owed Templeton the usual duty of
disclosure as codified by statute and imposed by the general law.
The fundamental question was whether the various matters of which
Laker Vent was aware before renewal amounted to circumstances which
were so material that they would have affected the judgment of a
reasonable insurer in fixing the premium or determining whether he
would take the risk. The Court considered that, at the point of
renewal, Laker Vent's relationship with the third party
contractor had not deteriorated sufficiently to qualify as a
material circumstance.
In a note that will strike a chord with many construction and
property professionals, the Court observed that it was inevitable
for complex construction contracts to be vulnerable to a variety of
disputes and that an insurer should, therefore, be aware of the
general risks that arise from such...
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