Zagora Management Ltd v Zurich Insurance Plc

Buy to let investors complained that there were defects in their new-build flats. As part of these proceedings, they sought to recover their costs of remedying these defects from the insurer which had issued building warranties known as "Standard 10 Year New Home Structural Defects Insurance Policies". Accordingly, Davies HHJ was required to consider the scope of cover provided by these policies. Much of the case turns on the particular facts, and policy terms, but the judge made some general observations as well. These included the following:

1) When interpreting an insurance policy, it is sometimes permissible to take into account what the policy "ought" to cover.

The starting point is the natural and ordinary meaning of the words used, and that cannot be overridden by what the insured may have reasonably believed was being covered. However, "where the words used leave reasonable room for doubt as to what was intended, a construction which would unreasonably limit the scope of the cover which it was the clear purpose of the policy to provide is to be avoided. That applies particularly where the insurer has put forward a policy which contains exclusions from cover which is otherwise afforded which are genuinely ambiguous..."

2) The judge also commented that "words of exclusion are to be construed narrowly".

3) Prior caselaw has established that where loss is caused concurrently by an insured and an uninsured peril, the insured can recover. However, where loss is caused concurrently between an insured and an excluded peril, the insured cannot recover. The judge commented that "In this case it is not as easy as it might be to identify whether the items listed under the side of the page entitled "what we will not pay" are items which are uninsured or which are excluded or otherwise. The language "what we will not pay" is more obviously consistent with a description of items which are uninsured rather than exclusions. However, some of the items might be said only to make sense on the basis of being exclusions from or limitations upon cover otherwise provided".

4) The policy covered the "reasonable cost of rectifying or repairing physical damage". "Physical damage" was defined as "a material difference in the physical condition of the new home from its intended physical condition". One of the issues was whether the element is in its intended physical condition, even though that intended condition arises from defective design or a defective...