New Build Home Insurance Exemptions – Fire Safety And Defects: An Update Following Manchikalapati & Others v Zurich Insurance Plc [2019] EWCA Civ 2163

Summary

With the spotlight on fire safety measures in blocks of flats, there is an ongoing problem of new build insurers trying to avoid or restrict payment under their insurance policies for the cost of necessary remedial works, including for works to address the failure to comply with fire safety regulations. In Zagora Management Limited v Zurich Insurance Plc [2019] EWHC 140 (TCC) (Zurich), a claim was brought by the owners of 30 flats in a new build development of 104 flats in Manchester with numerous defects which the developer and new build insurer failed or refused to address.

At first instance, HHJ Davies found that the new build insurer in that case, Zurich, should be responsible to cover the cost of rectifying numerous serious defects, including to remedy defective fire safety measures and a defective roof under the terms of the Zurich Standard 10 New Home Structural Defects Insurance Policy (the Policy). However, Zurich was able to persuade the Court that although the cost of the works was £9.7 million, under the terms of the Policy the amount the leaseholders could recover was restricted to a cap of £3.6 million, due to a Maximum Liability Clause (MLC) cap.

The MLC

The MLC provided that Zurich's maximum liability under the Policy was limited to the 'purchase price declared... subject to a maximum of £25 million'. Accordingly, at first instance, HHJ Davies found that the MLC limited each of the Claimants' claims to the purchase price of their individual flats (thereby restricting the overall Judgment damages to £3.6 million). This was disputed by the Court of Appeal, with Sir Rupert Jackson holding that the MLC was ambiguous, but should be construed in light of the other provisions of the Policy and the wider commercial objectives of the Policy. Sir Rupert Jackson went on to hold that the MLC operated to allow the Claimants' to be awarded the total purchase price of all 104 flats in the development, which totalled £10.8 million, rather than being restricted to the price of the 30 Claimants' flats. McCombe LJ and Coulson LJ agreed with this interpretation.

The grounds for appeal

Zurich appealed the first instance decision for a number of reasons, relating to the interpretation of the Policy. The Court of Appeal rejected these on the basis that 'what Zurich suggest as the proper interpretation of the words used in their own...