Zurich Insurance has been forced to pay over £10 million for repairs to a large block of flats in Manchester after owners complained their homes were unsafe. The Court of Appeal ruling sets out the proper interpretation of a liability cap in Zurich’s new home warranty insurance policies.
The freeholder and owners of long-leasehold flats in the development complained that their properties had serious defects which made them unsafe to inhabit. These included major fire safety defects and a roof that needed replacing. They claimed for the cost of repairs under their new home warranty insurance policy issued by Zurich Insurance plc.
In the first hearing in the High Court, the insurers disputed most of the leaseholders’ claims for the cost of repairs and their claim for the cost of alternative accommodation for the period of repairs.
The High Court judge ruled in favour of the leaseholders on almost every count but decided that a liability cap in the insurance policy meant that their claims were limited to the purchase price of their individual flats, which came to an aggregate of £3.6 million.
Both the insurers and the leaseholders appealed the decision. The Court of Appeal rejected all of the insurers’ grounds of appeal but found in favour of the claimants in relation to the interpretation of the liability cap.
The appeal judges decided that the liability cap should be set at the total purchase price of all the flats in the development and not just at the purchase price of the claimants’ flats. This came to £10.8 million, which makes it possible for the leaseholders to recover most of the cost of putting right the defects in their apartments.
“This case has clarified the interpretation of a number of points under new home warranties and will be of great interest to insurers and property developers,” said James Burgoyne, Director – Claims & Technical, Brunel Professions. “It included how Zurich’s present liability cap should be interpreted, although the matter is subject to further appeal. The case emphasises the need for clarity in the terms of a limitation clause in order to avoid disputes as to its effect.”
A report of the High Court hearing has been published by Keating Chambers. Reports about the Court of Appeal hearing have been published by Practical Law Construction Blog, Fenwick Elliott, and Walker Morris.
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