Citation: [2024] EWHC 2063 (TCC)
The limitation period for Peabody’s insurance claim did not start at the contractor’s insolvency in June 2016, but rather when Peabody incurred additional costs to complete the construction project. The court rejected NHBC’s argument that the claim was time-barred, holding that the insured’s cause of action accrues when they actually suffer a loss by having to pay more to complete the works, not at the moment of insolvency.
Background
In 2015, Catalyst (to whose rights the Claimant has succeeded) engaged Vantage for the design and construction of 175 dwellings, including 88 affordable units (‘Units’), under a Building Contract. The total contract sum was £23,878,482, with £10,358,510 allocated to the Units. The 88 Units were covered under the well-known Buildmark choice contract of insurance issued by NHBC, which covered Catalyst against various construction risks, including contractor insolvency before practical completion.
Construction began on 14 December 2015, but Vantage faced financial difficulties, leading to the appointment of administrators on 29 June 2016. Catalyst initiated a tender process in July 2016 to find a new contractor and engaged Stack London Limited (“Stack”) as a construction management contractor to complete the works. After squatters were removed from the site in September 2016, Stack began the completion of the construction works.
Peabody’s claim was issued on 24 Jul 2023 for £913,555.36 plus interest, comprising (a) £815,500 for extra costs incurred over and above what would have been paid to the original contractor, Vantage and (b) legal and other fees and expenses, totalling some £98,000, which includes a claim (to be pro-rated so as to relate to the 88 insured units) for “site security” costs in the total sum of £56,350.
The parties agreed that a claim on an insurance policy, being a claim under a contract of indemnity, is one for unliquidated damages for breach of the insurer’s obligation to hold the insured harmless against an insured peril.
NHBC’s application was made on the basis that, as it alleged, the claim had become statute barred under section 5 of the Limitation Act 1980, by virtue of more than 6 years having passed between Vantage going into administration on 29 June 2016 and the Claim Form being issued in July 2023. NHBC’s position – and the point germane to the application – was that time had started to run from, i.e. the cause of action in contract accrued on, the administration of Vantage on 29 Jun 2016 (the ‘insolvency point’).
Peabody’s position was that because Option 1 “applies if you…have to pay more to complete the building of the home(s), because the contractor is insolvent” the cover for was the additional cost caused by the insolvency, and not the insolvency per se. For that reason, the cause of action did not accrue on the date of insolvency, but on a later date.
Decision
It was common ground between the parties that, once a defendant has raised limitation as a defence, the burden shifts to the claimant to show that the claim is not time-barred. However, the judge declined to investigate Peabody’s case as to when, factually, the cause of action would have accrued, stating that the time estimate for the hearing was insufficient for this.
Turning to NHBC’s case, the Judge held that NHBC was wrong to say that time runs from insolvency. The Judge did not accept – either as a matter of fact, or construction – NHBC’s contention that the fact of insolvency necessarily meant an insured would have to pay more to complete the works. He noted, in particular, the very wide definition of ‘Insolvency’ in the NHBC Policy, which included, by way of example, administration and receivership. An administration might be successful and allow the completion of the project without undue difficulty, and without any extra spend by the insured.
The judge accepted that the cover did not apply if the insured did not “have to pay more to complete” the works, and that the event insured against was not the insolvency per se but rather the insured having to pay more above the contract price to complete. He accepted Peabody’s submission that it was not a commercially sensible construction for the insurer to be liable to indemnify the insured at the moment of the insolvency regardless of whether there was in fact any loss caused by it.
Noel Casey KC (7 King’s Bench Walk) and Mek Mesfin (4 Pump Court) for the Claimant, instructed by Devonshires Solicitors LLP. Thomas Grant KC (Wilberforce Chambers) and Harry Smith (Keating Chambers).
View the full case report here.
