On 5 December 2019 the Court of Appeal handed down its judgment following appeals against the decision of HHJ Stephen Davies in Zagora Management Ltd v Zurich Insurance Plc [2019] EWHC 140 (TCC). Save in one important respect, the Court of Appeal’s judgment essentially upheld the decision of HHJ Davies at first instance concerning the proper interpretation of the Zurich Standard 10 New Home Structural Defects Insurance Policy (the Policy). Where the Court of Appeal differed from HHJ Davies was in relation to the interpretation of the Policy’s maximum liability clause (MLC).
Key Facts
The case concerns a block of flats in Manchester, known as New Lawrence House. The development contains 104 flats in total but the Claimants between them own only 30. At trial, HHJ Davies found that a number of defects exists in the development. Those defects include major fire safety defects and a roof that needs replacement. On HHJ Davies’ findings, the Claimants were entitled to recover £9.7 million plus VAT in respect of the cost of remedial works subject to the operation of the MLC.
The MLC
The MLC provides that Zurich’s maximum liability under the Policy is as follows: “for a New Home which is part of a Continuous Structure, the maximum amount payable in respect of the New Home shall be the purchase price declared to Us subject to a maximum of £25 million.” HHJ Davies found that the MLC limited each of the Claimants’ claims to the purchase price of their individual flats (which totalled £3.6 million). The Court of Appeal disagreed. Sir Rupert Jackson (with whom Coulson and McCombe LJJ agreed) found that the MLC is ambiguous but construing it in light of the surrounding provisions of the Policy and the Policy’s obvious commercial purpose it limits the Claimants’ claims to the total purchase price of all flats in the development, which is £10.8 million.
Zurich’s Grounds of Appeal
Zurich advanced a number of grounds of appeal relating to the proper interpretation of the Policy, all of which were rejected by Coulson LJ who found that: “what [Zurich] suggest as the proper interpretation of the words used in their own policy is, on analysis, nothing of the kind, and is instead a strained and artificial construction (often requiring the interpolation of words not present) with the result that it becomes impossible to see any circumstances in which [Zurich] would ever pay out under the terms of the policy.” In summary, Coulson LJ found:
- It is not necessary for a claimant to have incurred the costs of rectification work before they can claim under the Policy.
- The fact that some of the Claimants’ recoveries under the Policy would be first used to pay the Claimants’ lawyers and funders did not prevent the Claimants from pursuing their claim. To find otherwise would be contrary to the ordinary principles of insurance law that an insured can do what they want with their insurance proceeds and would unreasonably restrict access to justice.
- The Policy does not require the insured to sue any third parties against whom the insured might have a possible claim before pursuing Zurich under the Policy.
- The Policy provision that a “basement or semi-basement” was not insured did not exclude any claims for defects in the development’s underground car park.
- The development’s balconies fall within the Policy definition of “Common Parts”.
- The condensation exclusion in the Policy does not exclude liability where the condensation which causes damage is caused by a defect. The defect is the proximate cause of the damage, not the condensation.
- HHJ Davies’ application of the Policy’s excess provisions could not be challenged on appeal.
Concluding Remarks
The decisions of HHJ Davies and the Court of Appeal provide a tour de force regarding the proper interpretation of the Policy. Anybody advising clients about claims under the Policy should make sure they digest both judgments. Jonathan Selby QC and Charlie Thompson acted for the successful claimants (instructed by Martin Scott and Paul Hargreaves at Walker Morris LLP.
