Peabody Trust v National House Building Council

Insurance – Insolvency – Summary judgment – Claimant making claim under policies of insurance covering risks associated with construction of affordable housing units – Defendant insurer applying for summary judgment/strike out of claim on ground that time-barred – Whether time running from insolvency of contractor for purposes of six-year limitation period under section 5 of Limitation Act 1980 – Application dismissed A contractor was engaged in connection with the building of 175 new dwellings on the former RAF Stanbridge site in Bedfordshire. The total contract sum was £23,878,482, of which £10,358,510 was for 88 affordable/social housing flats. The contractor commenced work on or around 14 December 2015 and ceased on 17 June 2016. Administrators were appointed in respect of the contractor on 29 June 2016, following which a construction manager was appointed to complete the works, which were eventually finished on 19 January 2021. The defendant insurer had agreed to insure the developer, to whose rights the claimant succeeded, against certain risks associated with the construction of the 88 affordable/social housing units. Under the policy heading “Option 1 – Insolvency cover before practical completion”, the insured had the benefit of cover if it “ha[d] to pay more to complete [the units]” because of the contractor’s insolvency. It was common ground that the administration amounted to an event of insolvency under the terms of the policies. The claimant issued a claim on 24 July 2023 under the insurance policies which included £815,500 for extra costs incurred over and above what would have been paid to the original contractor and legal and other fees and expenses, totalling £98,000. The defendant applied for summary judgment on, alternatively for the striking out of, the claim on the ground that it was time-barred under section 5 of the Limitation Act 1980 on 29 June 2022, by virtue of six years having passed since the contractor went into administration. Held: The application was dismissed. (1) Where there was an application for reverse summary judgment or strike-out, the court had to consider whether the claimant had a realistic prospect of success. The issue raised by the application was whether time ran from the insolvency of the contractor. If it did, the claimant accepted that the claim was time-barred and had no prospect of success: Easyair v Opal Telecom [2009] EWHC 339 (Ch) considered. The claim on the policies was subject to section 5 of the 1980 Act and, therefore, as a contractual claim it had to be brought within six years from breach. The question when the breach occurred required an analysis of the contractual terms. It was also common ground that a claim on an insurance policy, being a claim under a contract of indemnity, was a claim for unliquidated damages for breach of the insurer’s obligation to hold the insured harmless against an insured peril. As soon as the insured peril occurred, the insurer was in breach, because it had agreed to hold the insured harmless against it.  (2) An indemnity insurance was an agreement by the insurer to confer on the insured a contractual right which, prima facie, came into existence immediately when loss was suffered by the happening of an event insured against, to be put by the insurer into the same position in which the insured would have been had the event not occurred, but in no better position. It was necessary to determine the event which was being insured against. Time ran from when insured loss was suffered, and that occurred by the happening of the event insured against: Callaghan v Dominion Insurance Co Ltd [1997] 2 Lloyd’s Rep 541. The issue raised by the present application was, essentially, what was the insured peril (or the “event insured against”) for the purposes of Option 1, in respect of which the defendant had promised to hold the insured harmless. The question was whether the insured event or peril was the mere insolvency of the contractor or the loss of the amount paid to the contractor or having to pay more to complete the works, in each case caused by the insolvency. That was a matter of construction of the policies: British Credit Trust Holdings v UK Insurance [2004] EWHC 2404 (Comm), Harrison v Shepherd Homes Ltd and others [2010] EWHC 1398 (TCC), Sveriges Angfartygs Assurans Forening (The Swedish Club) v Connect Shipping Inc, The Renos [2019] UKSC 29, Griffiths v Liberty Syndicate 4472 [2020] EWHC 948 (TCC) considered. (3) An insurance policy, like any other contract, had to be interpreted objectively by asking what a reasonable person, with all the background knowledge reasonably available to the parties when they entered into the contract, would have understood the language of the contract to mean: Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1; [2021] EGLR 12 applied. An insolvency as that term was defined (particularly if it were merely the appointment of a receiver or manager over certain property) might not lead to more having to be paid at all, or the loss of a payment made; nor would a contractor fraud necessarily result in the loss of money paid, or more having to be paid to complete the units. An administration, for example, might be successful, and allow the completion of the project without undue difficulty, and much might depend on when and in what circumstances the administration or other insolvency event occurred. It was also possible that the works might be abandoned and not completed, with the result that no extra costs would be incurred. (4) Option 1 cover was not triggered if the insured did not “have to pay more to complete” the units, or if the insured did not lose any money paid to the contractor, despite the contractor going insolvent. The event insured against was not the insolvency per se, but rather the insured being required to pay more above the contract price to complete. The requirement to pay more must have been caused by the insolvency of the contractor, but the insolvency itself was not the risk which was covered. The insured losses (the extra costs, or lost payments) were an essential and definitional part of the insuring clause itself, and not matters which simply went to quantum. The application would be dismissed on the basis that time did not start running on the insolvency of the contractor on 29 June 2016, but at a time (to be determined at trial) when the claimant had to pay more to complete the units, as a result of that insolvency. Noel Casey KC and Mek Mesfin (instructed by Devonshires Solicitors LLP) appeared for the claimant; Thomas Grant KC and Harry Smith (instructed by the National House Building Council) appeared for the defendant. Eileen O’Grady, barrister Click here to read a transcript of Peabody Trust v National House Building Council