[2025] EWCA Civ 932
The principal issue in this appeal concerned the proper construction of an NHBC insurance policy. The policy provided insurance cover to an employer ("Peabody") when they "have to pay more" than they would otherwise have done due to the contractor's insolvency or fraud before practical completion. Here, the contractor became insolvent. The NHBC said that the cause of action under the policy accrued on the insolvency of the contractor in June 2016, and that, in consequence, Peabody's cause of action was statute-barred. Peabody said that the cause of action accrued in 2021, when they were required to pay more to complete the building of the homes due to the insolvency, and that the claim was therefore not statute barred. The first instance judge found against the NHBC's construction. The NHBC appealed.
It is usually the case that the cause of action under an insurance policy accrues on the happening of the event insured against. A claim arises under an insurance policy as soon as the event which directly results in the loss has occurred, and not when the loss is manifested. Of course, everything turns on the precise words of the policy.
Here, there were two relevant criteria which had to be fulfilled before liability under the policy was triggered. The first criterion was that the insured must "have to pay more" to complete the building of the homes. In other words, the policy was only engaged "if you ... have to pay more to complete the building of the homes". The second criterion was that the payment of "more" must be due to the insolvency (or fraud) of the contractor. Both criteria must be fulfilled. Coulson LJ noted stressed that the words "if you ... have to pay more" make it plain that what is being insured against is a particular financial loss and that, without that trigger, there can be no claim.
NHBC's insolvency point concentrated instead solely on the second criterion of insolvency, not the words, "if you ... have to pay more".
There were other elements within the policy which supported Peabody's position. The section headed: "When you can claim" provided that the NHBC should be contacted "if ... the contractor has not completed the homes(s)". This was a notification provision but was also, in the view of Coulson LJ, another indication that the relevant trigger was paying more (or the risk of paying more) because of the non-completion of the homes by the original contractor. This was consistent with Peabody's case that non-completion is inextricably linked to having to pay more to complete the homes.
The policy text under the heading "What we will do" stated that the NHBC would pay Peabody "the reasonable extra cost above the contract price ... for work necessary to complete the homes". That again was consistent with the construction that a "critical requirement" before a claim can be made concerns the payment out of the "reasonable extra cost", which is necessitated by Peabody having to pay more to complete the homes in the first place.
Coulson LJ also considered Peabody's interpretation to be a commercial one. The NHBC had to argue that the cause of action accrued on the insolvency – at a time when Peabody simply did not know whether the eventual costs would be more or less than the amount, they would have had to pay the replacement contractor. The cause of action would accrue at a time when Peabody may have had no way of knowing whether they would actually suffer a loss at all, much less the extent of that loss. In the view of the appellate judge, that would be "a very curious outcome" in circumstances where the policy was designed to protect Peabody against the particular financial loss they suffered, entitling them to rather more than: "a back-of-an-envelope guess." Equally, if Peabody were obliged to claim, and the NHBC would have to pay out, on a hypothetical basis when nobody knew whether there had been or would be a loss at all, let alone how much that loss might be.
As a result, the proper construction was that the cause of action accrued if Peabody "had to pay more" as a consequence of the insolvency, not at the time of the insolvency.
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