Judge considers whether insured is required to reinstate property

The claimant's bungalow was constructed by a builder and the property had the benefit of an NHBC Buildmark policy which, broadly, provided that NHBC would pay, in certain circumstances, the cost of remedial works. By the time of the claim against the NHBC in this case, the claimant had sold the property without carrying out any remedial works.

One of the defences advanced by the NHBC in defence of the claim was that the claimant had suffered no recoverable loss because he will never now incur the costs of remedial works. It was argued that the NHBC policy was a contract of indemnity, covering loss suffered by the claimant, but diminution in the property's value was said to be expressly excluded.

Reference was made to the case of Great Lakes Reinsurance v Western Trading, in which the insured sought the cost of reinstatement from property insurers in circumstances where the insured had no intention of reinstating and the value of the property had increased as a result of the fire. Clarke LJ had said, obiter, that "I doubt whether a claimant who has no intention of using the insurance money to reinstate, and whose property has increased in value on account of the fire, is entitled to claim the cost of reinstatement as the measure of indemnity unless the policy so provides".

That view contrasted, though, with the view in Colinvaux's Law of Insurance that "subject to the terms of the policy, the insurer will be liable on the cost of reinstatement basis even where actual reinstatement is no longer possible, as for instance where the damaged premises have been sold… in which case the cost is assessed on a notional reinstatement basis".

The judge in this case held that "There is no decided authority that where the claim is in respects of defects in or damage to property, such loss cannot include the cost of remedial works if the remedial works will not be carried out. The views expressed in the Great Lakes case are obiter and at odds with the views expressed in a leading textbook". In any event, the policy in this case did not provide for the NHBC to indemnify against loss – it instead required the NHBC to pay the "Cost", as defined in the policy (and so could be distinguished from Great Lakes on that basis). She further found that there was no general exclusion of liability for diminution in value in the policy.