[2019] EWCA Civ 2163

This was an appeal by the leasehold purchasers of some new-build flats about the liability cap in their new home warranty insurance policy. The leaseholders issued legal proceedings against (i) Zurich Insurance plc (“ZIP”), the insurers, who provided a new home warranty and (ii) Zurich Building Control Services Ltd (the approved inspector – appointed to verify that the construction work complied with Building Regulations). ZIP issued a Zurich policy to each leaseholder containing a provision limiting the amount that would be paid under the policy:

“… 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. Where the combined value of all New Homes within a Continuous Structure exceeds £25 million, the total amount payable by Us in respect of all claims in relation to the New Homes and the Continuous Structure shall not exceed £25 million.”

At first instance, the claimant leaseholders were awarded, against the insurers only, some £3.6 million, with individuals receiving between £99k and £305k. The Judge held that the structural steelwork lacked fire protection which was “major physical damage”. However, the cost of carrying out the fire proofing works was some £4.75m and taking all the defects into account, the total cost of remedial works was £9.7m plus VAT. The Judge had capped the amount to be paid to the claimants at the £3.6 million, being the total purchase price of the flats. The claimants appealed saying that the proper interpretation of the policy was that the cap was the total purchase price of all new homes in the block, subject to a maximum of £25m; the total of the purchase prices of all the new flats being £10.8m.

In the CA, LJ Jackson referred to the case of Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453, 456 where it was held that:

“… in a case of real doubt, the policy ought to be construed most strongly against the insurers; they frame the policy and insert the exceptions. But this principle ought only to be applied for the purpose of removing a doubt, not for the purpose of creating a doubt, or magnifying an ambiguity, when the circumstances of the case raise no real difficulty.”

However, he also made it clear that it was not part of the court’s function to manufacture doubts in order to construe any policy against the insurer. That said, here there were “real doubts” and ambiguities. For example, the policy did not say whether the purchase price referred to was that of the individual flat or the block of flats. Therefore, the CA could take “assistance from the surrounding provisions of the contract” and have regard to its obvious commercial purpose. The Zurich policy was at the material time a standard form, widely used across the country, intended to provide peace of mind for the purchasers and mortgagees of newbuild properties. All these factors, in the view of the CA, worked in favour of the claimants’ interpretation. The cap imposed by the policy was the total purchase price of all flats in the block – £10.8m.