Heesens Yacht Builders BV v Cox Syndicate Management Ltd. & Anor

Builders-risk insurance policies are construed as a whole. Where guarantee-risk cover is stated to be for vessels as per the building-risks policy, that reference identifies the vessels insured, not merely the timing of guarantee-risk attachment. The policy’s opening period clause may determine eligibility across its sections, while a section-specific clause determines when guarantee risk attaches. A vessel is within the guarantee cover only if its construction or repair commenced during the insured period. Cover may continue after policy expiry under the policy’s continuation provisions. Delivery during the insured period is insufficient where construction began before it.

Heesens Yacht Builders BV v Cox Syndicate Management Ltd. & Anor concerned Builders Risk Insurance issued to a yacht builder. Construction of the yacht began in October 1997. The relevant policy ran from 1 July 1999 for 18 months, and the yacht was delivered in August 1999. An endorsement provided guarantee-risk cover for liabilities under the builder’s contractual guarantee.

The deputy High Court judge held that delivery during the policy period was sufficient to bring the yacht within the guarantee-risk cover and declared the underwriters liable. The underwriters appealed. The central issue was whether the guarantee-risk section covered only vessels whose construction commenced during the policy period, or also vessels delivered during that period although construction had begun earlier.

The Court of Appeal allowed the appeal. Lord Justice Rix delivered the leading judgment. Lord Justice Jacob agreed, and Lord Justice Wall stated that he was in complete agreement with Rix LJ’s reasoning.

1. The policy had to be construed as a whole. Its opening clauses prima facie applied to all three sections. The court should read the provisions together consistently where possible, avoiding an unnecessary inconsistency between the opening period clause and the guarantee-risk section.
2. The guarantee-risk section stated that it applied to vessels and yachts as per the building-risks policy. That wording defined the subject matter of the guarantee-risk insurance by reference to the vessels covered under the building-risks section.
3. The opening vessels, description and period clauses showed that the policy was directed to vessels under construction or repair. The opening period clause therefore applied to Section B as well as to Sections A and C. Its paragraph (2) identified the vessels covered: construction or repair had to commence during the insured period. The Section B period clause dealt with when and how guarantee risk attached to those eligible vessels, namely for the twelve-month guarantee period beginning on delivery.
4. Paragraph (4) of the opening period clause also applied to guarantee risks. Once an eligible vessel came on risk during the policy period, cover could continue beyond policy expiry until the guarantee risk had expired or been discharged.
5. The yacht’s construction had commenced before the relevant policy began. Its delivery during the policy period was therefore immaterial, and its guarantee-clause liability was not covered. The declaration in favour of the yard could not stand.

• Court of Appeal (Civil Division) allowed the underwriters’ appeal: [2006] EWCA Civ 384.
• Queen’s Bench Division (Commercial Court), before Mr Nigel Teare QC sitting as a deputy High Court judge, held that the yacht was covered for guarantee risks and declared the underwriters liable.