Bache & Ors v Zurich Insurance Plc

An insurance policy protecting purchasers against loss of deposits engages when the developer enters bankruptcy, liquidation or dissolution and has failed to complete construction. The phrase “fails to complete” does not require a subsisting contractual obligation to complete at the relevant time. A purchaser’s acceptance of the developer’s repudiatory breach therefore does not prevent recovery, provided the specified insolvency-related event subsequently occurs. The developer’s insolvency at the date of acceptance is not itself a requirement or bar. The policy must be interpreted as a commercial document, in the light of its purpose and as reasonably understood by the insured.

The purchasers contracted to acquire flats that the vendors failed to construct. They accepted the vendors’ failure to start or complete the development as repudiatory, sought repayment of their deposits, and the vendors were subsequently dissolved. Zurich disputed liability under a deposit-protection policy, arguing that the policy required a subsisting obligation to complete when the developer entered liquidation or dissolution.

The court determined a reformulated preliminary issue: whether acceptance of repudiation, followed by liquidation or dissolution, prevented a claim, and whether the answer depended on the developer’s solvency when repudiation was accepted.

1. Preliminary issue allowed for the claimants. Subject to the other defences and proof of the assumed facts, the claimants were entitled to claim under the policy. Judgment was to be entered for them on the preliminary issue.
2. The policy was to be interpreted by ascertaining the meaning conveyed to a reasonable person with the relevant background knowledge, applying the commercially sensible approach described in [1998] 1 WLR 896 and [1997] AC 749. Insurance policies should also be construed consistently with their commercial object. In a case of genuine doubt, wording may be construed against the insurer, but that principle could not create an ambiguity where none existed: (1899) 23 QBD 452; [1992] 2 Lloyd Rep 27. The policy was to be understood in the sense reasonably understood by the insured consumer: [1998] 1 WLR 1765.
3. The Introduction formed part of the policy and confirmed that its commercial purpose was to protect purchasers against loss of their deposits where the developer went into liquidation. Section 1 was therefore not to be read as requiring the developer to remain under a subsisting contractual obligation to complete. “Fails to complete” naturally meant that the developer did not complete the construction. The alternative construction would add words and create an unnecessary distinction between purchasers who accepted repudiation and those who waited.
4. Liquidation or dissolution was the event at which the policy engaged. Insolvency alone did not engage the policy, but insolvency could form part of the relevant background because it commonly caused the failure to complete.
5. The purchasers’ acceptance of repudiation was no bar to recovery. Nor was the subsequent liquidation or dissolution. The answer was the same whether or not the developer was insolvent when repudiation was accepted.