Zagora Management Ltd & Ors v Zurich Insurance Plc & Ors

A building warranty policy covering flats and common parts may require the insurer to meet the reasonable cost of permanent remedial works, even where the insured has not yet undertaken them or proved an ability to do so. Defective design may constitute a failure to comply with the insurer’s technical requirements. Present or imminent danger cover is distinct from major physical damage cover and is not subject to a proportionate-share limitation applying only to major physical damage. Policy exclusions must be construed by reference to the wording and the purpose of the cover. A proposed settlement or remedial arrangement remains unenforceable where essential matters, including the scope of works and the mechanism for resolving disagreement, remain subject to future agreement. Fraudulent building-control certification requires proof of dishonesty, intention that the claimant rely on the representation, reliance and loss.

The claim concerned serious construction, fire-safety and structural defects at New Lawrence House, a development of flats in Manchester. Individual leaseholders claimed under Zurich’s Standard 10 building warranty policies. Zagora, the freeholder, claimed under an alleged agreement to rectify and alternatively as an insured. Zagora and certain leaseholders also claimed in deceit against Zurich Building Control Services Ltd in respect of building-regulations final certificates.

The court considered the proper construction of the leases, the insurance policies, the alleged remedial agreement, the scope of cover, policy limitations, reliance and limitation.

1. Policy construction. The policies were reinstatement policies under which Zurich was liable for the reasonable cost of rectifying or repairing covered physical damage or present or imminent danger. Liability did not depend on the insured first undertaking the works or proving a settled ability to fund them.
2. Scope of cover. Defective design could amount to non-compliance with Zurich’s technical requirements. The intended physical condition was the condition objectively required by those requirements. A load-bearing element included an element transferring material loads. The basement exclusion did not defeat cover for defects in common parts. Access and making-good works were recoverable where necessary to rectify insured damage or danger.
3. Present or imminent danger. The court distinguished an actually occurring danger from one requiring an event imminently about to occur. Present or imminent danger cover was not subject to the proportionate-share limitation applicable to major physical damage. The insured could elect to claim under the more favourable applicable section.
4. Leaseholder claims. The individual leaseholders established serious defects, including inadequate fire protection to structural steelwork, roof defects, compartmentation defects, unsafe balconies and other safety defects. Their recovery was capped by the maximum-liability clause at the declared purchase prices of their flats, namely approximately £3.634 million, subject to final clarification and applicable excesses.
5. Agreement to rectify. The June-July 2013 discussions were a step towards a hoped-for pragmatic settlement. Essential matters remained subject to further investigation and agreement, without an agreed mechanism for resolving disagreement. No enforceable agreement resulted. Zagora was not an insured because no policy certificate had been issued to it or an earlier freeholder.
6. Building-control deceit. Mr Mather’s certificates contained misrepresentations and he knew that reasonable steps had not been taken in relation to fire safety. Nevertheless, the individual leaseholders failed to prove reliance. Zagora failed because Mr Mather had not intended a later freehold purchaser to rely on the certificates.
7. Disposition. The individual leaseholders succeeded against ZIP, more accurately EWIC, subject to the policy cap. Zagora failed against ZIP. Zagora and the individual claimants failed against ZBC.