Sky UK Limited & Anor v Riverstone Managing Agency Limited & Ors

A construction all-risks policy responds only to physical loss or damage occurring within its defined period of insurance, although the cost of investigating and quantifying such damage may be recoverable where it forms part of repairing that damage. Physical damage ordinarily requires a tangible harmful change to the insured property which reduces its utility or commercial value. Water ingress may itself constitute damage where, if left unremedied, it would cause such deterioration.

For a deductible expressed by reference to one event, an event is ordinarily something occurring at a particular time, place and in a particular way. Whether several losses arise from one event is a factual question assessed from the perspective of an informed observer. A design decision can constitute an event. The scope of cover available to a non-party insured under a construction all-risks policy is determined by the policy and the contractual obligation to procure cover.

Sky UK Limited and Mace Limited brought claims against underwriters under a syndicated construction all-risks policy concerning widespread water ingress and deterioration in the timber roof of Sky Central. The issues included whether Mace remained insured after practical completion, the temporal scope of the policy, the meaning of physical damage, the application of a £150,000 deductible for one event, causation, and the recoverable cost of remedial works.

The court also considered competing remedial schemes, including temporary roofing, crash decks, decanting and out-of-hours working. The judgment determined liability and principle, but directed further submissions or agreement on the final quantum.

1. Mace’s status and scope of cover. Mace was a third-party insured, not a contracting party to the policy. The scope and duration of its cover depended on the policy, the construction contract and the rights and interests which the parties intended it to protect. Mace’s relevant proprietary and possessory interest ended at practical completion. It remained covered for physical damage occurring before practical completion, including remedial work undertaken afterwards. It was not covered for damage occurring after practical completion.
2. Period of insurance. Following Wasa International Insurance Co Ltd v Lexington Insurance Co, the policy covered physical damage occurring during the period of insurance. Damage occurring after expiry was not covered merely because it developed from earlier damage. The cost of ascertaining damage after expiry remained potentially recoverable if it related to damage which had occurred during the insured period.
3. Physical damage. The phrase physical damage required a tangible physical change which impaired the commercial value or utility of the property. Water entering a cassette constituted damage where leaving it unremedied would impair structural stability, strength, functionality or useful life. Mere water ingress without that consequence was insufficient. Speculative opening-up and cleaning costs were not recoverable unless linked to proved physical damage.
4. Deductible and event. The £150,000 deductible applied to one event. An event ordinarily meant something happening at a particular time, place and in a particular way. Whether losses had sufficient unity to arise from one event was a factual question assessed from the standpoint of an informed observer. There was no general rule preventing a decision or design choice from being an event. The decision to design and construct the roof without temporary weather protection was one event causally connected with the insured damage, so only one deductible applied.
5. Causation and quantum. The principal cause of the water ingress was the failure to provide temporary roofing before permanent waterproofing. The court rejected the competing hypothesis that defective permanent membrane laps were the principal cause. The reasonable cost of repairing damage existing at the end of the relevant period was recoverable, including necessary temporary roofing, crash decking, decanting and out-of-hours working. The parties were directed to agree the sum or make further submissions.

First instance decision. The judgment records no prior appellate decision in the present litigation.