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

A property-damage insurance policy ordinarily provides an indemnity through damages for breach of the insurer’s promise to hold the assured harmless from insured damage. Where physical damage occurs during the policy period, recoverable loss may include foreseeable deterioration and development damage caused by it after expiry, unless clear wording excludes that result or an intervening cause breaks causation. The temporal wording identifies the insured damage; it does not, without more, confine the damages remedy to damage existing at expiry. Reasonably incurred investigation and access costs may form part of the cost of repairing or reinstating insured damage. For an any one event deductible, event may refer to the cause of loss, and a design decision may qualify as an event.

Sky and Mace claimed under a construction all-risks policy for extensive water damage to the timber roof of Sky Central. The High Court, after a five-week trial, held that damage existed at the end of the policy period but that indemnity was limited to the cost of remedying damage then existing. It also rejected the principal valuation scheme, allowed Sky one deductible, and granted Mace declaratory relief but no money judgment.

Sky and Mace appealed on the scope and quantification of indemnity, investigation costs and Mace’s entitlement to damages. The Insurers cross-appealed on the meaning and extent of damage, the further quantum hearing and the deductible. The central issues were whether post-expiry deterioration and development damage caused by insured damage was recoverable, and whether the deductible applied by reference to damage or its cause.

Disposition. Sky’s and Mace’s appeals were allowed. The Insurers’ appeal was dismissed to the extent addressed in the judgment. The matter was remitted to the Judge for further determination.

1. A property-damage policy is a contract of indemnity. The insurer’s primary obligation is to hold the assured harmless from the insured damage. Breach occurs when the damage happens, giving rise to a claim for unliquidated damages. The measure is governed by ordinary contractual principles, subject to clear policy terms. The reasoning in Connect Shipping [2019] UKSC 29 and Sartex Quilts [2020] EWCA Civ 308 supported that analysis.
2. The Insuring Clause’s reference to damage occurring during the policy period defined the scope of the primary obligation. It did not, without clear words, limit the secondary damages remedy to damage existing at expiry. Foreseeable deterioration and development damage caused by insured damage during the policy period was therefore recoverable, absent an intervening cause. Wasa [2009] UKHL 40 was distinguished because, so far as it addressed post-period damage, it concerned separately caused pollution damage rather than development or deterioration of earlier damage. The Judge’s contrary conclusion was erroneous.
3. Reasonably incurred investigation costs, including access works and professional costs, were recoverable where needed to establish the nature and extent of insured damage and devise its remediation. They were not excluded merely because investigation found no damage in some areas. The professional-fees clause limited rather than created that entitlement.
4. Damage meant a tangible physical change impairing the commercial value or utility of insured property. It could be minor, transient, invisible or remediable. Wetting capable of being cured by drying could therefore constitute damage. The Judge had adopted the correct approach, and the Insurers’ contrary construction was untenable.
5. Mace’s separate insured interest under the composite policy entitled it to pursue its own damages claim. Overlap with Sky’s claim did not prevent recovery. The absence of a separate quantification of damage at Practical Completion was not a bar where subsequent deterioration and development damage formed part of the recoverable loss.
6. For the defective-design deductible, any one event referred to the cause of the loss rather than the damage itself. A decision could be an event if it was a happening at a particular time, place and in a particular way, with the required causal connection. The decision not to provide a temporary roof was capable of being one event, and the Judge’s evaluative conclusion was not plainly wrong. The 72-hour clause did not alter that construction.
7. The remaining grounds required reconsideration in light of the correct measure of indemnity. The Insurers’ challenge to a further hearing was unsuccessful; the scope of any further evidence was a case-management matter for the Judge.

1. Court of Appeal (Civil Division) — In [2024] EWCA Civ 1567, allowed Sky’s and Mace’s appeals, dismissed the Insurers’ appeal to the extent addressed, and remitted the matter to the Judge.
2. High Court of Justice, Commercial Court — HHJ Pelling KC decided the claims after trial and made an order dated 24 August 2023, reported at [2023] EWHC 1207 (Comm).