Vivid Housing Limited v Allianz Global Corporate & Specialty SE

Cover for a defect causing a threat of imminent destruction or physical damage requires an objectively realistic risk that the damage will occur sufficiently soon. The assessment is fact-sensitive and is made from the perspective of a reasonable observer when the defect becomes manifest. Where the risk depends on a further event, such as fire, it is unnecessary for that further event itself to be imminent if the evidence establishes a serious risk that it will occur sufficiently soon. Immediate remedial measures must be required to prevent damage during the policy period. The absence of immediate works is relevant evidence but is not decisive. A claim based on a structural defect requires evidence that the resulting damage was imminent; a mere possibility of deterioration in the future is insufficient.

Vivid Housing Limited claimed indemnity under a housing warranty insurance policy issued by Allianz Global Corporate & Specialty SE. The claim concerned five alleged defects in cladding, cavity barriers, bracketry and building debris. Vivid relied on the policy provision covering a defect causing a threat of imminent destruction or physical damage requiring immediate remedial measures to prevent that damage during the insurance period.

Allianz applied for summary judgment. It argued that the clause required a serious risk amounting to a real likelihood that destruction or damage would happen soon, and that the evidence did not establish such a risk. The application proceeded on the assumption that the alleged matters were defects within the policy. The central issues were the meaning of “imminent”, the relevance of fire as a further event, and whether the evidence gave Vivid a real prospect of establishing cover.

1. The application for summary judgment was refused in relation to Defects 1, 2, 3 and 5, but granted in relation to Defect 4 as currently pleaded.

2. The policy was to be construed objectively in accordance with ordinary contractual principles, asking what a reasonable person with the relevant background knowledge would have understood the language to mean. The court relied on the principles summarised in Financial Conduct Authority v Arch Insurance (UK) Ltd. [2020] EWHC 2448 (Comm), subsequently approved by the Supreme Court in [2021] UKSC 1.

3. “Threat”, “risk” and “danger” all conveyed the prospective nature of the insured event. The word “imminent” added a temporal requirement. The question was whether, prospectively and objectively, the destruction or physical damage was sufficiently likely to happen sufficiently soon to be described as imminent. This was a question of fact and degree, informed by the policy as a whole. Gerling General Insurance Co and others v Canary Wharf plc [2005] EWHC 2234 (Comm) supported that approach.

4. For defects whose consequences depended on fire, the relevant question was whether, at the material time, the risk of fire was sufficiently serious and would eventuate sufficiently soon to create a threat of imminent destruction or physical damage. The policy did not require an imminent threat of fire in the sense of a fire about to break out. The evidence, including the waking watch, meant that Vivid had a realistic prospect of establishing the required threat.

5. The requirement for immediate remedial measures was also objectively assessed. The absence of immediate remedial works was relevant but not decisive. Preventive measures might themselves delay the need for remedial works and could not automatically establish that no immediate works were required.

6. For Defect 4, concerning possible detachment of cladding, Vivid had adduced no evidence that detachment was imminent. The defect might cause failure only after further deterioration or overstressing. There was therefore no realistic prospect of success on the pleaded claim for imminent damage, although any claim based on actual damage was reserved.

7. The Health and Safety Extension did not determine the construction of clause 3. It addressed present or imminent danger to occupants’ health and safety and compliance with the Building Regulations, and did not correlate completely with cover for a threat of physical damage to property.