CA-2024-002563 - [2025] EWCA Civ 932

The Proper Construction of Option 1 (Ground 1)

The Words Used

At first sight, the argument that Peabody’s cause of action accrued on the date of Vantage’s insolvency has some force. [A], the heading of Option 1, is “Insolvency Cover”, which may be an indication that that was the event/risk being insured against. But that is then immediately undercut by the words at [B], “if you…have to pay more to complete the building of the home(s), because the contractor is insolvent or commits fraud”. That on its own demonstrates that [A] is misleading, because Option 1 also covers fraud; it is not limited to insolvency. Moreover, the words strongly suggest that what matters most is Peabody having to pay more to complete the homes.

In short, the provision at [B] identifies two criteria which must be fulfilled before liability under the policy is triggered. The critical first criterion is that the insured must “have to pay more” to complete the building of the homes. That is significant because the policy is only engaged “if you…have to pay more to complete the building of the homes”. It is a condition without which Option 1 cannot apply. The second criterion is that the payment of “more” must be because of the insolvency (or fraud) of the contractor. Both criteria must be fulfilled, but the words “if you…have to pay more” make plain that what is being insured against is a particular financial loss and that, without that trigger, there can be no claim.

I shall come on to the other words of Option 1 in a moment. But on the basis of the words in [B] alone, it seems to me clear that this is not a conventional property damage clause of the kind described in Callaghan and Kelly v Norwich. It is also very different to Part C (paragraph 4 above) of this same policy which is much more akin to a conventional property damage clause. Indeed, in Harrison v Shepherd Homes Limited & Ors [2010] EWHC 1398 (TCC), a case about this very provision, Ramsey J found that the cause of action against the NHBC ran from the moment of physical damage to the property, that being the relevant event under Part C. By contrast, on the plain meaning of the words, [B] of Option 1 only triggers a liability “if you…have to pay more”.

In my view, Peabody were right to say that NHBC’s insolvency point ignores these critical words of [B]. It concentrates instead solely on the second criterion of insolvency. It makes no attempt to explain, let alone get round, the words “if you…have to pay more”.

Going on to the rest of Option 1, I consider that this interpretation is supported by the text under the heading at [C] “When you can claim”. That provides that the NHBC should be contacted “if…the contractor has not completed the homes(s)”. I agree with the judge’s description of this at [60] as a notification provision, but it is also another indication that the relevant trigger is paying more (or the risk of paying more) because of the non-completion of the homes by the original contractor. That is inconsistent with the NHBC’s construction, and consistent with Peabody’s case that non-completion is inextricably linked to having to pay more to complete the homes.

The argument that the cause of action did not accrue simply on insolvency is also supported by the text at [D], under the heading “What we will do.” That talks about the NHBC paying Peabody “the reasonable extra cost above the contract price…for work necessary to complete the homes”. That again is consistent with the construction that a critical requirement before a claim can be made concerns the payment out of the “reasonable extra cost”, which is necessitated by Peabody having to pay more to complete the homes in the first place. Again, as with the section at [C], this provision is all about extra cost, non-completion, and payment. There is no reference in either section to insolvency.

In the submissions before the judge, there was a good deal of argument about whether the fact of insolvency necessarily meant that an insured would have to pay more to complete the homes than under the original contract. That argument rightly loomed much less large at the appeal hearing. I can see no basis for saying that the insolvency of contractor A automatically means that a subsequent contract with contractor B will be more expensive. It will always depend on the facts. Moreover, there is nothing about the construction of sections [B] – [D] of Option 1 that would justify an interpretation of insolvency as automatically requiring the employer to pay more. It is all conditional (hence the use of the word “if”). To that extent, therefore, I agree with the judgment below at [55]-[56].

For all those reasons, it seems to me that section [B] (in particular), but also sections [C] and [D] of Option 1, are contrary to NHBC’s argument that the cause of action accrued immediately on Vantage’s insolvency, and provide strong support for the view that this is a policy where the payment (whether actual or foreseeable) of sums additional to that which would have been payable to Vantage was required before a cause of action accrued.