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The Policies
The Policies
The Policies provide, relevantly, as follows. I have added [A] – [E] for ease of later reference; they do not appear in the original. A number of words appear in bold in the original, being definitions, including “insolvent”; but otherwise I have not generally included the bold below:
“[A] Option 1 – Insolvency cover before practical completion
[B] When the section applies
This section applies if you lose the amount paid to the contractor in accordance with the building contract or have to pay more to complete the building of the home(s), because the contractor is insolvent or commits fraud.
[C] When you can claim
You can only claim under this section up to the date of the Buildmark Choice certificate.
Contact us and tell us if you have lost the amount you paid to the contractor or the contractor has not completed the home(s).
[D] What we will do
We will pay you the reasonable extra cost above the contract price including professional fees, for work necessary to complete the home(s) to the NHBC requirements; or
We will reimburse the amount paid to the contractor in accordance with the building contract which cannot be recovered from them.
[D1] In addition, we will pay the cost of reasonable precautions to secure the work defined in the building contract against unauthorised entry, theft and vandalism until work resumes.
[E] Conditions and limitations
This option will only apply if included on the quotation and the additional premium has been paid to and accepted by us.
There are limits to how much we will pay (as explained on pages 14 & 15)
Some things are not NHBC’s responsibility under Buildmark Choice (as explained on page 16)”
NHBC was to pay the “reasonable extra cost” (not the actual extra cost, if different) above the “contract price”. The Policies contained a financial limit of Option 1 cover as “10% of the original contract price”. This was a reference to the original contract sum of £10,358,510 for the insured units. Therefore, NHBC agreed to pay the reasonable extra cost over the £10,358,510 contract sum that it cost to complete the homes, subject to a limit of 10% of the original contract sum.
The definition of “insolvent” for the purposes of the Policies was a wide one. It unsurprisingly included the contractor entering liquidation; but it also included the appointment of an administrator (as occurred in this case); or administrative receiver; or a receiver or manager over any or all of its property, assets or undertaking; or it being subject to any other insolvency procedure. I observe immediately, therefore, as a matter of construction that the event of insolvency (as defined) might be one which would have no, and certainly no necessary, impact on either the contractor’s ability to complete the works, or the cost of them doing so; let alone whether more would have to be paid to a replacement contractor(s) for completion.