NHBC's early strategic gamble was understandable. However, the TCC's construction of the policies' wording and its refusal to give judgment on complicated factual positions on a summary basis - where proper submissions and sufficient time were not available - ultimately meant that NHBC's application was refused. NHBC's limitation defence and Peabody's substantive contractual claim will now be resolved at trial.

Background

NHBC had provided insurance cover to the original developer, Catalyst Housing Limited ("Catalyst"), for certain risks associated with the construction of 88 affordable homes at a site in Bedfordshire. Peabody assumed Catalyst's right to that cover. The policy provided an indemnity to Peabody in circumstances where Peabody had to pay more to complete the units because of the contractor's insolvency. Insolvency had a wide definition under the policy, including administration.

Catalyst entered into a JCT Design & Build Contract with the contractor for the 88 affordable homes. Works were commenced in 2015 but ceased on 29 June 2016 when the contractor entered administration. The administration led to the appointment of a Construction Manager in early 2017 under a JCT Construction Management Agreement. Completion of the 88 affordable units occurred in January 2021.

Peabody's claim was for c.£913,000 comprising extra costs over and above what it would have paid to the contractor in order to complete the project, as well as legal and other expenses. The claim was issued on 24 July 2023. 

The Application and submissions by the parties

NHBC's application was based on the allegation that the 6-year limitation period ran from 29 June 2016 when the contractor entered administration and on that basis, Peabody's claim was time-barred. While NHBC had confined its application to the insolvency point, evidence filed by Peabody in advance of the hearing gave rise to NHBC making submissions on limitation issues wider than just the insolvency point. NHBC attempted to persuade the TCC to pass summary judgment on an alternative case regarding cause of action accrual, namely: when could Peabody have determined that extra costs would be payable to complete the units, or when did that risk arise?

NHBC submitted that events in late 2016 and early 2017 were significant, with a focus on the date of the Construction Management Agreement and a target cost for completing the units which would have exceeded the contract price agreed with the contractor. On the other hand, Peabody contended that it was realistically arguable that it was not able to determine that it would have to pay extra to complete the units until March 2020, or alternatively June 2020.

The Judgment

Perhaps unsurprisingly, the TCC was not willing to broaden its consideration of the issues outside of the insolvency point. In determining this issue, the TCC considered whether the insured event or peril envisaged by the insurance was the mere insolvency of the contractor, or the corollary of having to pay more to complete the works.

The TCC concluded that Peabody's cause of action did not accrue on the insolvency of the contractor (and that NHBC was wrong). The TCC found that the clause heading in the policy document "Insolvency cover before practical completion" was very much a shorthand for the cover provided by the NHBC. NHBC's obligation arose where Peabody had to pay more to complete the units because of the contractor's insolvency.

The contractor's insolvency did not necessarily mean that Peabody would have to pay more to complete the units. Theoretically, a contractor might enter administration but the works might still complete for the agreed price, or they might be abandoned with the result that no extra costs would be incurred. Similarly, the policy would not respond if an insured paid more to complete units, but the contractor did not become insolvent.

Key takeaways

Although specific to the wording of the NHBC policies in question, the judgment confirms that if there is a claim for extra project costs following contractor insolvency, the 6-year limitation period applicable to that claim does not simply run from the date of the insolvency. With contractor insolvencies on the rise, there is likely to be an increased focus on this insurance cover moving forwards.

The more complex limitation positions that were alluded to in this summary judgment application may not ultimately be resolved - unless the case is finally determined at trial. However, for employers and insurers alike it would appear sensible to assess, following contractor insolvency, at what point in time sufficient information is available to determine if: (i) extra costs have been paid; (ii) there is an obligation to pay more than the original contract price; or (iii) it is likely that extra costs will need to be paid to complete a project. Such issues could ultimately be highly relevant to assessing when limitation for a claim under a relevant insurance policy may start to run.

This case also serves as a reminder that complicated submissions involving contentious facts tend not to be suitable for summary disposal.