Property and business interruption

In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 regarding property and business interruption.

Key developments in 2017

The judgment in Leeds Beckett University v Travelers Insurance Company Ltd. [2017] EWHC 558 is a useful summary of the legal principles that apply when considering what constitutes “accidental damage” and application of the standard exclusions in property policies for gradual deterioration and defective design.

The university lost its claim for damage caused by disintegration of concrete blockwork. The Technology and Construction Court held the damage was not accidental because the building was built on a
watercourse with no design addressing the foundations’ exposure to water. The court commented that the gradual deterioration exclusion would apply, suggesting that such exclusions are not simply a reflection of non-fortuitous loss but can apply where external influences cause deterioration.

The judge also gave an indication as to how an English court would apply a “subsequent damage” proviso, expressing the view that subsequent damage had to be a reference to different damage, namely damage which could be distinguished in some way from the damage originally caused and had to be caused by a new or different cause (and one which was not itself) excluded.

In an important decision for insurers writing property owners insurance, the Court of Appeal confirmed that private individuals who buy residential let insurance are not “consumers” and as such any issues involving non-disclosure/misrepresentation fall to be considered by reference to the Insurance Act 2015 or the Marine Insurance Act 1906, rather than the Consumer Insurance (Disclosure and Representations) Act 2012 (Ashfaq v International Insurance Company of Hannover plc [2017] EWCA Civ 357).

What to look out for in 2018

We await the first cases to apply the Insurance Act 2015 with particular regard to section 11, which prevents insurers from relying on a breach of warranty if the breach did not increase the risk of the type of loss that occurred. The EU Withdrawal Bill is expected to be passed in 2018 but it remains to be seen how the Government will tackle the adaption of insurance legislation and other relevant areas such as consumer contract regulation.

Any proposed changes to product liability legislation will be of particular interest in light of recent concerns surrounding fires caused by tumble dryers. The final report of the Independent Review of Building Regulations and Fire Safety is due in spring 2018. The Review’s recommendations may have implications for insurance policies to ensure customers are using best practice to prevent the start and spread of fire.