“Pay-More Trigger” Doctrine: When Cause of Action Accrues Under NHBC Insolvency Cover
Commentary on National House Building Council v Peabody Trust
([2025] EWCA Civ 932)

1. Introduction

National House Building Council v Peabody Trust concerns the limitation point that arises from the wording of Option 1 – Insolvency Cover in the NHBC “Buildmark Choice” policy. After the original contractor (Vantage Design & Build Ltd) entered administration in 2016, Peabody (through Catalyst Housing) eventually spent substantially more to finish 88 social-housing units. In 2023 Peabody sued NHBC for the additional cost. NHBC sought to strike out or obtain summary judgment on the basis that the claim was statute-barred, arguing that the cause of action accrued on the contractor’s insolvency and therefore expired in June 2022.

At first instance Mr Andrew Mitchell KC (sitting as a Deputy High Court Judge) rejected NHBC’s construction but deliberately left open other limitation arguments. On appeal the Court of Appeal (Coulson, Lewison and Moylan LJJ) dismissed NHBC’s appeal and, in doing so, articulated a clear principle for insurance policies that indemnify the insured against financial loss flowing from an event rather than against the event itself. The decision will guide how limitation periods are calculated under similar insolvency-or fraud-related covers in the construction and wider insurance markets.

2. Summary of the Judgment

• Key Holding: The insured’s cause of action under Option 1 does not arise automatically upon the contractor’s insolvency. The policy is triggered only when (and because) the employer “has to pay more” to complete the works. Time therefore starts to run for limitation purposes on the occurrence (or at least the ascertainable certainty) of that additional financial liability, not on the date of insolvency itself.
• Procedural Aspect: The Court upheld the judge’s case-management decision to confine the strike-out hearing to the discrete “insolvency point”, leaving other factual limitation issues for later determination.
• Consequences: The appeal failed on all five grounds. Peabody’s claim survives (subject to further examination of when the “pay-more” trigger actually occurred and whether separate site-security costs are time-barred).
• Precedential Value: The ruling establishes what this commentary calls the “Pay-More Trigger” doctrine—the principle that, where an indemnity covers an insured’s additional expenditure caused by a specified contingency, the cause of action accrues when the insured incurs (or is objectively bound to incur) that expenditure, not when the contingency itself happens.

3. Analysis

3.1 Precedents Cited and Their Influence

• Callaghan v Dominion Insurance [1997] 2 Lloyd’s Rep 541 — established the default rule that in indemnity insurance the right to sue arises when the insured peril occurs. The Court of Appeal distinguished this default by emphasising that the insured peril here was not the insolvency alone but the resulting financial loss.
• Kelly v Norwich Union Fire Insurance [1990] 1 WLR 139 — an example of a property-damage policy where the “event” is physical (a burst pipe). Used to illustrate that Option 1 is not a conventional property policy.
• Griffiths v Liberty Syndicate 4472 [2020] EWHC 9480 — reaffirmed that, absent contrary wording, time runs from manifestation of the insured peril. The Court explained that Option 1’s explicit wording (“have to pay more”) is the contrary wording.
• British Credit Trust Holdings v UK Insurance [2004] 1 All ER (Comm) 444 — example where parties agreed that loss had to be known before action could be started. Supports the idea that parties can fix alternative accrual points.
• Bann Carraig Ltd v Great Lakes Reinsurance [2021] NIQB 63 — cited by NHBC for “unitary cause of action”; the Court distinguished it as a property policy and refused to extend the unitary concept to the separate D1 site-security cover.
• Wood v Capita Insurance Services [2017] AC 1173 and Arnold v Britton [2015] AC 1619 — Supreme Court guidance on contractual interpretation, applied to emphasise textual fidelity and commercial sense.

3.2 Core Legal Reasoning

1. Textual Focus on Option 1(B)–(D). The Court parsed the policy’s plain English:
   • Section [B] specifies that the cover “applies if you … have to pay more to complete the building … because the contractor is insolvent or commits fraud.”
   • Sections [C] and [D] reinforce that the insurer’s obligation concerns “extra cost above the contract price.”
   Therefore the “insured event” is the financial detriment, not the insolvency itself.
2. Distinction from Property-Damage Paradigm. Property policies insure against physical events (fire, flood) whose consequences are immediately visible; Option 1 insures against a financial event whose timing may be later and uncertain. That difference justifies a different limitation trigger.
3. Commercial Common Sense. Imposing a limitation start-date before loss is knowable would be commercially absurd and would frustrate the very protection the cover is designed to provide.
4. Fraud Limb as Cross-Check. The alternative peril (“fraud”) shows why NHBC’s interpretation cannot work: employers rarely know of the fraud when it happens; if time ran from the fraudulent act, cover would be nugatory.
5. Construction-friendly Policy Interpretation. Any ambiguity in a standard-form insurer-drafted policy is construed against the insurer (contra proferentem), though the Court reached its conclusion without needing to lean on that maxim.

3.3 Likely Impact of the Judgment

• Limitation Landscape: Insurers and insureds must identify whether a policy indemnifies against events or against financial consequences of those events. Where the latter, the “Pay-More Trigger” doctrine will likely apply.
• Drafting of Insolvency Covers: Insurers wishing to start the clock on insolvency itself will need to use clear wording (e.g. “Our liability arises immediately upon the contractor’s insolvency irrespective of additional expenditure”). Absent such clarity, courts will default to the Peabody principle.
• Claims Handling & Reserving: NHBC and similar bodies may need to adjust reserving practices; limitation objections can no longer be raised purely by calculating six years from the insolvency date.
• Case Management Guidance: The Court’s endorsement of the judge’s decision to isolate a discrete point encourages pragmatic, phased litigation of complex limitation disputes.
• Construction Sector Confidence: Social landlords, developers and funders obtain reassurance that insolvency cover is not illusory and will respond when actual additional costs arise, even years after the insolvency.

4. Complex Concepts Simplified

Cause of Action

The legal right to sue. It “accrues” (comes into existence) when all facts necessary to establish liability are in place.

Indemnity Insurance

An agreement to put the insured in the same financial position they would have been in had the insured peril not occurred—no better, no worse.

Trigger vs Notification

Trigger: the occurrence that must happen before the insurer is liable.
Notification: the step the insured must take to tell the insurer that the trigger has occurred.

Limitation Act 1980, s.5

General rule: actions founded on simple contract must be started within six years from the date on which the cause of action accrued.

Strike-out / Reverse Summary Judgment

Procedural tools whereby a defendant seeks early dismissal of a claim that is time-barred or has no real prospect of success.

Unitary Cause of Action

Concept that where several heads of loss stem from one breach, limitation is assessed collectively. The Court held that the D1 (site-security) cover created a separate cause of action.

5. Conclusion

National House Building Council v Peabody Trust heralds the “Pay-More Trigger” doctrine: in policies covering additional expenditure resulting from contractor insolvency or fraud, the cause of action accrues only when the insured is, in fact or in objective certainty, required to spend above the contract price. Insolvency is only the causal link, not the activating peril. The Court of Appeal’s meticulous textual analysis, reinforced by commercial logic and policy-holder expectations, provides a blueprint for future disputes where financial-loss indemnities intersect with limitation defences. Unless insurers rewrite their policies, employers and funders in construction projects can proceed with greater confidence that their insolvency cover will remain actionable until the point at which the extra spend crystallises.