Sky UK Ltd & Anor v Riverstone Managing Agency Lt & Ors

Factual and Procedural Background

This appeal concerns an Order dated 24 August 2023 by Judge Pelling KC regarding claims made by Company A and Company B under a construction all risks insurance policy provided by the Defendant Insurers. The claims arose from extensive water damage to the roof of Company A's global headquarters building, constructed between 2014 and 2016 by Company B as the main contractor under a design and build contract. Company B was a named insured under the Policy.

The Policy's Section 1 covered contract works, indemnifying the insured for physical loss or damage to the insured property occurring during the defined Period of Insurance (POI), which ran from 1 February 2014 to 15 July 2017. The insured property included permanent works and materials connected with the project.

The dispute centered on the extent of damage to the roof at the end of the POI and the recoverable loss. The roof comprised 472 wooden cassettes, many of which suffered water ingress during construction causing wetting, swelling, and structural decay. There was disagreement whether the wetting itself constituted damage during the POI. It was agreed that further damage occurred after the POI due to deterioration and development of the original wetting. The parties defined deterioration as worsening damage to already affected timbers, and development as damage spreading to previously unaffected timbers.

The Insurers accepted no failure by Company A or Company B to mitigate loss. The cost of remedying the roof condition as it existed at trial was agreed to be attributable to the water ingress during the POI and not to any unreasonable conduct by the insured parties.

Company B proposed a repair scheme involving replacement or repair of all cassettes, while Company A proposed a cheaper replacement scheme using metal cassettes. Both sought recovery for all damage including post-POI deterioration and development. The Insurers contended Company B was not insured for its claimed sums and that Company A was only entitled to indemnity for damage existing at the end of the POI, proposing two costed schemes based on assessments from 2017 and 2019.

A further issue concerned whether a £150,000 deductible applied once per claim or per cassette. The claims were tried together over five weeks, resulting in a reserved judgment and subsequent rulings.

Legal Issues Presented

1. Whether the Policy covers costs of remedying deterioration and development damage occurring after the expiry of the Period of Insurance.
2. The proper definition of "damage" within the Insuring Clause of the Policy.
3. The correct quantification of recoverable loss and the validity of the costed schemes put forward by the parties.
4. The application and interpretation of the Retained Liability (deductible) provision, including whether it applies per event or per individual damaged part.
5. Whether Company B is entitled to a monetary award for damage occurring prior to Practical Completion.
6. The recoverability of investigation costs, including costs of "lifting the lid" on the roof cassettes.

Arguments of the Parties

Appellant's Arguments (Company A and Company B)

• Insurance claims are claims for unliquidated damages covering all loss caused by insured damage occurring during the POI, including subsequent deterioration and development damage.
• The Basis of Settlement clause contemplates recovery of the full cost of repairing or replacing damaged property, which includes damage developing after the POI.
• Legal principle supports recovery for damage first occurring during the POI even if it manifests or worsens after the POI.
• Deterioration and development damage are recoverable as part of reasonable mitigation efforts.
• The Judge erred in limiting coverage to damage existing only at the end of the POI.
• Investigation costs, including costs of accessing hidden damage, are recoverable as part of the loss caused by the insured damage.
• Company B should be entitled to a monetary award for damage occurring before Practical Completion.
• The Judge failed to adequately consider damage to parts of the roof other than gutter timbers, such as plenums, upslope areas, and insulation.
• The Insurers' 2019 Scheme required further adjustments to properly reflect the scope of damage and remedial costs.

Respondent's Arguments (Defendant Insurers)

• Company B was not insured for the sums claimed and is not entitled to relief.
• Company A is only entitled to indemnity for damage existing at the end of the POI; damage occurring after is excluded.
• The Insuring Clause limits coverage to damage occurring within the POI, consistent with established authority.
• The Insurers' 2017 Scheme correctly measures damage at the end of the POI.
• The deductible applies per damaged cassette, not once per event.
• The Judge erred in directing a further trial to adjust the quantification of loss.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court undertook a detailed analysis of the nature of insurance claims as claims for unliquidated damages for breach of contract, emphasizing that the insurer's primary obligation is to hold the insured harmless from damage occurring during the policy period. The measure of damages is to place the insured in the position they would have been absent the damage, subject to express policy terms.

The Court rejected the Insurers' narrow interpretation of "damage" requiring physical impairment necessitating immediate repair, adopting a broader definition including any tangible physical change impairing value or usefulness, such as wetting of timbers.

Critically, the Court held that the Policy's limitation to damage occurring during the POI defines the scope of the insurer's primary obligation but does not restrict the measure of damages recoverable for that damage. Consequently, costs of remedying foreseeable deterioration and development damage occurring after the POI, caused by damage during the POI, are recoverable.

The Court distinguished the House of Lords decision in Wasa, clarifying that it did not preclude recovery for deterioration or development damage post-policy period caused by damage during the period.

The Basis of Settlement clause was interpreted as encompassing full cost of repair or replacement, including costs arising from damage developing after the POI as part of reasonable mitigation.

Investigation costs, including accessing concealed damage ("lifting the lid"), were held recoverable if reasonably incurred in determining the scope of insured damage and remedying it.

Regarding the deductible (Retained Liability), the Court held that "event" refers to the cause of damage rather than each individual damaged part. The decision not to install a temporary roof was correctly treated as a single event for aggregation purposes.

The Court noted that Company B was insured only up to Practical Completion but was entitled to damages including deterioration and development damage arising from damage occurring prior to that date. The absence of precise quantification of damage at Practical Completion was not a bar to recovery.

Several grounds of appeal were overtaken by the Court's conclusions on the measure of indemnity and the scope of recoverable damage, requiring remittal for reassessment consistent with the Court's reasoning.

Holding and Implications

The Court ALLOWED the appeals of Company A and Company B and DISMISSED the appeal of the Defendant Insurers to the extent set out in the judgment.

The Court held that the Policy covers not only damage existing at the expiry of the Period of Insurance but also the costs of remedying deterioration and development damage occurring after the POI, provided such damage results from insured damage during the POI. Investigation costs reasonably incurred are recoverable. The deductible applies once per event, with the design decision not to use a temporary roof constituting a single event.

The matter is remitted to the trial Judge for reassessment of quantum and related issues consistent with these conclusions. No new precedent was established beyond the application of existing principles to the facts.