Court orders Zurich to pay out under new homes insurance policy following insolvency

Court orders Zurich to pay out under new homes insurance policy following insolvency
What does a recent High Court case tell us about how the court will interpret the terms of a Zurich new-homes insurance policy after the developer enters administration?

Original news

Bache v Zurich Insurance [2014] EWHC 2430 (TCC)

In Bache, Mr and Mrs Bache entered into agreements for lease with Gold Homes to buy flats in a block that was yet to be built. Gold Homes was required to construct and complete the flats. This never happened. By letter dated 16 February 2010, Mr and Mrs Bache’s solicitors wrote to Gold Homes, purporting to accept its failure to complete the construction as repudiation of the agreements for lease and seeking the return of the deposits, totalling £357,800, and costs.

Gold Homes was placed in administration on 8 April 2011 and dissolved in early January 2013.

Mr and Mrs Bache had the benefit of a Zurich Insurance PLC (Zurich) insurance policy provided at the behest of Gold Homes. Zurich provide a competitive insurance product comparable to the NHBC cover which—at least at one stage—provided the only well-known 10 year cover for newly built dwellings.

The Zurich cover related to two periods, first up to the time when the building in question had been acceptably completed and the second thereafter. For the first period, Zurich said in the introduction to the policy that ‘the policy protects you if your developer goes into liquidation…against the loss of contract exchange deposit…’

Zurich did not pay out for the deposits paid by Mr and Mrs Bache to Gold Homes.

What did the policy say?

The introduction to the policy states:

'By way of summary, and subject to the conditions and any endorsements printed on the certificates the policy protects you if your developer goes into liquidation or is made bankrupt against the loss of contract exchange deposit and the repair of certain types of damage caused by building defect in the first 2 years or one year if your new home include a conversion…'

The relevant section of the policy (section 1) read

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.