Sky & Mace v Riverstone Managing Agency & Ors [2023] EWHC 1207 (Comm)
On 26 June 2023, the Commercial Court handed down judgment (available here) in complex and high value claims under a CAR policy by Sky (as principal insured) and Mace (as named third party insured) for the cost of remedial works to the roof at Sky Central, Sky’s global headquarters which is topped by Europe’s largest flat timber roof. The sums claimed were c £200m.
A further ruling on 14 July 2023 (available here) has confirmed that Sky is entitled to an indemnity, with quantum to be agreed or determined, pending which Sky has been awarded an interim payment of nearly £39 million.
This case is of interest as it addresses many of the difficult issues which arise in claims under CAR policies, compounded in this case by the unusual construction of the roof, which comprised 472 prefabricated wooden “cassettes” supported on glue laminated timber beams.
Position of a named third-party co-insured
Applying the Court of Appeal decision in FM Conway v RFU [2023] EWCA Civ 418, HHJ Pelling KC rejected Mace’s argument that the fact that it was specifically named in the policy (as opposed to being an identifiable member of a class of potential insureds) meant that its cover was not limited by reference to the insuring obligations in the underlying construction contract. The Judge accepted Insurers’ argument that Mace was only co-insured up to the date of Practical Completion (“PC”) and that Sky alone was covered for the Maintenance Period. However, he rejected Insurers’ argument that Mace was only covered in respect of remedial work undertaken prior to PC.
Scope of cover
The Judge accepted Insurers’ submission that the policy only covered physical damage that existed at the end of the Period of Insurance, such that there was no cover for progressive damage which developed thereafter. The Judge also found that investigation costs were only covered insofar as the investigation revealed physical damage that occurred during the Period of Insurance.
Meaning of damage
The Judge held that Insurers’ definition of physical damage as occurring at a ‘tipping point’ when “structural change of such severity as to require replacement of the affected timber” was “impermissibly narrow”. Instead, he found that physical damage occurred once water entered the cassettes on the basis that “the entry of moisture into the cassettes during the Period of Insurance is in my view a tangible physical change to the cassette as long as the presence of the water, if left unattended, would affect the structural stability, strength or functionality or useable life of the cassettes during the Period of Insurance or would do so if left unremedied”.
Aggregation/deductibles
HHJ Pelling KC concluded that, as the claim was recoverable under DE5, the “single unifying event must be an error or omission in the design plan specification materials or workmanship of the property Insured that has suffered damage as a result of such defect”. The Judge found that the damage was referable to one event, namely the decision not to use a temporary waterproofing system when installing the roof cassettes, which permitted water ingress during construction. Applying the unities of time, place and cause, and following Stonegate v MS Amlin & Ors [2022] EWHC 2548 (Comm) in which Butcher J decided that a decision (or plan) was capable of being an event if it satisfied those unities, the Judge accepted the Claimants’ argument that there was only one event and, therefore, only one deductible.
Appropriate remedial scheme
As the remedial works have not yet been undertaken, there were a number of potential remedial schemes in play. The Judge concluded that it was one of the schemes advanced by Insurers that “most closely approximates to the work necessary in order to rectify the damage suffered down to the end of the Period of Insurance”. Such schemes were significantly more limited than the schemes advanced by the Claimants. The Judge rejected the Claimants’ remedial schemes on the basis that neither was limited to addressing the damage which had occurred as at the end of the Period of Insurance, but instead sought to address damage and deterioration up to the completion of the remedial works in 4 or 5 years’ time (more than 10 years after the end of the Period of Insurance). However, he accepted the Claimants’ argument that Insurers’ scheme needed to be adjusted (to allow for the need to decant Sky staff, implement out of hours working, adopt the crash decks from the Mace scheme and adopt the temporary roof from the Sky scheme). The financial impact of those adjustments remains to be agreed or determined.
Crispin Winser KC acted for Sky, with Anneliese Day KC of Fountain Court and Simon Kerr of 7KBW, instructed by Herbert Smith Freehills LLP.
Andrew Rigney KC and Patrick Maxwell acted for Insurers, with Simon Goldstone of 4 Pump Court, instructed by DAC Beachcroft LLP.
