New homes insurance and lost deposits?

A recent TCC judgment caught my eye as it was a claim by a number of parties in respect of lost deposits paid for new flats to be built by a developer and insured through the Zurich Insurance scheme. The developer appears not to have made much of a start (if any) and the Claimants commenced an action against Zurich Insurance seeking to recover their deposits. The decision I am referring to is Bache & Ors v Zurich Insurance Plc.

The case was, by the TCC’s usual standards, rather simple. A block of flats was sold to purchasers (various individuals) prior to construction by the exchange of a 10% deposit. The project was to be covered by the Zurich Insurance new home policy (similar to the NHBC). The developer didn’t build the block of flats and was subsequently entered into administration. The dispute was primarily over whether the policy would cover the 10% deposits.

During the trial, Zurich accepted that it mattered not whether the developer was in administration or liquidation, it would in principle suffice to trigger the policy cover

A number of matters were agreed between the parties but the sticking points were:

• Whether the policy became active if a developer went into administration or whether due to the particular wording of the policy the developer had to be in liquidation to trigger the policy, and
• Whether the purchasers had repudiated the contract with the developer prior to them going into administration (termed “was there a subsisting obligation to complete the development”).

During the trial, Zurich accepted that it mattered not whether the developer was in administration or liquidation, it would in principle suffice to trigger the policy cover. The only issue remaining therefore was whether there was an ongoing obligation to construct the properties by the developer. It was variously argued by Zurich that, by the purchasers accepting the developers repudiatory breach there was no ongoing obligation on behalf of the developer and hence there was no cover. Mr Justice Akenhead rather saw through this defence and considered whether there was any difference between these purchasers who asked for their money back prior to the developer going into administration or those who may have waited for the developer to actually be in administration – it was found that there was effectively no difference and hence the purchasers won.

I suspect that in these apparent post-recession boom times, many people can sleep a little easier knowing that their deposit investments are sensibly going to be covered by the new homes insurance policies (or at least by Zurich), irrespective of whether their developer can actually afford to build their homes.

Ryan Greening is a director at Bennington Green