Constructive Notes ®
Court of Appeal confirms decision not to use temporary roof was an "event" in aggregation provision
Introduction
On December 16 2024, the Court of Appeal handed down its judgment in Sky UK Ltd and MACE Ltd v Riverstone Managing Agency and others1(Sky UK).
The case was an appeal against the Order of HHJ Pelling KC (‘the Judge’) dated 24 August 2023 in respect of claims made by Sky UK Limited and Mace Limited under a construction all risks policy (‘the Policy’) underwritten by the defendant insurers (‘the Insurers’)2.
The Judge had been called on to consider the scope and effect of the Policy in respect of loss and damage allegedly suffered as a result of the widespread failure of the roof of Sky UK’s global headquartered building, known as “Sky Central” in Hounslow in West London.
Factual Background and First Instance Judgment
The roof consisted of a series of glue laminated timber beams on which had been placed a total of 472 cassettes each of which weighed about 3.5 metric tons and measured 10.5 metres in length, 3 metres in breadth and 45 cm in depth.
The underside of the cassettes comprised acoustic insulation and a perforated metal liner. Following installation the cassettes were left waiting for permanent water proofing, and were exposed to the weather. This could have been avoided by use of a temporary roof structure until after installation of the permanent weather proofing, but no such structure was installed during the construction process, nor specified as part of the design of the roof.
It became apparent from an early stage that rainwater was entering the cassettes after they were installed on the roof leading to loss and damage. The principal means by which water was able to enter resulted from the way in which the gutter sections had been constructed including a gap left between the underlay and gaps in the seal of the cassettes.
The insured contended that none of this would have occurred but for a fundamental flaw in what it maintained was the design of the roof by failing to so design the roofing works as to require the erection of a temporary roof to protect the partially installed cassettes until the gutters could be completed and a final Derbigum layer was laid across the roof. It was this single failure that the insured claimed was the single event or occurrence by which their retained liability under the policy was to be ascertained.
Accordingly, one of a number of issues determined by the Judge was whether a deductible (“Retained Liability”) of £150,000 “any one event” applied once to the whole of the claim or applied separately in respect of damage to each cassette.
The Judge found that one deductible of £150,000 applied to the insured’s claim because the proximate cause of the ingress was deficient design of the works in failing to provide for a temporary roof over the cassettes during construction prior to their permanent sealing; the decision not to do so was a single event for the purpose of the Retained Liability provision.
Grounds of Appeal
One of the Insurers’ grounds of appeal was that the Judge erred in his construction and application of the Retained Liability provision (“£150,000 any one event”)3.
The Retained Liability clause was applicable to the section 1 contract works and section 2 terrorism cover and provided as follows:
“GBP 10,000 each and every loss,
However in respect of defective design, materials or workmanship the following will apply where option is selected by the Principal: –
GBP 150,000 any one event but this will only apply to those claims which are recoverable under DE5 but not under DE3 …”
It was common ground that the claim was recoverable under DE5 by reason of defective design being a proximate cause, so that the relevant deductible was £150,000 any one event which Sky had elected. The Insurers’ ground of appeal ultimately pursued in relation to the deductible issue was that the Judge erred in his construction and application of the Retained Liability provision in treating the relevant single event as the design decision not to use a temporary roof.
Lord Justice Popplewell of the Court of Appeal observed [at 116]:
“Any one event’ is an expression used in aggregation provisions in insurance, both for the purposes of deductibles and limits, with a well-established meaning which the parties to this policy are to be taken to have been aware of, in Sky’s case through its brokers.”
The Lord Justice noted that Insurers had argued before the Judge that in the Policy, “event” applies to the damage suffered not the cause of the damage; and that there were as many events as there were damaged cassettes because each was intended to be hermetically sealed and there was no unity of place in treating the roof as a single place. Having rejected the first submission, the Judge did not need to address the second and did not do so. That unity question was not before the Court of Appeal either.
Accordingly, the only issues which fell to be decided on the appeal in relation to the Retained Liability provision were (i) whether event referred to damage or to the cause of damage, and (ii) if the latter whether the Judge erred in treating the decision not to use a temporary roof as one event.
The Court of Appeal’s Judgment
Lord Justice Popplewell4 held that the Judge was correct to hold that “event” refers to the cause of the damage, not the damage itself, with the Lord Justice opining that a number of considerations supported that conclusion.
First, the important background context known to the parties included the fact that “any one event” is a classic term for aggregation of losses by reference to the cause of the losses. The absence of any wording in the Retained Liability clause of any words of causation, such as “arising out of”, did not undermine the potency of this starting point.
Secondly, the Lord Justice noted that there was the striking contrast in the clause between the word “loss” used for the default deductible £10,000 each and every loss, and the use of the word “event” in the part of the provision applicable to defective design where the deductible was “£150,000 any one event”. If, as the Insurers contended, “event” referred to damage, his Lordship considered that the same word “loss” would have been used in both places.
Thirdly, it was noted that the assured under the Policy was given an option to select the £150,000 deductible but was not bound to do so such that if the option was not exercised, the £10,000 each and every loss deductible applied. If the £150,000 deductible were also applicable to each and every loss, because “event” connoted loss not the cause of loss, the option would be meaningless: it would never be in the assured’s interest to exercise it.
Fourthly, it was observed that the £150,000 deductible was specifically addressed to claims by reference to a particular cause of the loss, namely defective design. The natural reading was therefore that “event” was looking to the cause.
Fifthly, the Lord Justice expressed the view that defective design could be expected in some cases to give rise to damage manifesting itself over a wide span of time and over a wide geographical spread so that if “event” were to apply to the damage there would likely be an aggregation5 of £150,000 deductibles which would substantially erode the claim. It was thought unlikely that the parties would have intended this in a primary policy against physical damage during construction in which they had specifically agreed to design defect cover in the widest form available amongst standard clauses i.e. DE5.
The Court of Appeal noted that Insurers most powerful point relied on the terms of the 72 hour clause which provided as follows:
“72 hour clause
For the purpose of the application of the Insured’s Retained Liability it is agreed that any damage to the Property Insured or liability for damage arising during any one period of seventy-two consecutive hours and caused by storm, tempest, flood, water damage, subsidence, collapse or earthquake shall be deemed to be a single event and therefore to constitute one occurrence. For the purpose of the foregoing the commencement of any such seventy-two hour period shall be decided at the discretion of the Insured, it being understood and agreed, however, that there shall be no overlapping in any two or more such seventy-two hour periods in the event of damage occurring over an extended period of time.”
Insurers’ Counsel pointed out that the clause was “for the purpose of the application of the Retained Liability” and it addresses what is to be a “single event”. It was contended that it must therefore be applicable to the £150,000 deductible which was the only provision in the Retained Liability clause which referred to an “event”. The identified event was “any damage to the Property” from the enumerated causes, storm, tempest etc., making clear that it is the damage not the cause of the damage which constitutes the event. It was argued that this was the clearest indication that “event” in the Retained Liability clause referred to damage not the cause of damage.
Lord Justice Popplewell [at 121], considered however that this was to put more weight on the clause than it would bear. His Lordship thought it clear that it owed its origins to aggregation provisions in catastrophe excess of loss reinsurance where the insured peril is the catastrophe, and had been transposed into the policy without any care as to its language.
Thus although it purported to apply for the purposes of the Retained Liability clause, it provided for something to be deemed to be a single event “and therefore an occurrence” although “occurrence” formed no part of the wording of the Retained Liability clause. It applied not only to damage but “liability for damage” which did not apply to this property damage cover in which it was difficult to see how a liability could be an event. The enumerated causes were not obviously translatable to a deductible which only applied where a different proximate cause applied, namely defective design, although the Lord Justice thought that in theory some at least might be capable of having application as concurrent proximate causes.
It was observed that the reference to damage would make sense if the clause were entitled to apply to the default and other deductibles in the Retained Liability clause, so that losses from extended catastrophes were to be divided up into 72 hour periods for the purposes of the cover and the damage occurring during that period was to be the subject matter of aggregation. All this suggested to the Lord Justice that the 72 hour clause could not provide any weighty counterbalance to the natural construction of the Retained Liability clause which is that “event” looks to the cause of the loss not the loss itself when the cause of the loss was defective design.
This left the residual point which was whether on that construction the Judge made an error in treating the decision not to have a temporary roof as a single event. The Insurers argued in their written argument that a decision was not capable of being an event. Lord Justice Popplewell stated [at 122]:
“I would unhesitatingly reject the argument. Whether a particular decision fulfils the unities will be a factual evaluative assessment in each case, but a decision is clearly capable of being a happening which occurs at a particular place at a particular time in a particular way.”
The Lord Justice also rejected [at 123] as “unfair & unfounded” insurers criticism that the Judge did not identify a decision and that he did not set out how, when or by whom the decision was made, noting that the Judge did identify that the decision had been made and treated it as a proximate cause of the loss. Insurers disputed only whether the decision was capable of being an “event”, contending that “event” meant event of damage, alternatively that a decision could not, as a matter of law, be an “event”, both of which the Lord Justice found were “unsound”.
In dismissing the appeal of Insurers on the point, the Court of Appeal unanimously found that the Judge applied the correct principles to the question whether the decision not to have a temporary roof was a single event.
Conclusion
The prior decision of the Court of Appeal in Seele Austria GMBA Co v Tokio Marine Europe Insurance Limited,6 left open the possibility that the installation of windows with a common defect (in design or manufacture) could be an “event”, along with the giving of workmen the wrong instructions. In Sky UK, the Court of Appeal confirmed that there can be aggregation based on no more than the undefined term “event” in respect of a design decision which was found to be [relevantly] causally related to the damaged sustained7.
Notably, it did so absent express language of aggregation. As such it reinforced that if an “event” can be identified which can properly be regarded as the source of all the damage, the absence of the express words “originating cause or source” (which have been said to open up “the widest possible search for a unifying factor in the history of losses which it is sought to aggregate”8) will not be fatal to an ability to aggregate deductibles.
This is not to say however that every design decision will necessarily be an “event”.
Having noted [at 118] that “occurrence” is usually to be treated as synonymous with “event”, Lord Justice Popplewell [at 174] agreed with the analysis of Butcher in Stonegate Pub Co Ltd v MS Amlin Corporate Member Ltd,9 that while there is no general rule that the taking of a decision (in contrast to its promulgation or application) cannot be an occurrence, whether or not it was would depend on the facts and in particular the nature of the decision and the way it was made. It was said in that case [at 177]:
“It is clearly the case that losses will not, at least usually, flow from a decision unless it is in some way implemented and carried into effect. But if it is, then the resulting losses may, depending on the facts, be sufficiently related to that decision to satisfy the linking language of the relevant aggregation clause (whether it be “arising from”, “attributable to” “connected with” or whatever). That is a matter which would depend on the facts and the precise linking language which is relevant.”
The decision of the Court of Appeal in Sky UK provides an illustration of the analysis to be undertaken.
No doubt the conclusion reached that none of the damage would have occurred but for what was held to be a fundamental flaw in the design of the roof, and that the ingress of rainwater was the natural and foreseeable consequence of this design defect, made unexceptional the Court of Appeal’s conclusion that the judge’s evaluative assessment applying the principles he did, was one to which he was entitled to come on the evidence.
1 [2024] EWCA Civ 1987
2 Sky UK Limited v Riverstone Managing Agency Limited [2023] EWAC 1207
3 There were a number of other grounds of appeal by both parties which are not considered in this article.
4 With whom Lord Justice Phillips and Lord Justice Snowden agreed.
5 Presumably the word being used in context as a synonym for “accumulation”.
6 [2008] EWCA Civ 441
7 In Metricon Homes Pty Ltd v Great Lakes Insurance SE [2017] VSC 749 … at [60] it was said to be “clear” (and not contested by the insurer) that defective design materials and workmanship which caused damage to a house constructed by the insured constituted an “occurrence” under a policy definition referring to “an event, or continuous or repeated exposure to conditions … which results in … damage to … property and/or loss of use thereof”. It was not entirely clear however which part of this composite expression led the Court to that conclusion.
8 See Standard Life Assurance Ltd v CE European Group [2012] EWAC 104 at [259].
9 [2022] EWAC 2548 (Comm)
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