So you think you are covered?

Town centre iStock 000005208185Small 146x219A recent High Court ruling on insurance cover is significant for local authorities whether they are the landlord or tenant of a property, writes Helen Westran.

It is a common assumption in a landlord and tenant relationship to presume that each party has taken out insurance cover for the benefit of the other. Whilst this may be true in respect of material damage cover, in the court decision of Eurocrest Ventures Limited v Zurich Insurance Plc ChD [26 April 2012] it dismissed an argument that a tenant was entitled to liability cover under the landlord’s policy.

Eurocrest Ventures leased two flats in north London. The freehold was owned by a Mr A Halpern who owned a portfolio of properties throughout London. Directly below Eurocrest’s flats were commercial premises leased to another tenant. In June 2007 those premises were partially flooded. The commercial tenant commenced proceedings against its landlord for breach of covenant. The landlord in turn commenced Part 20 proceedings against Eurocrest claiming an indemnity. Eurocrest then asserted through declaratory proceedings that it was entitled to the benefit of the liability cover in the landlord’s policy, which had been issued by Zurich.

Whilst the schedule to the policy noted tenants’ interests in a general way: “It is understood and agreed that the interest of various lessees in the property insured may be noted at the request of the insured but only in respect of parts of the premises demised by the lease to the individual tenant."

Judge Donaldson QC, sitting as Deputy High Court Judge, did not agree that this gave Eurocrest rights as a policyholder. Eurocrest was not named on the insurance policy as an insured, and noting of an interest means no more than recording its existence. Further, it was clear from the schedule that the interest being noted was, in any event, only in respect of material damage and not liability. Finally, the fact that the Contracts (Rights of Third Parties) Act 1999 might apply did not help Eurocrest because this statute only provides rights in respect of a contract term that confers a benefit on the relevant party. The judge held Eurocrest had no such benefit. Eurocrest’s declaratory proceedings failed.

Comment

The judge’s decision is of wider relevance to local authorities.

Whether the authority is a landlord that leases property or is a tenant of a building, each party should make it clear what cover has in fact been provided. A tenant who is merely noted on a policy does not become a policyholder and, unless a clear benefit is conferred on the noted party (and providing the Third Parties Rights Against Insurers Act 1999 has not been excluded), such parties will have no direct claim under the policy. Mere noting is not enough.

Importantly, this decision confirms that the subject matter of the insurance cover being underwritten by a property owner’s liability policy is to provide an indemnity to the property owner and not, as the claimant here sought, the claimant tenant’s liability.

This judgment should be useful to local authorities faced with arguments by tenants claiming that they are entitled to a greater extent of cover than that which was originally envisaged and which goes beyond the interest insurers intended to give.

Helen Westran is an Associate at Berrymans Lace Mawer.