Greg Carter, partner at Winckworth Sherwood’s construction team, discusses the importance of building warranty and how to navigate a difficult path
For many building owners, registered providers and developers, the discovery of serious defects triggers a familiar response: investigate the problem, identify the responsible contractor or consultant and consider legal action.
Increasingly, however, that approach overlooks what may be a claimant’s most valuable asset: the building warranty.
Over the years, I have acted on an increasing number of substantial building warranty claims involving structural defects, fire safety issues and other latent defects. Whilst building warranties remain one of the most valuable protections available to building owners, I have also seen warranty providers take an increasingly robust, and in some cases surprising, approach to resisting claims.
In many cases, the dispute is not whether defects exist. Rather, it is whether the policy has been triggered, whether the claim has been notified correctly, whether the policyholder has standing to claim, or whether a technical policy defence can reduce or avoid liability.
This article examines some of the more common arguments and tactics that I frequently encounter when warranty providers seek to avoid or reduce liability.
Notification first, questions later
One of the most common mistakes policyholders make is delaying notification.
Many building owners spend months, and sometimes years, investigating defects, obtaining expert evidence and pursuing contractors before notifying the warranty provider.
That approach can be dangerous.
Most warranty policies contain strict notification requirements and insurers frequently seek to rely upon alleged failures to comply with them. In some cases, defects are identified in the first few years after practical completion, when cover is often at its broadest. By the time the warranty provider receives formal notification, the policy may have moved into a different phase of cover, potentially affecting the scope of the available indemnity.
In my experience, the warranty provider should often be one of the first ports of call when defects emerge, not the last.
Unlike a construction or professional negligence claim, a successful warranty claim can provide a direct route to recovery, leaving the warranty provider to pursue responsible third parties if it chooses.
The safest approach is usually straightforward: notify early and investigate afterwards.
The increasingly popular “no damage” defence
Even when a claim is notified promptly, policyholders often face another hurdle: persuading the warranty provider that an insured loss occurred.
Many structural warranty policies respond only where defects have caused physical damage or, in some cases, where damage is imminent.
This distinction is routinely relied upon by insurers.
A building may contain serious defects. Experts may agree that failure is likely or even inevitable. Yet a warranty provider may still argue that because no cracking, collapse, movement or other physical manifestation has yet occurred, there is no insured damage.
In effect, the defect exists, but the warranty provider argues that the policy has not yet been triggered.
This creates an obvious tension. Responsible building owners are expected to identify and address defects before more extensive damage occurs, while insurers sometimes contend they acted too soon.
What does “imminent” actually mean?
The debate becomes even more contentious when policies refer to “imminent” damage or “imminent” danger.
Many warranties fail to define either term.
Does imminent mean days, weeks, months, or simply damage that is likely to occur during the policy period?
Warranty providers often advocate a narrow interpretation. Policyholders generally argue for a broader, more commercially sensible approach.
The issue has become particularly significant in the context of fire safety and building safety defects, where owners are understandably reluctant to wait until serious consequences are imminent before taking preventative action.
Maintenance, mitigation and other conduct arguments
Policyholders should also expect their own conduct to come under scrutiny.
It is increasingly common for warranty providers to argue that losses have been caused or exacerbated by inadequate maintenance, failures to mitigate loss, or non-compliance with policy conditions.
Insurers may also seek to rely on provisions requiring them to be consulted before substantial remedial works are undertaken. Where emergency or precautionary repairs are carried out without prior engagement, warranty providers may contend that they have been deprived of the opportunity to properly investigate the alleged defects.
Whether such arguments ultimately succeed will depend upon the policy wording and the facts of the individual case. However, they illustrate an important point: building warranty claims are often won or lost on technical policy issues rather than the underlying defects themselves.
Who actually has the benefit of the warranty?
Another increasingly common battleground concerns identifying the policyholder itself.
This issue was brought into sharp focus by the decision in Zagora Management Ltd v Zurich Insurance plc, where the court closely examined the policy wording in order to determine who was entitled to bring the claim.
For mixed-use developments in particular, freeholders, management companies, registered providers and leaseholders may all have different interests in the building. Not all of them will necessarily have the benefit of the warranty.
Therefore, the contractual right to pursue the claim should be addressed at the outset.
Other arguments we commonly encounter
The arguments above are by no means exhaustive.
Depending on the policy wording and the particular facts, warranty providers may also seek to rely on exclusions, policy conditions, aggregation provisions, limitations on recoverable losses, or challenges to the scope and cost of proposed remedial works.
It is also increasingly common to see insurers adopt a highly forensic approach to the proposed remedy itself, arguing that suggested works go beyond what is required to address the insured defect or amount to an impermissible improvement of the building.
Whilst some of these arguments will be well-founded, others can appear highly technical and divorced from the commercial realities facing building owners dealing with significant defects.
The warranty is not the end of the story; it is the start of the fight
Building warranties remain one of the most valuable protections available when serious defects emerge.
However, policyholders should not assume that a valid claim will automatically translate into payment.
As claim values continue to rise, warranty providers appear increasingly willing to deploy technical policy arguments to reduce or avoid their exposure. Notification provisions, policyholder challenges, maintenance arguments, scope of repair disputes and the perennial contention that there is simply “no damage” are now familiar features of many claims.
Importantly, policyholders should not necessarily take a rejection at face value.
In my experience, warranty providers do not always get it right. Some declinatures may be well-founded and reflect genuine limitations within the policy wording. Others rely upon interpretations that are open to legitimate challenge. Indeed, some of the most successful warranty claims I have led on started life as outright rejections.
As claimant sophistication continues to grow, building owners, registered providers and developers are becoming increasingly willing to scrutinise the basis of a refusal and challenge arguments they consider commercially unrealistic or inconsistent with the purpose of the policy.
The key lesson is simple: when defects emerge, engage the warranty provider early, notify promptly, and do not assume a rejection letter is the final word.
The post When warranty providers say no: The growing battle over technical defences appeared first on Planning, Building & Construction Today.
