Zagora v Zurich
Citation:  EWHC 140 (TCC)
This case was concerned a large block of flats in south Manchester. The claimants were the freeholder and nearly 30 of the long-leasehold owners of the flats. The claimants (Zagora) complained that the flats had serious defects which rendered them unsafe to inhabit. The claimants brought a claim against Zurich under its new home warranties, and a second claim against Zurich Building Control who had signed off the flats as compliant with Building Regulations.
Zurich fought almost every aspect of the claims made under the new home warranties for both the cost of remedying the defects and the cost of alternative accommodation whilst repairs were carried out. Further, the freeholder asserted that there had been an earlier agreement in which Zurich had agreed to fund works to resolve certain agreed defects regardless of the position under the building warranties. The insurer denied this.
The claimants also sought damages from Zurich Building Control representing the diminution in value of their respective interests in the development on the basis that Zurich Building Control had fraudulently issued the Building Regulations completion certificates thereby inducing the flat owners to purchase their properties. Zurich Building Control denied that there had been any fraud on its part, and argued that, in any event, none of the claimants had relied on the final certificates.
After a 4 week trial, HHJ Davies handed down judgment in a decision that runs to some 170 pages. The Judge dismissed the freeholder’s claim that there was any ‘agreement to rectify’, on the basis that the agreement reached between the freeholder and Zurich had been insufficiently certain to be enforceable. Otherwise, in the absence of an insurance certificate, the freeholder was not an insured under the policy.
However, the Judge upheld the leaseholders’ claims in almost every respect. The Judge found that the building was seriously defective and required major and expensive repairs. In the course of his decision, the Judge dealt with whether an insured was required to put any funds towards the cost of rectification in order to be entitled to an indemnity under the policy, the question of what constituted a present and imminent danger or major physical damage under the policy and the proper interpretation of various exclusions from cover where there are multiple competing causes of a loss. However, due to the maximum liability limitation in the policy, the leaseholders’ claim was limited to the total of the purchase prices of their flats as declared to the insurer.
HHJ Davies went on to find that Zurich Building Control had fraudulently issued the Building Regulations Completion Certificates. Whilst the Judge found that the relevant building inspector had not intended the freeholder to rely on the representations contained within the Completion Certificates, he did find that the inspector intended all leaseholders to rely on them.
However, due to the unusual nature of the contracts of sale for the flats at the development, which required completion on issuance of a Zurich Insurance Cover Note rather than the Building Regulations Completion Certificate, the Judge found that the leaseholders had not purchased their flats in reliance upon the certificates. Accordingly, the claims in deceit failed on reliance grounds.