Court drives CAR insurance cover further
Elizabeth Weeks is a partner at Rosenblatt Law
A recent Court of Appeal decision (which was, importantly, affirmed by the Supreme Court) has widened the scope for reliance on contractors’ all risks (CAR) insurance.
The ruling in Sky UK Ltd and Mace Ltd v Riverstone has helped to clarify how far CAR policies can stretch to protect against insured damage when that damage unfolds over time, sometimes long after a project has finished.
“This judgment could encourage more claims and issues pertaining to coverage, especially on projects of lengthier duration”
If you’re building big, complex projects, damage doesn’t always stop when work finishes and the site shuts down. Materials such as timber roofs can deteriorate over time. The big question has always been about who bears the cost if deterioration becomes apparent after the CAR policy has expired.
The case in question related to Sky’s West London headquarters, built between 2014 and 2016. The main contractor, Mace, oversaw the installation of Europe’s largest timber flat roof, covering 16,000 square metres. During the construction process, the absence of temporary shielding meant rainfall caused gradual deterioration to the timber roof structure.
Sky’s CAR policy promised cover for “physical loss or damage […] from any cause whatsoever” during the policy period. When Sky claimed for the initial water damage, the later deterioration and the cost of investigating the full extent of the problem, the insurer, Riverstone, refused to cover items two and three – namely later deterioration or the investigation costs – arguing the damage fell outside the policy period.
Long-running projects, particularly those using materials exposed to change or damage over time, often run into this issue. That makes it critical to understand, both from a risk and financial perspective, where responsibility for remediation sits.
Implications of the ruling
The Court of Appeal ruled in Sky’s favour on every substantive point. The court confirmed that the dampening of the timber roof counted as “damage” in its own right, even if the material could be repaired. Crucially, the court held that deterioration occurring after the policy expired could still be covered, provided it stemmed from damage that happened during the policy period.
The judgment also makes clear that investigation costs are recoverable where they are required to understand the full extent of the problem. The court rejected the insurer’s argument that these costs were “speculative”, noting that proper investigation is essential to effective remediation.
In defining “damage”, the court applied the “ordinary” meaning – a physical change that impairs the property’s value or usefulness – and stressed that there was no requirement for immediate repair or replacement under the policy for it to still apply.
On the key question of post-policy deterioration, the court said a reasonable businessperson would expect cover for the consequences of insured damage developing over time, unless the policy explicitly excluded it. The court went on to explain that “serious and unacceptable adverse consequences” could arise if such deterioration was left uninsured, as it could create a gap of cover where damage is not picked up by a later insurance policy.
Check the wording
The court’s judgment provides much-needed clarity for those involved in delivering major projects. It confirms that if damage originates during the policy period but continues to deteriorate after completion, the cost of dealing with that later deterioration can still fall under the original CAR cover – provided there’s a clear causal link to the initial damage.
For contractors (and clients), this decision is a reminder to check the relevant CAR wording carefully. It also means you should not necessarily walk away from a potential claim just because the damage has worsened after completion. If the root cause dates back to the policy period, there may be a strong case for coverage.
The judgment also provides a clear rationale in respect of the recovery of investigation costs, which could significantly reduce financial exposure when problems arise.
For insurers, the judgment is likely to trigger tighter drafting around deterioration and investigation costs. Expect more explicit exclusions and tougher negotiations at the policy stage if you find yourself on the other side of that negotiation.
This decision could encourage more claims and issues pertaining to coverage, especially on projects of lengthier duration and where the risk of gradual damage occurring may be more common. For the industry, it’s a timely reminder that CAR policies are not just paperwork – they are a critical risk management tool.
Understanding what is in and out of scope can make the difference between a manageable issue and a financial headache.
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