Insurance Feature Insurance
indepth
Safely ‘under cover’?
L andlords are usually subject to damage or destruction. Leaseholders are required to make payment of their proportion of the insurance as rent or via the service charge. Where there is a dispute is whether terrorism insurance is required, leaseholders are entitled in the usual way to challenge the reasonableness of service charge and insurance rent. Payability and reasonableness The subject of terrorism insurance is frequently raised in respect of who pays and as usual the lease will be the starting point in assessing whether the terrorism insurance is a risk capable of recovery from the leaseholders. Assessing the services to be provided and the lessees’ covenants will be required. A specific obligation upon the landlord to include terrorism insurance as an insurable risk would be ideal and provide certainty but this is not necessarily required. Leases may provide the landlord with reasonable discretion as to what risks are to be insured. But a key question is how far does a discretionary provision or other stated insurable risk extend to enable recovery of the terrorism premium? The leading upper tribunal authority of Qdime v Bath Building (Swindon) Management Company [2014] UKUT0261 (LC) provides us with useful guidance where there is not specific reference to terrorism as an insurable risk within the lease. In Qdime the lease provided for insurance for “...the usual comprehensive risks in accordance with the CML [Council of Mortgage Lenders] recommendations... and such other risks as the Landlord may in its reasonable discretion think for to insure against...”. The CML recommends to insure against the risk of explosion. The Upper Tribunal determined that the term explosion, in this context, included an explosion incurred by a terrorist act. Additionally the inclusion covenants within leases to insure their buildings in respect of risk of
terrorism for example, damage from falling debris or damage caused by vehicles deliberately intending to cause terror and damage that may unintentionally damage part of a building. Such cover may be provided within the definition of a malicious act or riots which may be seen in newer leases that cover a wider range of defined risks. Portfolio insurance The terrorism insurance of a building may be contained in a separate insurance policy to the usual building insurance cover as specialist policies are generally required. Pool Reinsurance Company Limited (“Pool Reinsurance”) was introduced in 1993 following the bombing of the Baltic Exchange. for landlords against the threat of terrorism, which (for the purposes of Pool Reinsurance) includes “…acts of persons acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majesty’s government Pool Reinsurance provides cover for insurers who in turn insure buildings
of terrorism insurance by the landlord was lawful and reasonable in its decision to include the same. Properties outside of London and major cities can be disputed by leaseholders as to whether they are necessarily to be insured against acts of terrorism but, again, the lease provisions and any discretion held by the landlord will be fundamental in whether the premium is payable under the terms of the specific lease. It is also important to note that what is considered to be a terrorist attack will depend upon interpretation and definition within each individual policy. It is our view that insurance policies should be checked for damage to a building as a result of an indirect act of implications for leaseholders and landlords Phil Parkinson and Katie Edwards look at the challenges surrounding insurance against terrorism and the
in the United Kingdom or any other government de jure or de facto”. Whilst the act causing damage or
destruction must meet this definition for a claim under Pool Reinsurance, other policies may provide a wider interpretation than this, for example explosion or malicious damage.
Implications and points for landlords to consider
When considering whether to insure under Pool Reinsurance, landlords are required to insure their whole portfolio with the policy and are unable to select which of their buildings to include. Additionally landlords may insure their buildings as part of their larger portfolio, which generally may result in lower premiums.
Phil Parkinson is legal director and Katie Edwards is an associate at JB Leitch
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