£5m construction claim denied by Zurich

By 10th November 2022 November 14th, 2022 Claims Litigation

Construction giant Sir Robert McAlpine (SRM) has taken to the courts in pursuit of a £5m unpaid claim against a consortium of insurers led by Zurich Insurance Plc. The claim form, lodged at court on 17 October details how SRM’s claim on its Major Construction Policy was rejected after a four-week investigation by loss adjustors.

The legal claim relates to problems that arose in the supply of modular bathrooms in the development of 995 new homes in Chapel Wharf, Manchester. SRM, the lead contractor on the project, claims that the bathrooms were defective in that the floors were subject to corrosion. The third-party supplier of the bathrooms denied liability for any defect leaving SRM to remedy the issue before the project could be completed, at a cost in excess of £5m.

According to the legal documents Zurich is liable for 40% all claim costs under the policy with the remaining insurers Chubb European Group, Tokyo Marine Kiln Insurance and QBE UK liable for 20% each. The insurance policy related to three construction projects including the Chapel Wharf scheme and covered the period of November 2016 to December 2019.

SRM alleges that when the bathroom pods were supplied, they had a manufacturing defect which led to corrosion in the base of the pods. In legal documents SRM claims it should be indemnified as the insurance policy covered the firm for: “… the cost of reinstating or replacing the defective and damaged floors and putting right the defect which caused the damage”.

The underlying insurance claim was filed by SRM on 5 May 2021. It was refused by McLarens, loss adjustors for the insurers, less than a month later, on 1 June 2021, leading to the legal claim being filed last month. Full details of why the claim was rejected were not provided in the SRM legal claim form. Defence documents in the case have yet to be filed.

‘The SRM claim shows that even the biggest companies sometime have to fight hard to get claims paid. The matter at hand appears at first glance to be a relatively simple, contractual matter relating to the construction project the company was engaged on. The fact that a significant chunk of the claim document is given over to analysing how the excess on the policy should be applied gives some clue as to one possible area of dispute. According to SRM, the £150,000 excess should be applied only once as the alleged defects were the same across all 1,460 bathroom pods. The contrary view, that each defective pod should count as a separate event under the insurance policy, could lead to the £150,000 excess being multiplied by 1,460, effectively wiping out the value of the claim. As has been seen in many of the Covid BI claims, the manner in which excesses are applied to insurance claims is frequent area of dispute and an area all insureds should carefully consider before signing up to any policy’. Mactavish CEO, Bruce Hepburn.

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