NHBC insurance and contractor insolvencies: what are the time limits?

In November 2015, Vantage Design & Build Ltd was engaged as a contractor by Catalyst Housing Ltd under the terms of a construction contract that incorporated the standard form JCT Design and Build Contract (2011 edition). 

Catalyst’s rights under the contract were later succeeded by Peabody Trust. Under the contract terms, Vantage was required to design and construct 175 dwellings, 88 of which were affordable housing.

The National House Building Council (NHBC) insured Peabody under the terms of a Buildmark insurance certificate, which – among other things – insured Peabody against the risk of contractor insolvency before practical completion of the 88 affordable homes.

Vantage went insolvent (by entering administration) before the completion of the contract works.

A third party was engaged to complete the remainder of the contract works, including the affordable homes, which resulted in costs being incurred over the sum that would have been paid to Vantage had it completed the contract works as required by the contract. 

Those costs – less the sum that would have always been paid to Vantage under the contract – were sought by Peabody from NHBC in reliance upon the terms of the NHBC policy. The claim was not accepted by NHBC.

Put simply, insurance policies are contracts. Accordingly, Peabody (represented by Devonshires Solicitors LLP) pursued its claim on the basis that NHBC had breached its contractual obligation to indemnify Peabody against the insured risk.

If a contract is executed as a simple contract – as is applicable here – a claim for breach of contract cannot be pursued more than six years after the cause of action accrued under section 5 of the Limitation Act 1980.

NHBC argued that a claim based on losses incurred as a result of the contractor’s insolvency would have expired six years after Vantage went insolvent and, as the claim was not brought within those six years, the time limit had expired.

Peabody contended that its right to bring its claim accrued when it paid more to complete the contract works than it would have paid to Vantage under the contract, which occurred much later than Vantage’s insolvency and – if accepted – would mean the claim was brought within statutory time limits and could proceed.

In its ruling, the court considered the wording of the NHBC policy and determined that it contained language setting out when a claim could be made. 

The court decided that the NHBC policy did not specify “at least in clear terms the start or accrual date” of a claim, and the requirement to notify the NHBC of a claim did not refer to contractor insolvency. The NHBC policy did, however, refer to having “to pay more to complete the building of the home(s), because the contractor is insolvent”, and resulted in the court finding that the event insured against under the NHBC policy was the increased costs incurred as a result of contractor insolvency rather than the insolvency itself.   

Accordingly, the court decided that:

This judgment emphasises the importance of understanding contractual clauses and taking time to ensure all parties are aligned regarding the intended meaning of respective contractual obligations at the outset of any contract.

In circumstances where the BCIS recently published that insolvencies in construction are continuing to rise – with 4,287 construction firms reportedly going insolvent in the year ending May 2024 – this judgment also highlights how an informed understanding of applicable time limits for pursuing claims arising from an insolvency in the supply chain can be commercially beneficial, and we can expect to see this ruling impacting claims against the NHBC going forward as the number of insolvencies in the construction sector continues to grow.  

You can read the full judgment here.

April Baynes is a partner, Olivia Jenkins is a senior associate and Sunny Ramgolam an associate at Trowers and Hamlins.