Lloyd's Insurance Company SA v Financial Services and Pensions Ombudsman

• Jurisdiction: Ireland
• Court: High Court
• Judge: Ms. Justice Siobhán Phelan
• Judgment Date: 19 May 2022
• Neutral Citation: [2022] IEHC 290
• Docket Number: [Record No. 2020/188 MCA]

In the Matter of Section 64 of the Financial Services and Pensions Ombudsman Act 2017

Between:

Lloyd's Insurance Company SA

Provider

and

Financial Services and Pensions Ombudsman

Respondent

and

Joanna Donnelly and Harm Luijkx

Notice Parties

[2022] IEHC 290

[Record No. 2020/188 MCA]

THE HIGH COURT

JUDGMENT of Ms. Justice Siobhán Phelan delivered on the 19 ^th day of May, 2022

INTRODUCTION

1 . This matter comes before the High Court by way of a statutory appeal taken by an Insurer (hereinafter “the Provider”) against a decision of the Financial Services and Pensions Ombudsman (“the Ombudsman”). The decision under appeal was made in respect of a complaint concerning an insurance policy provided by a housing developer to the Complainants/Notice Parties (hereinafter “the Complainants”) who had purchased a house from the developer in or about 2006. The insurance policy (hereinafter “the Policy”) provides cover against structural defects in the property.

2 . When defects came to light in the property, a claim was made but there was a question as to whether aspects of the claim were recoverable under the Policy. Two separate issues were identified, namely pyrite related property damage and damage to the structure of the roof connected with deflecting trusses in the roof associated with cracking on ceilings and walls. Ultimately, the Provider gave cover in respect of the pyrite damage that was caused to the property but did not accept that the damage related to the deflecting roof trusses was covered by the Policy.

3 . In summary, the basis for the Provider's refusal was rooted in its view that the roof trusses themselves, which it was accepted were structural and therefore covered by the Policy, were not inherently defective. It was maintained by and on behalf of the Insurer that the deflection to the roof trusses arose from the manner in which a water tank had been positioned in the attic area without adequate or properly placed load spreading supports which in turn caused an unintended load to be applied to the trusses. The Provider maintained that it was this unintended load which caused pressure on the trusses and led to cracking on ceilings and walls. They maintained that this constituted damage “caused to the structure” which was outside the Policy rather than damage inherent “in the structure” which was covered.

4 . The Notice Parties made a complaint (hereinafter “the Complaint”) to the Ombudsman in respect of the Provider's declinature. In the final decision of the Ombudsman dated the 24 ^th of July, 2020 (“The Decision”) the Ombudsman upheld their complaint on the grounds that it was unreasonable, unjust and improper for the Provider not to remediate the damage which is the subject-matter of the Complaint. The Provider was also ordered to compensate the Complainants for inconvenience in the sum of €20,000.

5 . In summary, the complaint centred on the question of whether cover was properly declined having regard to the terms of the contract of insurance and the evidence as to the cause of the damage.

ISSUES ON APPEAL

6 . In this appeal the Provider maintains that the Ombudsman was guilty of serious and significant error in construing the definitions of “ Structure” in the Policy (“ Policy Defined Structure”) in such a manner as to include the Complainant's claim. The Provider distinguishes between damage caused to a part of the Policy Defined Structure (not covered) as opposed to a defect in part of the Policy Defined Structure (covered). The Provider maintains that cover was correctly declined on the grounds that while the trusses form part of the Policy Defined Structure of the building, the water tanks (not one of the insured elements of the Policy Defined Structure) and their incorrect positioning in the attic was not a defect in the trusses themselves but was a workmanship defect in the installation of the uninsured water tanks and supports, which in turn caused damage to the trusses (in the form of excessive deflection) and were outside the terms of cover provided under the Policy. The Provider maintains that insofar as the Ombudsman concluded that the defect was in the Policy Defined Structure, such a finding was in the face of agreed evidence as to the cause of the damage and is therefore the result of a serious and significant error.

7 . The Provider's position is that the declinature was grounded on the proper construction and application of the terms of the Policy and the definitions contained therein. Accordingly, the Provider contends that the Ombudsman fell into serious and significant error in directing insurance cover where there was no breach of contract in the Provider's declinature of the Notice Parties' claim.

8 . Separately, the Provider further contends that in making findings pursuant to s. 60(2), in particular pursuant to s. 60(2)(b), (c) & (g) of the FSPO Act 2017 and specifically in directing relief on the basis that the conduct complained of was in accordance with law but nonetheless unreasonable, unjust and improper conduct, the Ombudsman exceeded his jurisdiction by treating a refusal of cover which was permitted under the terms of the Policy as unjust or unreasonable or improper. Issue was also taken with both the entitlement to compensation and quantum of compensation which it was contended was disproportionate to any inconvenience suffered by the Complainants and having regard to engagement by the Provider.

9 . The Ombudsman stands over the Decision as one which flows from a proper interpretation of the Policy and is supported by evidence before the Respondent. The Ombudsman further maintains, in the alternative, that even where the Complainant might not be entitled to a remedy as a matter of civil law deriving from the terms of the contract, the Ombudsman's jurisdiction under the Financial Services and Pensions Ombudsman Act 2017 [hereinafter “the FSPO Act 2017”] is wider than that of the Court and is not tied to the strict contractual rights of the Complainants. The Ombudsman contends that the Court has no jurisdiction to intervene in this case as no serious and significant error in construing the Policy or in the exercise of the Ombudsman's jurisdiction under the 2017 Act has been demonstrated.

THE CONTRACT OF INSURANCE: RELEVANT PROVISIONS

10 . The Policy document sets out the insurance cover provided for by the Premier Guarantee for Ireland, a structural indemnity scheme of insurance offered by builders for new homes.

11 . Section 3.3 of the Policy, which contains the material coverage provision in this Appeal, provides as follows:-

“Section 3.3 – Structural Insurance Period

The Underwriter will indemnify the Policyholder against all claims discovered and notified to the Underwriter during the Structural Insurance Period in respect of:

1. The cost of complete or partial rebuilding or rectifying work to the Housing Unit which has been affected by Major Damage provided always that the liability of the Underwriter does not exceed the reasonable cost of rebuilding each Housing Unit to its original specification …”

12 . “ Major Damage” is defined in Section 2 or the Policy as follows:-

“L. – MAJOR DAMAGE

a) Destruction of or physical damage to any portion of the Housing Unit for which a Certificate of Approval has been received by the Underwriter;

b) a condition requiring immediate remedial action to prevent actual destruction of or physical damage to any portion of the Housing Unit for which a Certificate of Approval has been received by the Underwriter

In either case caused by a defect in the design, workmanship, materials or components of the Structure which is first discovered during the Structural Insurance Period. For the purpose of this Policy the definition of Major Damage is deemed to include any physical loss, destruction or damage caused by contamination or pollution as a direct consequence of a defect in the design, workmanship materials or components of the Structure of the Housing Unit.”

13 . The Respondent observed in his Decision by reference to the definition of “ Major Damage” that there is no specific definition in the policy document of what constitutes an absence of something necessary for completeness.

14 . The range of reference of the term “ Structure” is also defined by the Policy:-

“R. STRUCTURE

The following elements shall comprise the Structure of a Housing Unit:

• — foundations;

• — load bearing parts of floors, staircases and associated-guard rails, walls and roofs, together with load-bearing retaining walls necessary for stability;

• — roof covering;

• — any external finishing surface (including rendering) necessary for the water-tightness of the external envelope;

• — floor decking and screeds, where these fail to support normal loads.

15 . Counsel for the Provider in argument maintains that in combination, these provisions of the Policy have the effect that for Section 3.3 of the Policy to be triggered, and the damage in question to be therefore insured, the damage must arise from a defect in one of the elements listed in the preceding paragraph.

16 . Counsel for the Ombudsman does not demur from this construction of the Policy but contends that there was evidence before the Ombudsman upon which a decision that the damage arose from a defect in the trusses of the roof which were not fit to support the load of the water tanks placed in the attic space could be taken. The Ombudsman's position is that a defect in the trusses, a load bearing part of the roof, comes within the policy definition of structure and is properly covered under the Policy.

EVENTS LEADING TO SUBMISSION OF THE COMPLAINT TO THE OMBUDSMAN

17 . The Complainants purchased a house from the Builder in or about 2006 with the benefit of the insurance policy which covered against structural defects in the property. In or about 2010 it emerged that some of the houses in the...