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Hi team,

In the past, we have had claims declined because the allegation against our client didn't include actual property damage (even though there may have been some). This time, a claim has been declined because while our client is alleged to have caused damage, the insurer believes that it is only an aesthetic issue.

The specific issue is to do with plaster cladding that has some visible creases, possibly caused by timber shrinkage.

Doesn't the insurer have an obligation to defend their insured when an allegation, if proven, would trigger cover? In this case, if a court decided the creasing was actual damage, the policy would presumably be triggered.

Crossley Gates replies...

If an insurer is confident the type of liability alleged is not covered (say, because of an exclusion), then it may decline the claim.

Of course, if after a court case, it is clear that the call was incorrect, the insurer is in breach of contract and can be legally pursued for damages that result from it. I learnt this the hard way when I was an in-house lawyer with an insurer.

Is the insurer confident that the creased plaster cladding is not damaged? If it is in a visible area as part of the interior finish (as opposed to concealed), I am not so sure.

Steve Jacques replies...

Agree with Crossley. Rather than just declining to indemnify it makes more sense for the insurer to be involved in the defence. Usually this would be subject to a costs sharing agreement, in case the court decides there was damage, and cover under the policy is then triggered.

March 2024

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