Society of Lloyd's · DRN-5895277

The complaint Mr P has complained about Society of Lloyd’s (SOL’s) handling of a claim he made under his new home building warranty. Any reference to SOL in this decision includes the underwriting syndicate, L, which provided the cover under Mr P’s warranty, together with its agents or representatives, including loss adjusters, surveyors, engineers and other experts. What happened Mr P is a leaseholder in a building comprised of 34 flats which was completed around 2010. Thirteen flats, including Mr P’s, are covered by warranties underwritten by SOL. The remainder are insured by a different provider (A). Mr P had a previous complaint about this claim decided by the Financial Ombudsman Service. That complaint concerned SOL’s decision to decline cover for issues with the gas pipe installation of the building – which SOL referred to as HOC1 – the time SOL took to accept his claim (and other leaseholder’s claims) for fire integrity issues with the riser cupboards (HOC2), and SOL’s decision not to cover other leaseholder’s claims for defective compartmentation and fire stopping to the second and third floors (HOC3) – despite covering Mr P’s claim – because it meant no repairs could be carried out despite his claim having been accepted. That complaint was upheld in part by my ombudsman colleague. In summary, she said: • HOC1 (gas pipework installation) was fairly declined because it did not fall within the warranty’s structural or Building Regulations cover. • HOC2 and HOC3 are one claim, as all issues stemmed from the same underlying breach of Building Regulations (fire safety) and should have been treated as a single notification. • SOL mishandled the claim, with significant and avoidable delays, poor communication, and failure to follow ICOBS requirements for prompt, fair claims handling. • Mr P suffered significant distress and inconvenience, especially due to multi-year delays preventing sale of his flat and leaving the building unsafe. • SOL must recalculate and pay Mr P’s share of HOC3 at current costs and pay £2,000 compensation. A further complaint, this time from a different leaseholder in the same building (Mr C), was also decided by the Financial Ombudsman Service. This concerned the same issues covered in Mr P’s previous complaint. But SOL’s position on that leaseholder’s claim was that HOC3 wasn’t covered at all, because it was reported too late. I decided that complaint and said it should be upheld. In summary, I said:

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• Mr C’s (and by extension all leaseholder’s) claims were validly notified in 2020, when an expert report identified systemic fire safety failures. • SOL must therefore accept and settle Mr C’s claim for HOC3 based on current repair costs. • SOL’s handling of the claim involved significant delays, poor communication and unfair expectations on leaseholders, breaching required standards. • SOL should pay Mr C compensation to reflect the distress and inconvenience caused. This new complaint concerns costs Mr P has incurred – via his service charge – for regular inspections of the gas cupboards. He says these inspections were required under the relevant regulations until such time as the full works for HOC2 – which was delayed – and HOC3 – which was unfairly declined for most leaseholders for several years – could be completed. So, he feels SOL should cover the cost of the inspections under the ‘additional costs’ extension of cover under the warranty. SOL declined to cover the costs. It said the ‘additional costs’ cover is an extension to the cover provided by the relevant section covering the claim – section 3.5. It said section 3.5 covers the repair, replacement or rectification of the issues covered under the claim – so any costs claimed for under the additional costs extension would need to specifically link to the repair, replacement or rectification costs. It says the inspection costs do not relate to these, and so are not covered under the warranty. SOL argues the reason the inspection costs were incurred was because the management company, on behalf of the leaseholders whose claims were declined, didn’t fund the required repairs when they ought to have. An investigator here considered Mr P’s new complaint and thought it should be partially upheld. She said there was no specific requirement written into the policy wording which said the ‘additional costs’ needed to link to repair, replacement or rectification costs. Instead, it just said they needed to link to a valid claim. Based on this, she recommended SOL reimburse Mr P’s proportion of the costs he could evidence related to a valid claim (either HOC2 or HOC3) but that other costs he’d submitted which didn’t relate to those valid claims didn’t need to be covered. SOL didn’t accept the investigator’s assessment. Because no agreement has been able to be reached, I’m now moving ahead with my decision on Mr P’s complaint. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I’ve reached the same conclusions as the investigator. I’ll explain why. The key issues I need to decide are whether SOL’s interpretation of the cover available under the additional costs extension, and its decision on Mr P’s claim for the gas inspection costs, are in line with the policy terms and are fair and reasonable. Mr P’s policy document explains the cover provided under the additional costs extension (section 4.A) as follows: “In addition, in the event of a valid claim under Sections 3.2, 3.3, 3.4 or 3.5 only, the Underwriter will pay within the Limit of Indemnity:

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A. Additional costs Such additional costs and expenses as are necessarily incurred by the Policyholder solely in order to comply with Building Regulations or Local Authority or other Statutory Provisions, provided that the Underwriter shall not be liable for those costs that would have been payable by the Policyholder in the absence of the discovery of a valid claim under the Policy.” What the above means in practice is that for cover to be provided under the extension, there must be a valid claim under sections 3.2 to 3.5. In this case there was a valid claim under section 3.5 – albeit one which was artificially split into two heads of claim (HOC2 and HOC3). The policy wording also requires that the costs must be incurred solely to comply with building regulations or other statutory provisions. In this case, Mr P has provided evidence to support the reason the inspections were required was due to gas safety regulations and associated statutory provisions around ensuring identified hazardous areas are regularly inspected to ensure they are safe. SOL has argued that the cover under the extension must relate specifically to the repair, replacement or rectification costs under the accepted claim. It says this on the basis that the insuring clause for the sections of cover with the structural insurance period state: “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; 2. The cost of repairing or making good any defects in the chimneys and flues of each Housing Unit which was newly constructed by the Developer causing an imminent danger to the health and safety of occupants.” And that the cover under section 3.5 specifically states: “The Underwriter will indemnify the Policyholder during the Structural Insurance Period against the cost of repairing, replacing or rectifying the Housing Unit….” SOL argues that because the costs incurred, and claimed for by Mr P, do not specifically relate to the repair, replacement or rectification works, that they aren’t covered. It has also highlighted that consequential losses, other than those expressly provided for in the policy, are excluded. I’ve thought carefully about SOL’s argument here but, ultimately, I don’t agree with its interpretation. I say this firstly because while the policy does exclude consequential losses it does so with a clear exception for costs expressly provided for in the policy. And section 4.A expressly provides for the costs Mr P is seeking to claim for. In declining the claim under the additional costs extension SOL is, in my view, attempting to add a requirement for cover which is not found in the policy wording. As explained, the cover for additional costs requires them to be linked to a valid claim and required in order to comply with relevant regulations. Nowhere does this section say the additional costs must be part of the repair or directly tied to the rectification costs.

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In this case, the inspections were required to meet relevant statutory provisions. So, I think the cost of those inspections would reasonably fall for cover under section 4.A, provided they would not have arisen but for the issues covered under the accepted section 3.5 claim. It therefore follows that I think any costs Mr P can evidence were incurred to comply with regulations/statutory provisions, and which arose as a result of the fire stopping or compartmentation issues (HOC2 and/or HOC3) should be covered. However, any costs which solely relate to the issues referred to as HOC1, or which don’t relate to HOC2 or HOC3 do not need to be covered. I’ve also thought about SOL’s argument that the costs would not have been incurred had the management company, on behalf of the leaseholders, funded the repair costs once the majority of leaseholder’s claims had been declined. But as explained, it’s since been decided that SOL’s decision to decline those claims was unfair – and so the reason those issues remained unremedied for as long as they did was not a failure of the management company or leaseholders, but SOL’s unfair claim decision. So, this point doesn’t change what I consider to be fair in the specific circumstances of this claim and complaint. I also accept that Mr P’s claim for HOC2 and HOC3 was settled. However, I don’t think this means it would be fair or reasonable for SOL to limit the additional-costs cover only to expenses incurred before his own claim was settled – even if a strict reading of the policy might support that position. This is because SOL’s unfair decision to decline the remaining leaseholders’ claims meant the necessary works could not be carried out for several years. As a result, Mr P continued to be required to contribute to the cost of the statutory inspections, despite his own claim having been accepted. In these specific circumstances, I consider it fair and reasonable for SOL to reimburse Mr P for his share of any inspection costs that were incurred to comply with the relevant statutory or regulatory requirements, and arose directly from the outstanding HOC2 and/or HOC3 works, and to do so until either the required remedial works are completed or the claims for all leaseholders are fully settled – whichever occurs first. My final decision For the reasons explained above, I uphold Mr P’s complaint. Society of Lloyd’s must: • Reimburse Mr P’s proportion of the inspection costs he can evidence were necessary as a result of the delays in settling the accepted claims for HOC2 and HOC3 (for all leaseholders). • To the amounts due to Mr P, add 8% simple interest* from the date(s) he can evidence he was out of pocket, until the date he is reimbursed. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr P to accept or reject my decision before 28 April 2026. *If Society of Lloyd’s considers that it’s required by HM Revenue & Customs to deduct income tax from that interest, it should tell Mr P how much it’s taken off. It should also give Mr P a tax deduction certificate if he asks for one, so he can reclaim the tax from HM Revenue & Customs if appropriate. Adam Golding Ombudsman

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