Under the fire coverage provisions of a buildings insurance policy an insurer is likely to have the right to reinstate instead of paying a money indemnity. Where the insurer exercises that right and procures works pursuant to it, the effect will be to bring a building contract into existence. The implications for insurers are highlighted by the case of Domsalla v Dyason.

Following the destruction of his home by fire, the insured claimed on the property's buildings insurance cover. Insurers opted to reinstate and required the insured to enter into a building contract with the contractor, incorporating the JCT Minor Building Works (1998) standard form. A dispute arose concerning the contractor's performance and the insured's non-payment of interim payments. The case was referred to adjudication and the adjudicator found in favour of the contractor. The contractor brought a claim for summary judgment to enforce the adjudicator's award.

The TCC overturned the adjudicator's decision and held:

  • On the facts, the withholding notice clause in the JCT Minor Works form was unfair. The insured was a consumer who entered into the contract at the insistence of the insurers.
  • The adjudication provisions of the contract were not unfair because they did not substantially alter the balance of the parties' rights and obligations.

For more detail on the decision click here.

For insurers the implications of the case are:

  • Insurers should exercise care when opting to reinstate and taking on additional contractual liabilities. As a party to the building contract, an insurer is not only able to sue, but can also be sued by the contractor.
  • Insurers should be aware that a court may construe a building contract for reinstatement in a different manner if an insured is a party to it. Because of the insured's consumer status, a court may look to consumer legislation and alter contract terms that it finds unfair.
  • A consumer entering a building contract for the reinstatement of his residence is unlikely to have control over that contract. Whilst, on the facts, terms may be found to be unfair, individuals should make themselves aware of the obligations they are taking on before they sign.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.



The original publication date for this article was 24/01/2008.