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The developing world of right to light insurance claims

04 May 2017

Stephen Green looks at how the insurance industry has responded to recent case law on right to light claims, identifying the rise of a more flexible approach to negotiation as a solution.

This article was originally written for Estates Gazette.

Insuring against potential right to light (RTL) claims from owners and occupiers of property neighbouring planned developments is an expensive business. The level of premiums charged for such insurance cover can be high and equate to sums well in excess of the value of any potential claims.

In an ideal world, a developer might well prefer to identify and value potential claims, with a view to progressing a constructive, without prejudice dialogue with neighbours, and trying to agree settlement in advance of any decision to commit to extensive and expensive insurance cover.

The problem is that insurers have preferred not to provide cover in circumstances where the developer has engaged with any neighbour over the question of valuation and settlement: a Catch-22 situation, albeit wholly understandable from an insurer's point of view.

Despite that history, a state of affairs is now evolving, whereby developers and insurers are consulting to agree some flexibility in approach, so as to enable RTL insurance to form part of an overall management strategy comprising both insurance cover and negotiation.

The case law

The change in approach to risk in relation to RTL insurance has arisen as a result of a chain of relatively recent case law, starting in 2007 with Tamares (Vincent Square) Ltd v Fairpoint Properties (Vincent Square) Ltd [2007] EWCA Civ 1309, where a minor loss of light to a staircase resulted in an award of damages in lieu of an injunction, by reference to one third of the developer's profits. An award which might be regarded as disproportionate and significant, though one that focuses future developers' minds on the benefits of insurance.

In the subsequent 2010 case of HKRUK II (CHC) Ltd v Heaney [2010] EWHC 2245 (Ch); [2010] 3 EGLR 15, the trial judge granted a mandatory injunction, obliging the developer to demolish the sixth and seventh floors of a substantially complete development, despite the fact that there was less than a 1% resultant loss of light to the neighbouring property. That was a very draconian order, the severity of which may well have been attributable to the developer's conduct before proceedings were commenced. Nonetheless, it's an example of how serious RTL penalties and impacts can be.

The test which applied in making a decision whether to grant an injunction or damages, and which prevailed until 2014, is known as the "Shelfer test" (Shelfer v City of London Electric Lighting Company [1895] 1 Ch 287).

Coventry v Lawrence and beyond

In 2014, the Supreme Court considered the application of the Shelfer test in Lawrence v Coventry (t/a RDC Promotions) and others [2014] UKSC 13; [2014] 1 EGLR 147 (commonly known as Coventry v Lawrence).

Their Lordships criticised the previous rigid use of the Shelfer test, which they regarded as "out of date" and inappropriately applied in a "mechanical" way.

The Supreme Court acknowledged that, where an RTL is infringed, the default position might well be that an injunction should be granted, but it need not automatically be granted even if the four elements of the Shelfer test are not satisfied. It is for the defendant to prove that damages are a suitable alternative remedy and, where so established, the Shelfer test should not be applied in the previously rigid fashion so as to undermine the court's discretion as to whether to award an injunction or damages.

The Shelfer Test

In essence, by that test, damages rather than injunction could only be awarded where:

  1. the neighbour's claim was capable of compensation in monetary terms;
  2. the injury cause to the neighbour's legal right was small;
  3. it would be oppressive to the developer if the neighbour were granted an injunction; and
  4. a small payment would be adequate compensation for the claimant.

Coventry v Lawrence has been applied more recently in Scott v Aimiuwu [2015] (unreported, Central London County Court, February 2015) where the court refused to grant a mandatory injunction on the grounds that it would be oppressive to the defendants and outweigh the benefit to the claimant.

The court took the view, on the evidence, that the claimant's objectives seemed to be concerned with monetary gain rather than loss of value to their property and in all the circumstances awarded the claimant damages of £31,499.

In Ottercroft Ltd v Scandia Care Ltd and another [2016] EWCA Civ 867; [2016] PLSCS 243, the Court of Appeal considered an appeal of a first instance decision to grant a mandatory injunction in relation to the construction of a fire escape staircase across the claimant's window. The court took the view that the injunction was not oppressive, but, in doing so, took account of the developers' conduct. One of the developers was said to have acted badly throughout the whole process. He had kept his neighbours in ignorance of his plans knowing that the installation of the fire escape staircase might infringe the occupant's RTL. The court held that injunctions were necessary where a defendant had acted in a high handed manner, in order to do justice to the neighbour and to serve as a warning to others.

It is clear that a developer's pre-action conduct is likely to play a part in the court preferring the imposition of an injunction rather than an award of damages. Indeed the decision in Ottercroft reflects the decision in Heaney, where the imposition of an injunction was also, to some extent, a reflection of the developer's unreasonable conduct.

How the industry has responded

The change in the courts' approach to RTL claims is now reflected in a change in insurance practice. While some commentators refer to conservative premiums in the order of £2,000-£10,000 for RTL insurance, we have seen much more significant premiums in the order of £100,000-£200,000 and, in some cases, high premiums in conjunction with substantial deductibles (£450,000 and the like). That disparity between substantial premiums and conservative settlement options has led to the change in insurer stance, and the preference to develop a "composite" insurance/ settlement approach to risk.

There is now a growth in the use and availability of both "agreed conduct policies" and "material event policies" where the insurer, having considered all the available evidence and facts, agrees a scheme in advance to enable the developer to negotiate with neighbours and agree a conservative and costs effective resolution of potential RTL claims, usually where the policy excess matches the RTL consultants assessment of the possible negotiated settlement. The only risk that the insurer assumes is anything above the negotiated settlement figure. The alternative being a "wait and see" policy where the insurer perceives there to be little risk. Some insurers on the other hand prefer a "wait and see" approach.

There is still a very wide-ranging difference in insurer approaches to the type of policy cover available, and it is still very hard to anticipate the likely level of premiums for cover and policy terms without full analysis on a case-by-case basis. There are no hard and fast rules, but what is clear is that the better the quality of information given to the insurer, the better the premium and terms of cover.

The developer's presentation is all. Insurers will take account of: the quality of the instruction to, and identity of, the RTL surveyor; the cut back analysis; and the identity and conduct of the developer. A high quality developer with a good marketplace reputation is likely to get a much better insurance deal than that of a less well-known developer.

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