Insuring Against Rights of Light Risk
Fri 28 Apr 2017
Ever since the decision of the High Court in the Heaney case (HKRUK II (CHC) Limited v Marcus Heaney (2010)) rights of light have had much greater prominence in the risk registers for major development schemes. This reflects both the severe impact of a successful injunction application (as initially happened in Heaney) and the high levels of compensation often paid in order to resolve rights of light claims. Developers need to decide at an early stage how best to manage this risk.
Indemnity insurance policies are now a very common element of a developer’s rights of light strategy and are readily available in the insurance market albeit from a limited number of insurers. Care does, however, need to be taken as to how these policies are structured and some of the main practical points to consider are set out below.
Agreed conduct or wait and see
Historically rights of light indemnity policies had always forbidden the insured developer from having any contact with neighbouring property owners whose rights of light would be adversely affected by the scheme. These policies were said to be on a “wait and see” basis ie. the developer insured against the known rights of light risk and simply awaited to see whether construction of the development led to any claims being brought by the relevant neighbours.
A number of Court decisions, starting with the Supreme Court in Lawrence v Fen Tigers Ltd in 2014 (also known as (Coventry v Lawrence) and more recently the Court of Appeal in Ottercroft v Scandia Care in 2016 show a much greater emphasis being placed by the Court on the behaviour of the developer when deciding whether or not to grant injunctive relief. The failure by a developer, with full knowledge of a rights of light impact, to engage with the affected neighbours to seek to resolve the rights of lights issues by agreement will almost certainly count against the developer if the affected neighbours bring a claim before the Court.
These cases have, in part, led to a significant increase in “agreed conduct” policies where the insured is permitted proactively to negotiate a rights of light release with an affected neighbour notwithstanding the existence of the insurance policy. The policy in practice then protects the developer against the risk of the neighbour refusing to negotiate and seeking an injunction and/or very substantial damages from the Court.
It is worth noting, however, that with agreed conduct policies the insurer is not itself volunteering to meet the cost of a settlement with the neighbour. The policy will generally provide a specific excess in relation to the neighbour who is to be contacted leaving the developer to meet the cost of the actual settlement up to the excess level. The excess is generally assessed at the likely level of compensation that the insurers reasonably anticipate might have to be paid to secure a voluntary release. The insurers’ view of the likely settlement level largely reflects the advice given to the developer about likely compensation levels by its rights of light surveyor.
A further benefit of the proactive approach is that it allows the developer to have direct control of the negotiation with the neighbour (subject to providing appropriate updates to the insurers on progress). With a pure wait and see policy the insurers may well wish to take control (or take a greater degree of control) if a claim does come in.
Party wall awards, scaffold and oversail
Standard form policies normally preclude the insured from having any dialogue with neighbouring owners in relation to matters such as party wall awards, scaffolding licences and crane oversail agreements. The insurers’ nervousness reflects the fact that party wall surveyors were often also rights of light practitioners themselves, or were employed within surveying practices with rights of light expertise, with the obvious risk that a discussion about party walls (or other neighbourly matters) might easily lead to queries about light impact.
Insurers do, however, recognise the practical reality that neighbours affected in light terms might well be building owners with whom neighbourly matters agreements also need to be reached (eg crane oversail, scaffolding etc.) If a particular scheme requires such arrangements to be put in place, in relation to neighbours with rights of light covered by the policy, then it is important that these requirements are identified as early as possible and that the policy expressly provides for this at inception.
Protection against delay
Standard indemnity policies do not routinely provide protection against delay costs if a scheme is brought to a halt as a result of a rights of light claim. Common delay costs might include additional funding costs, standing charges in relation to plant and equipment and committed expenditure in relation staff and contractors. If cover for this area of risk is needed then this will also need to be provided for expressly at policy inception.
Delay cover will normally be by way of endorsement to the main policy with an additional premium payable based on the level of cover provided.
One last point to note is that an indemnity insurance policy is, by its very nature, simply an indemnity against losses actually suffered by the developer. It does not prevent a claim from being brought by a neighbour but if the policy conditions are met it will provide valuable protection against the financial implications of this ever more prevalent risk.