NHBC and indemnity for the costs of interim safety measures

Posted: 09/05/2024

It has been over two years since the Financial Ombudsman Service released its decision following the complaint of ‘Mr and Miss M’, the complaint being that NHBC unfairly declined cover under its policy for the costs of interim safety measures. At the time the decision was acknowledged as a positive step and a significant shift in the potential for leaseholders to recover the cost of these measures. This article explores the extent to which NHBC’s approach has changed since the Financial Ombudsman’s decision.   

The complaint and decision

Mr and Miss M had the benefit of a ten-year Buildmark building warranty policy. This covered their individual apartment and common parts. Mr and Miss M, together with the leaseholders of six related blocks, made claims under section 4 of their policy. Section 4 will apply if NHBC provided the building control service during construction. Cover is provided if there is an immediate danger because the builder failed to comply with certain building regulations that applied at the time of construction.

Like many others, the development had a waking watch in place following the discovery of fire safety defects. This was in place up until the installation of a fire alarm. Mr and Miss M sought an indemnity for the cost of the waking watch and the installation of the fire alarm under the policy. NHBC declined cover in respect of both of these. This led to the complaint to the Financial Ombudsman.

In a detailed decision which can be found here, the ombudsman decided that the costs of interim safety measures were covered under the respective NHBC policy. However, perhaps mindful of opening the floodgates, it stated that its decision is based on the specific terms of the policy in question and cannot automatically be applied across all NHBC policies. The policy in question was an AP prefix, which applies to homes registered with NHBC from 1 April 2015.

Putting aside the issue of the relevant policy, the ombudsman’s decision also suggests that, at the very least, a policy holder needs to satisfy the following for the costs of interim safety measures to be covered:

• the costs of interim safety measures must be in relation to blocks where a ‘section 4 fire safety claim’ has been made;
• the costs of interim safety measures must have been incurred due to items accepted under the section 4 claims; and
• the costs of interim safety measures must have been incurred after the date the claim was made.  

The ombudsman directed NHBC to reimburse Mr and Miss M their share of the waking watch and fire alarm installation costs.

NHBC’s response

We are not aware of any formal response from NHBC following the ombudsman’s decision. Either publicly or directly to the many policy holders with similar, potential claims under section 4 as that of Mr and Miss M.

Leaseholders have, in some cases, taken it upon themselves to enquire with NHBC over a claim for the cost of the interim safety measures, citing the ombudsman’s decision as authority for an indemnity in respect of these. However, to date, it appears NHBC has responded under the guard of the Financial Ombudsman’s caveat that not all policies are the same.

While the policies do of course differ, this by no means grants NHBC a get out of jail free card. The ombudsman’s decision relied heavily on specific terms of the AP policy. Similar, if not identical terms, can be found in other NHBC policies and can be equally applied. Likewise, the arguments raised by NHBC as to why cover should not be available would be equally dismissed had they been raised in respect of cover under any other NHBC policy.

Next steps

NHBC was keen to impress upon the Financial Ombudsman that its decision should not be equally applied to every NHBC policy. This was so NHBC could make ‘further representations and for the relevant policy to be considered afresh’ by the ombudsman. However, all that has been seen to date is leaseholders having valid claims declined by the NHBC, claiming the policy is ‘different’ from that considered by the Financial Ombudsman, while citing the same arguments that it had rebuffed.

It seems inevitable that the ombudsman is going to continue to receive complaints from leaseholders where cover has been declined by NHBC. It is not inconceivable that the next decision will have a wider and more direct application to the benefit of leaseholders.  

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