The Court of Appeal recently handed down judgment dismissing NHBC’s appeal in National House Building Council v Peabody Trust [2025] EWCA Civ 932, confirming that under Option 1 of the NHBC insurance policy, the insured event is the employer (i.e. the insured) “having to pay more to complete” due to contractor insolvency (or fraud), and not the insolvency itself. This preserves Peabody’s claim from being struck out on limitation at this stage and leaves for later determination the precise accrual date under the policy wording.

What is Option 1 under the policy?

NHBC’s standard-form insurance cover is purchased by developers to protect projects during construction and before homes are ready to be handed over. In the context of the Peabody dispute, the relevant “Option 1 – Insolvency cover before practical completion” provides indemnity where, because the contractor is insolvent or commits fraud, the employer either loses sums already paid to the contractor or “has to pay more” to complete the homes.

In the event that Option 1 unfolds, NHBC should then pay “the reasonable extra cost above the contract price […] for work necessary to complete the home(s).”

What was the dispute about?

Peabody commenced proceedings in July 2023, claiming indemnity from NHBC for the additional costs it had incurred to complete 88 new social housing units in Bedfordshire after its contractor (Vantage Design & Build Ltd) entered administration in June 2016.

NHBC sought summary judgment / strike-out, contending the claim was statute-barred. NHBC argued that the cause of action accrued at the date of the contractor’s insolvency, so the six-year limitation period under section 5 of the Limitation Act 1980 expired in June 2022 — a year before proceedings began.

Peabody contended that the trigger was not insolvency itself, but the point at which it actually had to pay more because of the insolvency — which did not occur until 2021, when it engaged an alternative contractor and completed the works.

What was decided?

On appeal, the Court of Appeal upheld the High Court’s decision at first instance that the insured peril is the financial consequence (i.e. having to pay more/losing sums paid), linked to the insolvency or fraud, rather than the fact of insolvency itself. The courts only decided on the insolvency point and left the precise accrual date for trial.

The insured peril under Option 1 is, therefore, the requirement to “have to pay more” (or the loss of payments already made) as a result of the insolvency – not the fact of the insolvency itself.

Commercial common sense also supports this reading as treating insolvency as the trigger would oblige hypothetical claims and payments before any loss is known. The insured may, of course, not know if it would have to pay more for months or years after the insolvency of its contractor, especially given projection times for completing construction projects. As Lord Justice Coulson said in his Court of Appeal judgment, it is commercially unrealistic for a cause of action to accrue at a time when the consequences of the insolvency are entirely unknown.

Conclusion

The Court of Appeal has confirmed that “have to pay more” means exactly what it says on the tin. Insolvency is only part of the story – the insured loss arises when the employer incurs additional costs because of it.

The ruling reinforces the importance of clear drafting in financial-loss insurance and careful tracking of accrual dates in limitation analysis for construction-related claims.

If you would like to discuss the implications of this case for your projects, please contact our Construction and Insurance Disputes teams.

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