If your lease says you must insure against explosion, then you might want to consider terrorism cover.
We all remain keenly aware of the threat of terrorism; but the risk to the fabric of a block of flats may still seem low and the extra cost of terrorism insurance for your block might feel like unnecessary expenditure.
However, it is very likely that your lease will require that it is in place. This is because most leases require cover in accordance with CML [Council of Mortgage Lenders] recommendations, and that includes cover for things like explosions.
Donna Hunter, Underwriting Manager at Deacon explains: “Many newer leases do expressly provide for a landlord to insure a building against the threat of terrorism. However, older leases rarely do, and so leaseholders may question the landlord’s decision to buy it and pass the costs on. In fact, everyone’s hands are tied because the matter was settled by a 2014 case in the Lands Chamber.”
The 2014 case sought to resolve a leaseholder challenge over a block in Swindon. It’s called the QDime case, after the landlords in question. The leases for that 1980s block reflected the practices of the time they were built, and did not specifically require insurance against terrorism: but they did say that the landlord must insure against explosion.
As a terrorist attack would probably involve an explosion, the judges decided that terrorism cover should be in place. That had far-reaching effects because most leases require cover in accordance with CML [Council of Mortgage Lenders] recommendations, and that includes explosion.
What are the risks?
While the likelihood of a terrorist incident is still statistically low, the impact could be very high. Losses could be massive and being uninsured is a risk. Indeed, some mortgage providers will not lend on a flat unless terrorism cover is in place.
We’ve heard of “bomb factories” in flats. No doubt their target is not the block itself, but often the amateurism of many of these people puts residents at risk. Explosion aside, there is the danger of a so called “dirty bomb” and the subsequent damage it could cause.
The policy definition of terrorism is broad and can include the activities of animal right extremists. Could a research scientist or a politician living in the block be an unwitting target for attack? Not all policies offer cover for that and you should ask the insurer for a full list of exclusions (as indeed you should for all policies).
Why is cover quoted as an extra if it’s as good as universally required?
Standard policies may not cover terrorism, in the same way they do not cover acts of war, because of the potential scale of any losses. So, insurers have clubbed together to set up the Pool Re scheme to pool terrorism risk. Pool Re is a private sector solution to a public policy objective, but it is ultimately backed by the Treasury. So terrorism is always quoted separately in your renewal documents.
Can leaseholders refuse the cover?
Here the answer is simple: if they are obliged by the lease to insure and fail to do so, then the management company directors will be personally liable for losses and consequential losses (Directors & Officers Liability cover may not indemnify them in this case).
For more information about terrorism cover download a copy of our fact sheet.
FP10-2022
The sole purpose of this article is to provide guidance on the issues covered. This is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited (Gallagher) trading as Deacon accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.