19 Jun 2014

Terrorism Insurance Update

The following recent case outlines the definition of ‘explosion’ to include terrorist activity. The implications are that under lender agreements, terrorism cover is likely to be a 

QDIME LTD v (1) Bath Building (Swindon) Management Company Ltd (2) Various Leaseholders

The Upper Tribunal (Lands Chamber) on 11th June 2014 confirmed that a requirement to insure residential property against the risk of explosion will implicitly include a requirement to insure against the risk of terrorist attack. 

The freeholder involved was obliged by the terms of the lease to “To keep the Building including the Demised Premises insured to its full reinstatement value against loss or 
damage by fire and the usual comprehensive risks in accordance with the CML (Council of Mortgage Lenders) recommendations in that respect from time to time and such other risks as the Landlord may in its reasonable discretion think fit to insure against...” 

Although “terrorism” or “terrorist activities” are not specified in the CML guidance, it was submitted by the freeholder that the word “explosion” should be given its ordinary meaning and that the ordinary meaning would include explosions caused by terrorist activity. In this regard the freeholder relied upon the definition of “explosion” provided by the Oxford English Dictionary. 

In giving Judgment, the Upper Tribunal held in favour of the freeholder, in that the ordinary meaning of the word explosion includes explosions caused by terrorism. 
On the basis of this Judgment, those responsible for insurance should consider the requirement to obtain terrorism cover.