Is terrorism a “usual comprehensive risk”?
Joseph Preisner, an associate in the Commercial Property team, reports on a recent case dealing with the necessity for landlords to consider terrorism insurance carefully.
A recent Court decision has highlighted the need for landlords to consider carefully whether terrorism insurance is appropriate and the cost recoverable.
The landlord owned a block of flats in Swindon. The flat leases required the landlord to insure against the usual comprehensive risks, in accordance with the Council of Mortgage Lenders (CML) recommendations, and such other risks as the landlord may in its reasonable discretion think fit. The insurance premiums were recoverable from the tenants through the service charge. The tenants, unhappy with the costs of insurance, claimed that terrorism insurance was unnecessary given the location of the property. The Court disagreed on the basis that the landlord was required to insure against “explosion” as one of the CML recommendations and “explosion” included explosion caused by terrorism. It went on to specify that even if terrorism was not included in the CML recommendations, the landlord acted reasonably in exercising its discretion as to whether or not to obtain terrorism insurance. The landlord had obtained evidence that Swindon and central London were in the same risk category and could quote an industry code of practice which recommends that terrorism insurance be given serious consideration.
The decision highlights that an obligation on the landlord to insure against explosion may translate as a requirement to insure against terrorism and that the obligation on the tenant to cover the cost of insurance may also extend to terrorism insurance.