L v A statutory water provider

This case related to the cost of repairing flood damage to a house. The statutory water provider had accepted liability for the consequences of the flood. The dispute centred on the cost of the repair work and the correct measure of damages. It demonstrates the dual benefits to insurers of bringing a case to IE; namely, to achieve an optimal settlement early on and make substantial savings in terms of legal costs.

The dispute was essentially between the insurers of the householder and the insurers of the water provider. The insurers of the householder were seeking to recover the amounts they had paid out to repair and reinstate the property and its contents. As it happened, both the householder and the water provider were insured by the same insurer. The parties however were a very considerable distance apart on what recovery could be made by the insurer of the householder. Neither side had instructed a solicitor but, when unable to reach agreement between themselves, they brought in IE to provide an evaluation of the dispute. In this case the insurer asked that the matter be dealt with by a written evaluation, rather than the parties attending a meeting with the Evaluator.

The flood had caused extensive water penetration into and under the floor of the basement of the property. Some contents and fittings had been damaged. The insurer for the householder, acting on advice it had received from surveyors, had proposed repairs involving stripping out the basement entirely, including the underfloor tanking membrane and the underfloor heating system and then reinstating throughout.

The insurer for the water provider contended that this was excessive and unnecessary. It contended that a system of drying out the property, using specialist contractors who would vacuum out the water and then dry the underfloor with warm air would be perfectly satisfactory. Not only would the cost be very substantially lower but the time to carry out the repairs would be very much shorter, with much less disruption to the householder.

Despite these contentions, the stripping out method had been adopted. The costs of the work, including the costs of repairs, replacement of contents and alternative accommodation cast was some £880,000. The insurer for the water provider contended that if the drying option had been adopted the whole of the costs would have been in the region of £160,000, and refused to pay any more than that figure.

The legal principles involved were not in dispute. The question that arose was what works were necessary to repair and reinstate the property and what were the reasonable costs of carrying out those works. Following directions from the evaluator, both parties disclosed and exchanged their relevant documents, including the respective advice that had been tendered on both sides as to what works were necessary.

In the event, the evaluator decided that costs of the drying option formed the correct basis for assessing damages. The decision was that the householder’s insurer’s advisers had not properly understood and had not properly investigated what was involved in the drying option, and had unreasonably decided that it was not a satisfactory solution. The costs of adopting the stripping out option had not been reasonably incurred: the works involved in the stripping out were not necessary to repair and reinstate the property and incurring the costs of those works had been extravagant. He was satisfied on the evidence that the drying option would have proved satisfactory.

Having reached that conclusion, the evaluator then addressed the question of what the reasonable costs of the works would have been using the drying option, and so what sum ought reasonably to be recovered by the insurers of the householder. The conclusion was that the total sum recoverable, including interest, was £196,345.