Block Insurance Premiums
Insurance premium charges must be reasonable
The background
In COS Services Limited v Nicholson [2017], the landlord recharged insurance premiums to tenants for the years 2014, 2015 and 2016. Under the tenant’s lease, the landlord was to insure and the tenant was liable for one sixteenth of the insurance costs. The landlord put in place a block insurance policy which covered multiple properties throughout the UK; the landlord’s agent could not give any details as to how many properties the policy covered or any information as to how the policy had been agreed.
The tenant argued that the insurance costs had not been reasonably incurred. The case, addressing whether or not the costs were payable and, if so, what those costs should be, went first to the First-tier Tribunal, and subsequently was heard in the Upper Tribunal.
The decision
The Upper Tribunal held that the insurance premium costs had not been reasonably incurred.
The court concluded that the insurance premiums charged to the tenant were excessively high, with no significant advantages offered by the policy to justify the extra expense. Similar levels of protection could be offered by other insurers at substantially lower premiums. In deciding whether the premiums were reasonable, the Upper Tribunal held that both the outcomes of the policy in question and the process by which it was agreed may be considered.
Advice and action for landlords
Landlords are required to put in place insurance policies with both terms which are suitable for the property and premiums which are reasonable. Whilst premiums do not need to be the lowest available in the marketplace, the policy must be chosen according to the terms of the lease and the liabilities it seeks to insure. Landlords must be able to demonstrate how they have chosen their policies and how they have assessed the market.
Where landlords choose to insure using a block policy which crosses a number of portfolio properties, they must still be able to demonstrate that, where the premiums are higher, the tenants are gaining advantages which set off the additional expenditure.
Where landlords insure through a block policy, they must be able to demonstrate that, where premiums are higher, the tenants are gaining significant advantages which set off the additional expense.
