Construction lawyers are warning policyholders that they could be liable for outstanding payments on building work carried out by Independent Insurance's contractors.
The first signs that contractors are hounding policyholders has appeared in Stourbridge. An Independent policyholder has received a demand for £9,000 for work on their property after a fire – even though the insurer had claimed the final bill had been paid.
Mike Ware at Edge Tancred Insurance Brokers, who broked the policy, said the policyholder had been told the claim for £48,000 was paid in full on May 31.
“The claim had been put in before Independent's liquidation. It wasn't until PCS rang me on July 19, saying the contractor would be ringing me to explain how he had to hold our client responsible to obtain monies from the Policyholders' Protection Board (PPB) that we knew about it,” said Ware.
The contractor, who wishes to remain anonymous, told Ware that the figure owed was £20,000 and he had not received any interim payment since January. The contractor also said he was owed nearly £400,000 by Independent for outstanding work over the past two years.
PCS contacted the policyholder and said an interim payment of £11,000 had been paid, but no date was given.
This is similar to Independent's panel solicitors' claim that Independent acted as the policyholder's agent. Ware believes the PCS contract was agreed without the policyholder's consent or knowledge.
“My client has no idea what the work was and there is no explanation from the contractor or the PCS,” he said.
Barrister and head of the Constructors' Liaison Group, Rudi Klein, said this case could be just the beginning.
He said: “The primary liability is held by the policyholder. I'm not surprised policyholders are being approached. The demise of the insurance company leaves policyholders exposed to claims.”
If policyholders are faced with mounting demands, they can seek redress from the PPB which may pay compensation, but contractors may not be prepared to wait.
“The contractor can make the demand in a number of ways. Firstly, to issue proceedings straight away or secondly, to send a statutory demand saying I want payment within 28 days or face the prospect of a winding up. That would be a nasty piece of action, but a possibility, because it may frighten the policyholder to pay up,” Klein said.
Desperation would be the main force behind any legal action. “There is always a possibility they would go under if payment is late. The majority of construction companies have a small capital base and can't keep afloat without regular cashflow. It's a serious risk,” he said.
Director of the Construction Confederation's legal department, Clare Edwards, said many contracts were highly technical but the crux was that the homeowner had signed a direct agreement with the contractor.
“Often the homeowner will deal directly with the builder or contractor, so I'm not surprised they are going to the policyholder,” she said.
PCS managing director, Barry Woodward, said he could not comment on specific cases. “What I can say is that the PPB will be handling all compensation on a case-by-case basis. I don't see why any policyholder with a legitimate claim will not get their money back. But it may take time,” he said.