Free and fair choices: URS v BDW and the insurance implications of ‘involuntary’ acts

Introduction

The Supreme Court’s recent decision in URS v BDW [2025] UKSC 21 is truly a landmark in construction law. The Building Safety Act 2022, brought in to respond to the crisis of inadequate fire safety in tall buildings, marked shifts in the legal landscape that are largely unprecedented – in particular, the change (with retrospective effect) to limitation periods for DPA claims, with some defendants facing the prospect of claims dating back as much as 30 years.

At the heart of URS is a debate about how these important reforms are to be applied in practice. Much ink has already been spilt discussing the judgment and its implications – there is certainly plenty to chew over (and you can read the thoughts of our colleague Louis Zvesper on the judgment here).

However, as insurance lawyers, there is one particular passage in the judgment which caught our attention – the suggestion, at paragraphs 62 to 66, that BDW “was not, in a true sense, acting voluntarily”. If read literally, it has potentially important implications for the law of insurance, which may not be quite what the Supreme Court had intended. Our purpose in this article is to explore those implications a little further.

The relevance of “acting voluntarily” in URS

First, some context. Our colleagues Catherine Piercey KC and Emma Hynes have provided an excellent analysis of the Supreme Court’s discussion on voluntariness here. For our purposes, the following points are particularly relevant.

The underlying facts of URS can be briefly stated – the Claimant, BDW, is a major developer which operates brands such as Barratt and David Wilson Homes. The Defendant, URS, is a firm of structural engineers that provided structural designs for several developments constructed by BDW.

BDW alleges that URS’s designs were defective.[1] It incurred significant cost undertaking remedial works to the developments, despite the fact (importantly) that no claim had been intimated by any owner or occupier. BDW sought to recover these costs from URS, alleging that URS breached duties in tort. (It would later amend its case to add claims under the Defective Premises Act 1972).

Preliminary issues were ordered to determine whether BDW’s losses were recoverable in principle. Those issues were dealt with at a first instance trial in October 2021, with Fraser J finding that (save for losses characterised as “reputational damage”) they were. His decision (along with a separate judgment on amendment of the POC, which came along for the ride) was appealed to the Court of Appeal, which upheld the first instance judgment; that decision was in turn appealed to the Supreme Court.

There were a total of four grounds of appeal, but for our purposes Ground 1 is the most relevant:

• • In relation to BDW’s claim in the tort of negligence against URS, has BDW suffered actionable and recoverable damage or is the damage outside the scope of the duty of care and/or too remote because it was voluntarily incurred…?

URS was seeking to argue that, because BDW had ‘voluntarily’ decided to incur the cost of rectifying its developments to correct the defects in URS’s design, those costs were not recoverable from BDW. URS said the costs were ‘voluntary’ because they could not be linked to any liability to the homeowners – at the time the repairs were carried out, any claim there might have been against BDW would have been statute-barred. URS went so far as to suggest that there was a bright line rule that ‘voluntarily’ incurred losses were not recoverable.

The Supreme Court rejected those contentions, holding that there is no such bright line rule as a matter of law. While the ‘voluntariness’ of a loss being incurred might be relevant to questions of remoteness, causation or mitigation of loss, those were all matters to be dealt with at trial. On the preliminary issue, there was no reason in principle why such losses would be automatically irrecoverable.

If the Court had left matters there, that conclusion might perhaps be unsurprising. However, they did not leave it there. Instead, they opted to make some observations about the (assumed) facts and URS’s contention that BDW’s losses were ‘voluntary’. This brings us to paragraph 62 to 66, which are worth examining in some detail.

Paragraph 62 sets the stage – the Court said:

62. In any event (and disregarding the effect of section 135 of the BSA), it is strongly arguable that three features of the assumed facts indicate that BDW was not, in a true sense, acting voluntarily in paying for the repairs to be carried out…

They identified these three features as follows:

• That if BDW had not carried out the repairs, there was a risk that the defects would cause personal injury or death to occupants, for which BDW might be liable.
• BDW had a legal liability to the homeowners to carry out the repairs – even if BDW had a limitation defence, that only barred the right of the homeowners to bring that claim. It did not bar the underlying liability itself.
• BDW would suffer reputational damage if the defects were left unremedied. It was therefore in BDW’s commercial interest to carry out the repairs.

Finishing with a flourish, the Supreme Court said (at paragraph 66):

66. There is therefore a strong case for contending that BDW was, in any event on the assumed facts, not exercising a sufficiently full and free choice so as to be regarded as acting voluntarily in effecting the repairs. In other words, BDW had no realistic alternative. The three features indicate that BDW was not, in any true sense, acting voluntarily. While the third of those features may have been present in one or more of the four cases relied on by BDW, none of those cases shares all three features.

In these passages, the Supreme Court introduced the idea that in some circumstances a Claimant may not be acting “truly voluntarily” if they were “not exercising a sufficiently full and fee choice” and had “no realistic alternative.” The Supreme Court suggested this may be the case where:

• A claimant was at risk of reputational damage if they did not act; and
• As a consequence, it was in their commercial interest to incur the relevant cost.

These passages seem to set a relatively low bar for what will be considered “not truly voluntarily” – it could be said that a party deciding what to do based upon their “commercial interest” is almost the architype of a free and fair choice.

Voluntariness and insurance law

The notion of “voluntariness” plays an important role in the law of insurance. In particular:

• Rights of subrogation
• Equitable contribution in situations of double insurance

The Supreme Court’s judgment in URS could play into voluntariness arguments on each of these points.

Rights of subrogation

Once an insurer has indemnified an insured in respect of a covered loss, that insurer has a right to subrogate to their insured – to bring a claim in their name against any third party who may be liable to the insured in respect of the indemnified loss. Any recovery (so far as it relates to insured losses) is repayable to the insurer. That right is typically enshrined within the policy itself, but in any event is an equitable right enjoyed by the insurer as a matter of general law.

However, what if the insurer pays out, brings a subrogated claim against the third party, but it then turns out that the loss in question was never covered at all? In those circumstances, the insurer may difficulties pursuing a subrogated claim – if they had no liability under the policy, so the argument runs, the payment was voluntary; and since ‘equity will not assist a volunteer’, they may not have any equitable right to subrogate.

It is fair to say that the courts treat insurers in that situation generously – in King v Victoria Insurance Co [1896] AC 250 an insurer had paid out to their insured in respect of damage to wool when the lighter it had been loaded onto broke free of its moorings. The insurer was able to bring a subrogated claim against the Queensland Government (alleging negligence in failing to secure the lighter’s moorings); the Privy Council was unimpressed with an argument that insurers could only subrogate if they could show that the loss was covered:

• • To their Lordships it seems a very startling proposition to say that when insurers and insured have settled a claim of loss between themselves, a third party who caused the loss may insist on ripping up the settlement, and on putting in a plea for the insurers which they did not think it right to put in for themselves; and all for the purpose of availing himself of a highly technical rule of law which has no bearing upon his own wrongful act. It is not alleged that there was anything but perfect good faith in the claim made by the bank and satisfied by the insurance company.

On the other hand, in AAI Ltd v Technology Swiss Pty Ltd [2021] FCAFC 168 the Full Court and Federal Court of Australia rejected a submission that a payment made “honestly and in good faith as part of a commercial settlement simply to remove litigation” was sufficient to ground a right on the part of insurers to subrogate. It is therefore clear that voluntariness does impose some limits on insurers’ rights of subrogation.

Colinvaux summarises the position as one where “The right of subrogation remains if the insurer acted in good faith and honestly intended the payment to be in satisfaction of a loss under the policy, believing that he was or might be liable.”[2] Accordingly, it is not necessary for an insurer to show definitively that they were liable under the relevant policy to be able to subrogate; nonetheless, it appears there must be at least some connection between the payment and either an actual or potential liability.

Double insurance and contribution

Similar arguments arise in the context of contribution. Where two insurers cover the same loss, and one insurer pays out, the paying insurer is entitled in equity to recover a contribution from the other. If an insurer pays out when the loss was not covered, it could be argued that the payment was “voluntary” such that equity will not assist.

The high-water mark of this argument was Legal & General Assurance Society Ltd v Drake Insurance Co [1992] Q.B. 887, in which an insured was covered by two motor insurance policies. The insured claimed under one insurer, who paid in full, and then sought a 50% contribution from the other. However, that claim failed, because the paying insurer’s policy contained a ‘rateable proportion’ clause; it had never been liable to pay out the full sum to the insured at all. Its decision to pay in full was voluntary, and (the Court held) that precluded it from seeking equitable contribution from the other insurer.

That decision has been criticised in subsequent cases, most notably in Drake v Provident [2004] Lloyd’s Rep. I.R. 277 where the Court of Appeal (faced with similar facts) distinguished Legal & General. In SHC Capital Ltd v NTUC Income Insurance Co-operative Ltd [2010] S.G.H.C. 224, the Singapore court favoured the wider view expressed in Drake, finding that payment by an insurer out of “practical necessity” was sufficient to engage their right to contribution.

Nonetheless, Legal & General technically remains good law, and at the very least suggests that an insurer that makes a payment in circumstances not strictly covered is likely to need to defend itself against a voluntariness argument.

The impact of URS

How does URS impact these arguments? While the Supreme Court was not directly concerned with subrogation or equitable contribution, it is clear how their comments could have application to those principles in the insurance context.

The Supreme Court’s definition of what amounts to actions which are “not truly voluntary” is very expansive. In particular, the Court gave significant credit to the idea that BDW’s actions were “not truly voluntary” because it (a) faced the potential for liability in future if it did not act, (b) had a legal liability to homeowners even if it was not enforceable (because it was barred by limitation) and (c) would suffer reputational damage if it did not act.

It is easy to see how these arguments could be deployed by insurers to rebut an argument that their indemnification of the insured was “voluntary”. For example:

• Many property insurance policies (including Construction All Risks Insurance) respond to physical damage – if the property in question is merely defective, the policy generally does not respond. However, if an insurer decided to pay out to rectify the defective property before damage was suffered, would that payment be voluntary? URS would suggest not – that rectification was (arguably) undertaken by insurers to avoid a potentially greater future liability if the defect subsequently caused damage and/or personal injury.
• Almost any insurer considering whether to confirm cover in respect of a claimed loss faces, to some degree, reputational risk if they elect to decline the claim, particularly if it is a claim of significant value. Many insurers market themselves based on the number of claims accepted; if an insurer gains a reputation for declining claims unfairly, that is likely to drive away their business. Given that “reputational risk” and “commercial interests” were identified as factors weighing against BDW’s actions being “truly voluntary”, insurers will in practically every case be able to argue that choosing to admit a particular claim was not a “truly voluntary” act.

Conclusions

The judgment in URS is a potentially rich source of material for any insurers seeking to resist an argument that a payment made by them was ‘voluntary’ such that their right to subrogate and/or claim contribution has been undermined.

In many ways, these arguments do not mark a radical shift in the landscape of arguments about voluntariness in the context of subrogation and equitable contribution. The trend away from the strict view adopted in Legal & General, and towards the more generous and expansive view taken in SHC, is already well underway.

Nonetheless, the URS judgment is potentially significant insofar as it is likely to accelerate that trend, and add further assistance to an argument that insurance payouts were “not truly voluntary” even if not technically covered.

Article by John de Waal KC and Simon Kerry

[1] Specifically, that they were structurally inadequate, leading to cracking of the structural slab in at least one developed. It is therefore a notable feature of the URS decision that, although it was made against the backdrop of reforms that were brought in to address serious fire safety defects, the case itself was not actually concerned with fire safety at all.

[2] Colinvaux’s Law of Insurance, 13^th ed., para 12-041.