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We briefly review some notable and significant developments currently impacting the industry. This includes the potential effects of the new Arbitration Act on construction parties, a case summary of the seminal Court of Appeal judgment of Sky UK Limited (Sky) (2) Mace Limited (Mace) v Riverstone Managing Agency Limited & Ors [2024] and the direction of travel for the global construction market following the new US executive orders restricting renewable energy projects.
The Arbitration Act 2025
The Arbitration Act 2025 (the Act) received Royal Assent on the 24 February 2025, and will soon come into force. The aim of the Act is to introduce reforms which strengthen the position of London as the leading seat for arbitrations and other alternative dispute resolution proceedings. Overall, it is intended to make arbitrations fairer, more efficient and enhance clarity, including in relation to emergency arbitration. The Act will apply to all arbitration proceedings and related court proceedings commenced after its official entry into force.
The key reforms are:
- Clarification of the governing law underpinning arbitration agreements
- Codification of arbitrators’ duty of disclosure in relation to impartiality
- Expansion of arbitrator immunity against liability for resignations and costs for removal
- Introduction of new express power for summary dismissal if the tribunal so determines
- Further powers granted to emergency arbitrators in relation to peremptory orders and their enforcement and,
- Simplification of the procedure for jurisdictional challenges.
The Act introduces a number of practical implications which are of particular relevance to insurers involved in arbitrations within the construction industry. This is especially so as arbitration continues to be regarded by construction companies as the preferred dispute resolution process in international projects.
Significantly, it will be important to consider existing contracts which refer to the current Arbitration Act 1996, and consider whether the new scheme now applies. This will require the existence of a clause which refers to any successor legislation, which can be but is not always included. Similarly, underwriters should take care to ensure the wording of arbitration clauses in policies reflect this new legislation where necessary.
In relation to future contracts, any parties involved in an arbitration agreement may want to consider including an express choice of law provision. This is particularly significant in instances where the seat of the arbitration is outside England, as the applicable law of the arbitration agreement is now the law of the seat of arbitration, not the law of the underlying contract, unless the parties have expressly agreed otherwise.
Those involved in arbitrations should also be aware of the new powers conferred to arbitral tribunal, namely: (a) to make an award on a summary basis if no real prospect of success is determined; (b) to make orders against third parties, such as orders of disclosure or interim injunctions.
The new provisions of the Act provide a more efficient route for those involved in arbitration proceedings if parties are confident of their position. However, those involved should note that the Act has directed that no new evidence, arguments, or re-hearing will be permitted in the event of a challenge.
Contact: Emily Devine, Phoebe Penman
Related item: The Arbitration Act 2025: Evolutionary reform to ensure the UK maintains its place as a world-leading dispute resolution forum
Fix the roof while the sun is shining – Round 2
(1) Sky UK Limited (Sky) (2) Mace Limited (Mace) v Riverstone Managing Agency Limited & Ors [2024]
The Court of Appeal has now handed down its judgment, finding in favour of Sky and Mace on all aspects of their appeals.
The claim concerned extensive water damage to the roof of Sky’s global headquarters in West London. The building was constructed by Mace, the main contractor, between 2014 and 2016 and was insured under a construction all risks policy. Mace was a named insured under the Policy. Mace in turn subcontracted the roof design package.
Substantial water ingress entered the unventilated timber roof during construction as a result of a failure to incorporate temporary waterproofing into the design, resulting in significant roof damage. The water ingress occurred prior to practical completion and during the period of insurance. However, the resulting damage worsened after practical completion and after expiry of the insurance period. Insurers denied coverage.
The Court of Appeal held that:
- Meaning of Damage within the CAR policy: as a restatement of the legal position, the court said that ‘damage’ meant an adverse change in the physical condition of the property which impaired its use or value. Applying the law, the court found that the roof was damaged at the point water ingress occurred and before the ingress caused any further damage.
- Developing and Deteriorating Damage: insurers were found liable to indemnify Sky and Mace for the damage that occurred during the period of insurance, but also damage which deteriorated or developed thereafter, overturning the first instance judge’s decision.
- Aggregation/Retained Liability: the court found that the first instance judge had been right to find that ‘event’ refers to the ‘cause of the damage’ and not the damage itself. The court rejected insurers’ contention that the decision to carry out the works without a protective temporary roof could not amount to an event.
- Investigatory Costs: where damage has occurred, costs incurred in investigating the damage were recoverable, provided they are “reasonably incurred in order to determine how to remediate it”. The court rejected insurers’ submission that the Basis of Settlement clause did not cover investigation costs.
It remains to be seen whether insurers will appeal to the Supreme Court. In the meantime, insurers and their insureds in existing disputes may need to reassess their positions concerning any damage manifesting after the coverage period which can be shown to have deteriorated or developed from damage first occurring within the insurance period.
CAR policies may now seek to expressly and clearly exclude deterioration and development damage going forward. We may also see insurers more readily relying on limitation defences in relation to claims against the contracts of insurance.
Contact: Ozkan Ucak, Louis Foscolo
Related item: The UK construction sector — what's on the cards for 2025?
Deregulation of the US energy sector and restrictions on renewable energy projects
On the first day of the new administration, 46 executive orders (EOs) and other presidential actions were issued, covering a wide range of subjects including a heavy focus on energy and climate policy.
Two such EOs focusing on energy and climate policy are:
- "Declaring a National Energy Emergency"
This EO allows the government to fast-track fossil fuel, biofuel, nuclear, and mining projects and excludes wind and solar
- "Unleashing American Energy"
This places an immediate pause on funds from the Inflation Reduction Act and Infrastructure Investment and Jobs Act, which supported clean energy projects. This also ends the former administration’s pause on liquified natural gas export approvals, scraps appliance efficiency standards and places regulations promoting electric vehicles under review.
Both orders decrease regulatory compliance for oil and gas companies in relation to greenhouse gas emissions, endangered species protections, and other environmental standards.
New restrictions on wind power development include a temporary ban on all leasing for offshore wind projects on the Outer Continental Shelf and an immediate moratorium on issuing or renewing permits, leases, loans, and approvals for both onshore and offshore wind projects until a comprehensive federal review is completed.
These orders also follow the US’ recent withdrawal from the Paris Agreement, which necessarily means limits on the US’ global financial support for climate change mitigation and adaptation.
Impact on the construction industry and insurance
The deregulation of the energy sector and restrictions on renewable energy projects incentivises oil and gas companies to invest in their fossil fuel activities. BP has already announced it will be increasing oil and spending by a fifth to $10bn a year and cut spending on renewables by 70%.
The construction industry is likely to see an expansion in high value oil and gas developments and a reduction in renewable energy projects, particularly offshore wind developments. These changes, combined with the US’ new 25% tariff on imports from Mexico and Canada announced in early March, means the reprise of fossil fuel projects during a potential trade war are likely to be costly.
The uncertain geopolitical landscape and changing levels of demand for fuel could cause revisions or reformulations of projects, which in turn lead to project delays, cancellations and budget overruns. This is likely to also give rise to an increase in insurance claims.
On the flip side, the unpredictability of future projects could also cause hesitations while players in the industry take a waiting stance before making big moves. This could affect how much insurers commit to underwriting capital.
In summary, the full extent of the impact this could have on insurers is yet to be fully realised, with many carriers in recent years moving away from underwriting upstream business, instead, preparing for the new risks that renewable energy brings. This is not only because of popularity, but also to align with their own sustainability goals. Climate conscious insurers might attempt to mitigate the increasing volume of fossil fuel projects by insisting on higher premiums.
Contact: Imogen Severs, Phoebe Penman, Callie Murphy
Construction and engineering
Insurance and reinsurance
United Kingdom
United States