Property insurance


Western Trading Ltd v Great Lakes Reinsurance (UK) plc [2015] EWHC 103 (QB)

This case, arising out of a fire insurance claim, provides a rare example of judicial consideration of the defence of lack of insurable interest. Judge Mackie QC was asked also to determine questions of misrepresentation/material non-disclosure, breach of warranty and reinstatement.The Court held that the claimant’s claim should succeed and granted a declaration that it was entitled to an indemnity in the terms sought.

Facts

The claim relates to two neighbouring buildings (the Property), destroyed by a fire in July 2012. The Property was owned by a property investor, Mr Singh, and the claimant existed to hold and manage Mr Singh’s property portfolio. The claimant company was owned largely by Mr Singh.

Between 2010 and 2013, the claimant’s broker arranged insurance for the Property via an underwriting agency which had a binder with a Lloyd’s syndicate in 2010/11 and with the defendant in 2011/12 and 2012/13. The claimant submitted a proposal form in respect of the 2010/11 year only, though it confirmed at renewal in 2011 and 2012 that there had been no change in occupancy since the 2010/11 proposal form.

The fire insurance claim was notified to the 2012/13 policy, and was resisted by the defendant on the grounds of lack of insurable interest, material non-disclosure/misrepresentation and/or breach of warranty. The claimant issued proceedings, seeking a declaration from the Court that it was entitled to an indemnity for the costs of reinstatement of the Property.  

The defendant argued that:

  • Insurable interest: the claimant did not own or have a tenancy over the Property, and it had no interest in the preservation of the Property or exposure to any prejudice should it be damaged or destroyed. Accordingly, there was no insurable interest and no insurance contract.
  • Misrepresentation: the claimant misrepresented various facts at renewal, including that the Property was in use for commercial purposes, was regularly occupied and that there had been no change in occupancy since the previous insurance policy year.
  • Material non-disclosure: the claimant failed to disclose the alleged misrepresentations, as well as the fact that there was no tenancy arrangement between Mr Singh and the claimant, and that the claimant had no immediate plans to develop the Property because it would be uneconomical to do so.
  • Breach of warranty: the claimant was in breach of warranty, having stated in its 2010/11 proposal form that the Property was regularly occupied and that there were three tenants.
  • Reinstatement: the claimant should not, in any event, be entitled to an indemnity for the costs of reinstatement of the Property because it had not taken any steps to reinstate (and the insurance policy provided that no payment would be due ‘until the cost of reinstatement shall have been actually incurred’ and was conditional upon the claimant carrying out the reinstatement ‘with reasonable dispatch’).
  • Relief: the claimant’s case was that the defendant had wrongfully avoided the insurance policy, and therefore the correct remedy (if the claimant’s claim was to succeed) would be damages for breach of contract, not a declaration.

Decision

Insurable interest

The Court found that the claimant did have an insurable interest. Notwithstanding that the Property was owned by Mr Singh, the Court accepted that the claimant paid rent to Mr Singh, granted leases over the Property to third parties, took responsibility for any rates liability in relation to the Property, and obtained insurance cover and paid premium over a number of years. The Court found that, on the facts, the claimant was under an obligation to reinstate the Property. The Court also considered that, if the claimant had not had an insurable interest, some other entity within the family business would have assumed the role of insured.

In reaching this decision, and mindful of the Court’s usual inclination to find in favour of an insured on the question of insurable interest (Stock v Inglis [1884] 1 QBD 564 cited), the Court was persuaded by the fact that the defendant had neither taken an interest in the question of insurable interest nor alerted the claimant to the importance of the issue until a claim was notified to the insurance policy.

Misrepresentation/material non-disclosure

The defence of misrepresentation/material non-disclosure failed on the basis that, to the limited extent to which anything material was misrepresented to the defendant, it was not relied upon by the defendant in writing the risk. The Court found that the only information relied upon by the defendant had been a survey of the Property carried out in 2011. Based on the survey, the defendant had agreed to insure the Property in 2011/12 and 2012/13 on the proviso that certain ‘risk improvements’ were made. There was no evidence that anything else induced the defendant into the insurance contract and it formed no part of the defendant’s case that any of the ‘risk improvements’ were not carried out.

Breach of warranty

The Court dealt with this point only briefly, finding that (although the 2010/11 proposal form had stated incorrectly that there were three tenants at the Property) this proposal form did not form the basis of the 2012/13 policy to which the claim was notified, and therefore there had been no breach of warranty.  

Reinstatement

The Court was unpersuaded by the defendant’s case that the right to reinstatement costs under the insurance policy was subject to prompt reinstatement of the Property by the claimant. Citing with approval an extract from MacGillivray (at 20-022), the Court found that the requirement to reinstate cannot arise until an insurer has confirmed that it will indemnify.

The Court confirmed that this principle should apply not just to impecunious insureds who cannot pay for the reinstatement without insurance funds, but also to successful businesses.

Relief

The Court rejected also the defendant’s argument that the correct remedy was damages, not a declaration, remarking that it is common for the Court to be asked to make a declaration in insurance cases (and, indeed, that insurers often issue proceedings to obtain declarations of non-liability). The Court observed that a declaration (unlike an award for damages) would negate the defendant’s liability should the claimant decide not to reinstate the Property.

Comment

The judgment provides an interesting overview of the circumstances in which insurers might raise the defence of lack of insurable interest (although, interestingly, the Court does not appear to have considered Macuara v Northern Assurance [1925] AC 619, the leading case on insurable interest for property risks). The rarity with which this defence is raised reflects a reluctance on the part of insurers to rely on such a technical objection, and the Court’s propensity to lean in favour of insureds on this issue.

The judgment clarifies also the principle that insurers cannot rely upon a breach of policy condition to reinstate promptly in circumstances where they have sought to decline cover, and reaffirms the importance of reliance/inducement in relation to a defence of misrepresentation/material non-disclosure. The Court highlighted the importance of testing this subjective evidence thoroughly before seeking to rely upon such a defence at trial.    

For further information please contact: Natasha Hawkins.

Milton Furniture Ltd v Brit Insurance Ltd [2014] EWHC 965 (QB)

The assured sought to recover under a Commercial Combined Insurance Policy in respect of a fire which occurred at its premises on April 9, 2005. The dispute concerned two provisions of the policy. Protection Warranty 1 provided: “It is a condition precedent to the liability of the Underwriters in respect of loss or damage caused by Theft and/or attempted Theft, that the Burglar Alarm shall have been put into full and proper operation whenever the premises referred to in this Schedule are left unattended and that such alarm system shall have been maintained in good order throughout the currency of this insurance under a maintenance contract with a member of NACOSS”. General Condition 7 provided: “The whole of the protections including any Burglar Alarm provided for the safety of the premises shall be in use at all times out of business hours or when the Insured's premises are left unattended and such protections shall not be withdrawn or varied to the detriment of the interests of Underwriters without their prior consent”. The evidence showed that monitoring had been discontinued because the assured had stopped paying charges to the monitoring company.

Jay J ruled in favour of the insurers as follows.

  1. The relationship between GC7 and PW1 was that GC7 was not subordinate to PW1, and that GC7 was a condition precedent to the insurers' liability. PW1 did not qualify GC7 as regards the obligation to ensure that the burglar alarm was in use. That meant that GC7 - unlike PW1 - applied whether or not there was theft or attempted theft.
  2. GC7 was to be construed as meaning that the assured's obligations under GC7 were no more onerous than they would have been had this been a theft claim and PW1 had been applied. GC7 was thus to be read down so that the assured was only required to set the alarm if the premises were unattended, and the monitoring obligation was the same under both provisions.
  3. The assured was not in breach of the first part of GC7. The assured's business on the day of the fire finished at 20.30 at the latest. However, the premises had not been "left unattended". The motor cases on the meaning of that phrase were irrelevant in the present context, and it was to be construed as broadly akin to "left unoccupied". Given that GC7 was to be read in the same way as PW1, there was no separate obligation in relation to the position outside business hours despite the express wording of GC7.
  4. However, the assured was in breach of the second part of GC7 by causing or permitting the withdrawal of the monitoring of the burglar alarm, as the same requirement appeared in PW1. The test was whether there was a real risk that there would be a cessation of the monitoring service. That was the case on the facts, when payments stopped.
  5. If GC7 was not a condition precedent, breach of that condition was causative of the loss. Had the alarm been operative, the monitoring service would have called the assured and the emergency services could have been summoned.   

For further information: Milton Furniture Ltd v Brit Insurance Ltd [2014] EWHC 965 (QB).

The Seashell of Lisson Grove Ltd v Aviva Insurance Ltd [2011] EWHC 1761 (Comm)

The Seashell was a fish and chip restaurant in London. It was insured under a restaurant policy and a property policy. The premises were damaged by fire. The court ruled, on preliminary issues, that:

  1. the terms of the Warranty Clause in the restaurant policy allowed the assured to recover for any part of a loss which was not wholly or partly due to breach of warranty;
  2. the Non-Invalidation Clause in the restaurant policy applied to breach of warranty, so that the insurers could not rely upon it to refuse a claim to the extent that the assured was not aware of any increase of risk; and
  3. the Non-Invalidation Clause in the property policy applied to non-disclosure and breach of warranty.

For further information: The Seashell of Lisson Grove Ltd & Ors v Aviva Insurance Ltd & Ors [2011] EWHC 1761 (Comm) (01 November 2011)