Material Damage
Cases General
Castellain v Preston
(1881-5] All ER Rep 493
BRETT LJ
Every contract of marine or fire insurance is a contract of indemnity, and of indemnity only, the meaning of which is that the assured in case of a loss is to receive a full indemnity, but is never to receive more. Every rule of insurance law is adopted in order to carry out this fundamental rule, \and if ever any proposition is brought forward, the effect of which is opposed to this funda mental rule, it will be found to be wrong. There are many propositions bearing on the question, and many rules may be glanced at which are well known in insurance law. The doctrine in marine insurance law of constructive total loss is adopted solely in order to carry out the fundamental rule. It is a doctrine which is in favour of the assured, because where the loss is not an actual total loss, but is what, as a matter of business, is treated as equivalent to a total loss, this rule is adopted to carry out the funda mental doctrine and give the assured a full indemnity. Grafted on that doctrine came the doctrine of abandonment, which is only applicable to cases of constructive total loss, and is introduced in favour of the underwriters, so that they may have to pay no more than an indemnity. So it appears that these two doctrines were introduced in order to carry out the two limits of the fundamental doctrine to which I have referred, namely, that the assured shall get a full indemnity, and that he shall get no more.
Collingridge v Corporation of Royal Exchange Assurance Association
(1877) 37 LT 525
MELLOR J
I cannot see on what grounds the plaintiff, being as he is an unpaid vendor, and having possession and right to possession, can be held disentitled to sue. Whether he may only have a right to sue as trustee for the Metropolitan Board of Works, I cannot say; all I say is, that the circumstances of the case do not affect his right to recover. He might suffer very much from the insolvency of the purchasers; but whether this is a contingency which may reasonably be expected or not, the insurance office cannot in any event be released from a contract of which the terms are clear, and which there has been nothing to invalidate.
Waters v Monarch Fire and Life Assurance Co (1856) 5 E & B 870
LORD CAMPBELL CJ
I think that a person entrusted with goods can insure them without orders from the owner, and even without informing him that there was such a policy. It would be most inconvenient in business if a wharfinger could not, at his own cost, keep up a floating policy for the benefit of all who might become his customers. The last point that arises is, to what extent does the policy protect those goods. The defendants say that it was only the plaintiffs’ personal interest. But the policies are in terms contracts to make good ‘all such damage and loss as may happen by fire to the property herein before mentioned’. That is a valid contract; and, as the property is wholly destroyed, the value of the whole must be made good, not merely the particular interest of the plaintiffs. They will be entitled to apply so much to cover their own interest, and will be trustees for the owners as to the rest. The authorities are clear that an assurance made wtthout orders may be ratified by the owners of the property, and then the assured become trustees for them.
CROMPTON J
The parties meant to insure those goods with which the plaintiffs were entrusted, and in every part of which they had an interest, both in respect of their lien and in respect of their responsibility to their bailors. What the surplus after satisfying their own claim might be, could only be ascertained after the loss, when the amount of their lien at that time was determined; but they were persons interested in every particle of the goods.
Welch v Royal Exchange Assurance
(1938) 62 LIL Rep 83
MACKINNON LJ
It was then argued that in the last sentence of condition 4, ‘unless’ should be construed as meaning ‘until’. I do not think this is sound. I think Branson J was right in saying that the last ten words of that sentence mean no more and no less than ‘if the terms of this condition have not been complied with’. But in truth the more formidable argument for the respondents does not depend on the last sentence of condition 4. They say that the promise in the body of the policy is ‘subject to the conditions, which, so far as the nature of them permits, shall be deemed to be conditions precedent to the right of the insured to recover.’ In condition 4 there is the provision that ‘the insured shall give all such information as may reasonably be required’. The nature of this does permit compliance with it to be a condition pr cedent to the right of the insured to recover. It is found by the arbitrator that it has not been complied with. There has therefore been a breach of a condition precedent to the right of recovery.
Ahmedbhoy Habbibhoy v Bombay Fire and Marine Insurance Co
(1912) 107 LT 668
LORD MOULTON
It raises, therefore, the plain and simple issue whether the loss due to fire and water under such a policy is to be determined at the moment when the fire is extinguished, or when the companies give up possession of the premises to the owner after exercising the powers given to them by the policy for the purpose of enabling them to minimise the damage. It is, however, scarcely necessary that their Lordships should formally negative the contention of the companies in this respect, for it is so obviously unreasonable that the eminent Counsel who appeared for them on the appeal did not attempt to support it. The fundamental error … seems to have arisen from a misapprehension of the position of an insurance company taking and holding possession of property damaged by a fire under the provisions of the policy in that behalf. The provisions in virtue of which it does so are for the purpose of enabling it to minimise the damage. Inasmuch as it has to bear the loss there is no one so directly interested in doing everything that is wise for the purpose of making the best of the situation. It does so in its own interest, not because it is under a duty to the assured. Its powers are of the nature of a privilege to do that which is most for its own benefit under the circumstances so as to reduce the loss. In the present case, therefore, there is no question of tort on the part of the companies. They may have thought that it was not worth while to expend money in drying the machinery. In this view they may have been right or wrong but they unquestionably had full power to take the course which in fact they did take. But when they have thus taken possession of the premises and done what in their opinion was wisest to minimise the damage, they cannot say that the actual damage is not the natural and direct consequences of the fire.
Elcock v Thomson
[1949] 2 All ER 381
MORRJS J
In my judgment, on the facts of the present case the assured are entitled to be indemnified in respect of the depreciation which was caused by the fire, and, in quantifying such depreciation, the insurable value of the mansion as agreed by the parties cannot be set aside and disregarded. I observe that, at the end of the schedule to the policy, in the words by which such agreement as to value is expressed, it is stipulated that in the event of loss the property would be assumed to be of the value recorded and would be assessed accordingly. In the body of the policy the words used are ‘to insure from loss or damage’. I have considered whether any significance is to be attached to the fact of the use only of the word ‘loss’ at the end of the schedule and whether it could be argued that the agreement as to value was only to apply in the event of the destruction or loss of an item as opposed to damage occurring to it. No such point was, however, taken or argued and I cannot imagine that any significance attaches to the use only of the word ‘loss’. It would be strange and unnatural if an agreed value were to apply only in the event of complete destruction and not in the event of partial destruction. The respective words ‘loss’ and ‘damage’, as used in the policy, seem to be synonymous. It would not seem to be the case that the word ‘loss’ is only referable to complete destruction. Apart from this, however, the opening words of the provision, viz, the words ‘The sum set opposite each item in this specification has been accepted by the underwriters and the assured as being the true value of the property insured,’ appear to contain agreement as to value irrespective of the meaning of the word ‘loss’ which is later used. . . . :
The result is that, in my judgment, the percentage of actual depreciation resulting from the fire should be applied to the agreed values as set out in the policy so as to arrive at t11e amount recoverable. On my findings, the mansion was worth £18,000 before the fire and £12,600 after the fire. There was, therefore, a depreciation of £5,400 in £18,000, or a depreciation of 3 in 10. By ‘the mansion’ I mean the entirety described in items 1 to 5 of the schedule, which together had an agreed value of £106,850. The loss or damage which occurred to the plaintiffs was, therefore, 3/10 of such figure, namely £32,055. Underwriters are, therefore, liable to pay an amount representing the stated fraction of this sum and the defendant will be liable for his proportion.
Sprung v Royal Insurance (UK) Ltd.
[1999] Lloyd’s Rep. IR. 111 Court of Appeal
EVANSLJ
This appeal is from a judgment given in Liverpool on 13 October 1994 by His Honour Judge Hedley. By that judgment he held that the plaintiff had suf fered a loss, which he measured as £75,000, by reason of the late payment of the sum which became due from the defendant insurance company to the plaintiff as a result of a loss sustained in April 1986. But he proceeded to consider whether that loss was recoverable in law from the defendants in addition to the interest element of the sum which had already been paid in respect of the loss under the policy. He held as a matter of law, following the judgment of Hirst J (as he then was) in Apostolos Konstantine Ventouris v Trevor Rex Mountain (The “Italia Express” (No. 2)) [1992] 2 Lloyd’s Rep 281, that the plaintiff was not entitled to recover that sum in law. There is a cross-appeal by the defendants. They contend that the judge’s finding that the loss sustained was 75,000 was based on inadmissible evidence and there fore should be set aside …
It does seem to be clear as a matter of law, in my judgment, that the learned judge was right in the conclusion which he reached. The law may be technical in that it involves drawing a distinction between claims in debt and claims for damages. There are grounds, notably those adumbrated by Professor Clarke in his work The Law of Insurance Contracts (2nd ed.), in particular at para 30-7A with reference to some other authorities, for questioning whether Hirst J’s ruling was necessarily correct. This has not been a case where we can be said to have heard full or detailed argument on this point, but I for my part would have no hesitation in holding that Hirst J was correct to accept that, in the light of previous House of Lords decisions, the result must follow; that is to say, there is no cause of action in damages for late payment of what may be held due as damages. To that extent, therefore, in my judgment this appeal must be bound to fail …
As a matter of law, it seems to me that the decisions already referred to show that there cannot be a claim for damages of this sort where the breach of con tract relied upon is the late payment or non-payment of a sum of money by way of damages. But on the other hand, if as a matter of law the plaintiff is able to show that the defendants have committed some other and separate breach of contract, and if specifically he can show that the defendants were in breach by failing to accept liability or to approve of the reinstatement at an early stage, then the recovery of damages would not be restricted to the discretionary award of interest which exists in the other case. Since this line of argumentrequires identifying a legal obligation other than the payment of interest, and since the statement of claim in fact refers only to the non-payment of what was called the claim for indemnity, it does seem to follow that the defendants are entitled to object that no such claim is set out in the pleaded case, nor was it brought specifically to the attention of the learned judge …
The implication to my mind has to be at least this: that just as an obligation is placed on the insured to request the consent of the company, so there isa corresponding obligation on the insurer to deal with that matter withina reasonable period of the request being made. What is more, that reasonable period would on the face of it be relatively short because the terms of the cover are such that there is insured damage in a case which “necessitates immediate repair or replacement”. I would be prepared to hold, therefore, without confining myself to any precise terms, that there was some obligation on the defendants to respond promptly to a request from the plaintiff that the damage should be inspected and the question of repairs considered forthwith.
Apart from any question of delay, what happened in the present case, ac cording to the plaintiffs unchallenged evidence, was that the defendants’ representatives simply denied that there was any liability under this or un der the other policy. The question arises, therefore, whether it can be said that the defendants were in breach of the implied obligation to whichI have referred. On the face of it they were, because it is now accepted that the claim was covered by the policy, and it is quite clear that they, first, refused to consider the question whether the repairs should be carried out at all and, secondly, did not address their minds to the question whether the defendants should give their consent if the plaintiff wished to do so …
In my judgment the position which arose when the defendants dealt with this matter in the way they did (that is to say, by denying liability, even ona ground which subsequently they have not sought to uphold) placed the plain tiff ina position where he was entitled and, indeed, bound to proceed as if he was uninsured. In other words, he could proceed to reinstate or repair the damaged property if he was so advised. If he decided to do so and then subse quently claimed against the defendants under the policy, it seems to me that the defendants would not then be in a position to allege by way of defence that there had been a breach of condition (6); in other words, they would have disqualified themselves from saying that, the repairs having been carried out
without their consent, the plaintiff was not entitled to recover the promised indemnity under the policy.
The question, which arises is whether the plaintiff nevertheless can claim substantial damages from the defendants for their refusal to accept liability at that_ stage or for failing to say, “Go ahead if you wish to do so and are so advised.” In my judgment it is impossible to say that any such breach, even if and to the extent that it was a breach of contract, would carry with ita right to substantial damages representing the claim which is now put forward. What has to be said, however hard it may seem to say it, is that in such cir cumstances the cause of any loss which the plaintiff suffered must be re garded as the consequence of his own decision not to proceed with repair or reinstatement, whether that decision was voluntary or not. In another words, if, unfortunately, through his own financial circumstances he is unable to do so without assistance from the defendants, he cannot allege that the defen dants were in breach of contract by failing to accept liability at that stage.
The other matter which I should mention in this connection is that the plaintiff has frankly acknowledged, in response to questions by my Lord, Lord Justice Beldam, that if the defendants had given a qualified reply in terms such as, “We give our consent but without any admission of liability,” then it is doubtful whether he would have been able to raise the necessary finance in any event. To go further than that would require placing on the defendants an obligation not merely to give their consent to repairs but to admit liability at that early stage, and in my judgment, for the reasons al ready given, that cannot be said against them.
The first question, strictly, is whether the plaintiff should be permitted to raise this further issue now at this late stage. I for myself would be reluctant to hold that he should not do so if there was any reasonable prospect that the claim would succeed in the circumstances of the present case. I say that be cause, as the extracts from his evidence made clear, he made determined efforts in the course of his evidence to say that this was the very point which he wished to have decided. I would also be reluctant for the simple reason that I do not find the defendants’ submissions at all attractive, either from a commercial or from a moral point of view. They claim the right as insurers, in a policy in these terms which contemplate a degree of immediacy, to stand aside and to deny liability on grounds which subsequently are not main tained, whilst their insured continues in such financial difficulties that he has soon to cease carrying on business altogether.
Apart from those more general considerations, there remains the aspect
to which I have already referred, which is that the question does arise whether there is a reasonable prospect in the present case of the plaintiff recovering the damages which he seeks as a matter of law in the unusual circumstances of the present case. With undisguised reluctance, I would hold that the law was correctly stated by the learned judge and that, even if the claim was reformulated in some such way as I have stated, there would be no measurll,ble prospects of success in the circumstances of the present case.
For those reasons I would dismiss this appeal.
Rohan Investments Ltd. v P. Cunningham
Unreported Court of Appeal, 20th January 1998
LORD JUSTICE ROBERT WALKER:
This is an appeal from an order of Judge Byrt made on 13th June 1997 in the Central London County Court. The Judge gave judgment for £29,044.82, in cluding interest, in favour of the plaintiff, Rohan Investments Limited, in an action against its insurers, the Members of Lloyd’s Syndicate No 877. The plaintiffs claim was for an indemnity in respect of water damage to the inte rior of a residential property known as 44 The Marlowes, St John’s Wood, London NW8. The insurers appeal on the issue of liability, not quantum. The issue of liability turns partly on the correct construction of the description of insured perils in the policy and partly on the cause or causes of the damage. The Judge gave a full and careful judgment which runs to about 20 pages of transcript. The following summary of the facts can be supplemented from the more detailed description in the judgment below.
The house in question has a flat roof, as have the neighbouring proper ties. It is the London base of a Nigerian businessman, Chief Sajemirokum. He uses it as his London residence and his European business base. He stays there from time to time and his wife and children regularly use it as a holi day home during the summer. He made arrangements for the house to be looked after in his absence and for it to be prepared for his visits. At the trial, the insurers relied on the plaintiffs alleged failure to maintain the property as a defence, but that defence failed and is not raised on appeal. The damage to the property was discovered on 11th February 1995. The Judge found that it had actually occurred at some date between 21st January, when the Chiefs most recent visit had come to an end, and 30th January when a build-up of water on the roof of number 44 was discovered and released by a Mr Dyer, a contractor working on the roof of the adjoining property, number 46. Mr Dyer released the water by clearing the grating over the downpipe of leaves and twigs that were blocking it. Mr Dyer’s evidence was that the water was about 8 inches deep when he released it, but the Judge thought that that must have been an exaggeration and that the water was 3 to 4 inches deep. In making that estimate, the Judge was able to rely on a photograph of the flat
roof underwater, showing a concrete slab, 3 to 4 inches high, supporting a television aerial.
The Judge had evidence from the Meteorological Office that just under 4 inches of rain fell in that part of London between 15th and 30th January and that half an inch fell on one single day, 27th January. The Judge thought that that wasthe dayon which the damage probably occurred. He also found, on the balance of probability and in the absence of any satisfactory expert evidence, that the damage was caused by: “… an ingress of water over the top of the flashings or through some defect in them.”
These were flashings that went round the outside of the flat roof and pro jected some 7 or 8 inches above its surface. The Judge found that the water had probably built up to its depth of 3 to 4 inches over the period between 15th and 27th January. The insured perils, so far as material, were loss or damage to the building directly caused by (paragraph 3) “storm, tempest or flood”, and (paragraph 4) “escape of water from fixed water tanks, appara
tus or pipes”. At the trial the plaintiff contended that the damage came within the heading of “escape of water from pipes” because the rainwater was unable to enter the downpipe. The Judge rejected that argument and it is not repeated by way of respondent’s notice on this appeal.
So the main issue, indeed almost the sole issue on the appeal, is whether the Judge was right in concluding (as he did), on the facts found by him, that the ingress of water into the property constituted a flood. The Notice of Ap peal also contends that the Judge should have found that the proximate cause of the damage was a build-up of water on a flat roof due to a blocked downpipe, but as the appeal has developed that ground has not really been relied on as a separate ground, but largely as another way of putting the main submission on the meaning of flood.
The meaning of the word “flood” in the context of a household insurance policy was considered by this court in Young v Sun Alliance and London In surance [1976] 3 All ER 561. The facts of that case were that the downstairs lavatory of a dwelling house was affected by slow ingress of water from some natural source under or near the house. Water was standing in the lavatory to a depth of about 3 inches. The terms of the policy were virtually identical with those in this appeal. The County Court Judge dismissed the claim and this court dismissed an appeal. Lord Justice Shaw, at page 563, approved what the County Court Judge had said:
“People often use the word ‘flood’ colloquially to describe an overflow of wa ter in their houses, such as a sink overflowing; but in my judgment it is not what is meant by ‘flood’ in the insurance policy. A ‘flood’ is something large, sudden and temporary, not naturally there, such as a river overflow ing its banks. In my judgment the water in the plaintiffs lavatory was not there as the result of a ‘flood’ within the meaning of the policy.”
I would emphasise the words “as the result of’ in that passage. The policy insures against damage directly caused by flood, not against flood as a loose and colloquial description of the effect produced within the house. In this case the effects were undoubtedly severe. Ceilings were so badly affected that substantial parts of them came down, damaging expensive furniture and con tents. The Judge referred to the event as “a catastrophe”.
Lord Justice Shaw also said at page 563:
“… it seems apparent that what the policy was intending to cover, what ever may be the colloquial use of the word ‘flood’ in common parlance, were three forms of natural phenomena which were related not only by the fact that they were natural, but also that they were unusual manifestations of those phenomena: that is to say, ‘storm’ meant rain accompanied by strong wind; ‘tempest’ denoted an even more violent storm; and ‘flood’ was not something which came about by seepage or by trickling or dripping from some natural source, but involved ‘a large movement, an irruption of wa ter’, as one of the definitions in the Oxford Dictionary puts it. The slow movement of water, which can often be detected so that the damage threatened can be limited, is very different from the sudden onset of water where nothing effective can be done to prevent the damage, for it happens too quickly.”
Lord Justice Lawton and Lord Justice Cairns gave concurring judgments. Lord Justice Lawton said at page 564 that, in ordinary English, flood con
notes some abnormal violent situation. Lord Justice Cairns said on the same page:
“That it could be called a flooded floor, that an ordinary man or an ordi nary housewife would say, ‘The water is flooding my floor’, I have no doubt. But we come back to the question: Is it a flood? Is it a flood ina clause which refers also to ‘storm and tempest’? — which I think contrib
utes to giving a colour to the meaning of it. I think it is very largelya question of degree.”
Lord Justice Cairns concluded that the damage was not caused bya flood.
Judge Byrt was also referred to the decision of this court in Computer & Systems Engineering plc v John Lelliott (Ilford) Ltd and Another [1990] 54 BLR 1,a case on the meaning of flood in a Joint Contracts Tribunal form of contract allocating risk between employer and contractor. The contractors were to carry out extensive alterations to the employer’s premises. The works involved installing steel purlins to support new service ducts and cables and a false ceiling. By clause 22 of the contract, the employer bore the risk and undertook to insure the risk of the building being damaged by, among other perils, “storm, tempest, flood, bursting or overflowing of water tanks, appara tus or pipes”, so again the wording was very similar, although not identical, to that in this appeal. A subcontractor’s workman dropped a steel purlin. It hit and broke a pipe forming part of the sprinkler system installed for fire protection and, before it could be turned off, about 1,600 gallons of water poured out causing extensive damage. The Judge held that this escape of water was not a peril within clause 22 and the Court of Appeal upheld that decision. The case was complicated by an issue as to subcontractor’s fault, which does not arise here. As to whether the escape of water from the sprin kler system was a flood, Lord Justice Beldam, with whom Lord Justice Tay lor and Lord Justice Purchas agreed, said at page 10:
“In the context of this contract ‘flood’, in my view, imports the invasion of the property, which is at the employer’s risk, by a large volume of water caused by a rapid accumulation or sudden release of water from an exter nal source, usually but not necessarily confined to the result of a natural phenomenon such as a storm, tempest or downpour. I conclude that the event caused by Mr Chase …”, that is the subcontractor’s workman, “…
was not a flood because neither in extent or origin was it within that meaning.”
Lord Justice Beldam also, at pages 8 and 10, acknowledged the importance of
a uniform approach to the construction of words which are common form in buildings insurance policies.
These two cases were cited to Judge Byrt. He referred to them in his judgment and said at page 16F of the transcript:
“The relevant features defining ‘a flood’ to be distilled from these authori ties seem to be as follows: an invasion from outside the property by a large volume of water caused by a rapid accumulation from an outside source, such as an unusually heavy downpour.”
He then applied the principle which he distilled to his findings, findings which are not challenged except in a minor respect that I will come to. He was satis fied that there was an invasion of the plaintiffs property by a large volume of water. He asked himself whether it was caused by a rapid accumulation of water and, without it seems expressly answering that question, he concluded, by reference to the evidence of a half-inch of rain falling on 27th January 1995, that it was an unusually heavy downpour. He referred to the dramatic consequences which the inflow of water had had inside the property.
This appeal has been argued with admirable clarity and economy of sub missions on both sides. Miss Marion Egan for the appellant insurers submits that the Judge erred in concentrating on the volume of water and the half inch rainfall. The real cause, she says, was that water gradually, not rapidly, collected on the flat roof during a wet January and, because of the blockage, found its way into the house, probably because the flashings surrounding the flat roof were defective. So far as the Judge did, at least by inference, find that there was a rapid accumulation of water, that conclusion was, she says, incon
sistent with his finding at page 12B of the transcript of accumulation of water I,
since 15th January, a period of over ten days. Mr Rohan Pershad for the re spondent plaintiff analyses the Judge’s findings and submits that it wasopen to the Judge to conclude that the escape of the water, probably on 27th Janu ary, came within the description of a flood put forward by Lord Justice Bel dam in the Computer & Systems case, and that it did constitute a flood.
I accept the importance mentioned by Lord Justice Beldam of achieving a measure of uniformity in the construction of standard words describing a peril, and the view of Lord Justice Beldam as to the meaning of flood, in which the other members of the court concurred, gives valuable guidance as to its scope. Nev rtheless, it is not to be construed as if it were a statutory definition in an Act of Parliament. I respectfully doubt whether, by referring to an external source, Lord Justice Beldam intended to exclude in all possible circumstances any accumulation of water on the roof or otherwise on the ex terior of the insured premises. It is to be noted that the facts of both Young’s case and the Computer & Systems case were fairly unusual. Nor, it seems to me, can Lord Justice Beldam have intended to lay down any precise test for a large volume of water or for its rapid accumulation. It must be, as Lord Jus tice Cairns said in Young’s case, very largely a question of degree and the size and character of the insured premises may have to be considered.
I think the Judge was entitled to conclude that the build-up of 4 inches of rain on the roof during a period of about a fortnight from 15th January 1995, the date of the last inspection by the Chiefs handyman, was sufficiently rapid to be abnormal. I think the Judge was also entitled to infer from the extent of the damage caused that a relatively large volume of water must have found its way into the interior of the building. Its ingress must have been more than the slow seepage or percolation with which this court was concerned in Young’s case. The precise volume of water that gotin cannot in my view be decisive or even particularly important, but simple arithmetic indicates that a mere 1 centimetre of rain on a flat roof 10 metres square amounts to 1 million cubic centimetres, which is 1,000 litres or about 220 imperial gallons. That, it seems to me, is more than a sprinkling. The Judge was hampered in his findings by the absence of satisfactory evidence from either side as to exactly how the ingress of water occurred. He described the only available report from a Mr Chambers, a roofing contractor, as superficial and inadequate. Had he had more expert evidence before him, the Judge might have been able to make more detailed findings but in my judgment it was open to him to make the findings that he did and these are not really challenged, except perhaps for his implicit finding of a rapid accumulation, which I have dealt with. I consider that the Judge did, on those findings, rightly conclude that the damage was caused by a flood.
Therefore, despite Miss Egan’s excellent submissions, I would dismiss this appeal.
LORD JUSTICE AULD:
I agree and add a few words only. The word “flood” as an insured peril in a householder’s insurance policy is a straightforward enough notion. Save for any constraints to be found in the context in which it appears in the policy document, it should be given its ordinary and natural meaning. I do not be lieve that this court, when construing the word in a household insurance pol icy in Young or in the JCT standard form of contract in Computer Systems, intended to confine its meaning by reference to a list of rigid criteria or with out regard to differences in the size and nature of property insured against
the peril, or the different circumstances which may give rise to flooding and consequential damage.
Certainly the three judgments in Young do not establish any all-purpose list of criteria to be satisfied in every case where an insured householder seeks to recover under his policy for damage caused by an ingress of water to his property which would be described ordinarily and naturally as a flood. All of their Lordships in Young appear to have been affected in the circum stances of that case by the lack of drama and scale in the event giving rise to
the undoubted flooding of the lavatory, that is, the slow, preventable seepage of water up into its floor.
In Computer Systems, Lord Justice Beldam drew on that approach on the facts of the case to identify two, possibly three, characteristics of a flood in a similar collection of risks in the JCT form of contract, namely: one, the rapid accumulation in or sudden release of water from an external source; two, the
large volume of water; and three, usually, but not necessarily, the result ofa natural phenomenon.
It is important when considering the applicability of any of those charac teristics to particular circumstances to keep in mind that the flood causing damage to a property and/or its contents is that affecting the building and those contents, whether or not it is part of some larger climatic flooding of the area in which the building stands. Here, the flood is the escape of the water, as the Judge found, from the roof into the property, regardless of the fact and cause of the previous accumulation of water on the roof giving rise to it. Looked at in that way, it seems to me confusing to require of that direct cause of damage various characteristics appropriate to climatic and widespread events such as storms and tempests. Flooding may or may not result from such weather extremes. It may result from prolonged and steady rain and steady slow build-up of water, eventually damaging property. It is none theless a flood and capable of causing severe water damage against which a household insurance of this sort is, I believe, intended to provide cover.
As to the volume of water, it is the water that enters and damages the property that is important, not the area or depth of flooding outside that counts. And, as Lord Justice Cairns observed in Young, whether there is a sufficiently large quantity of water to constitute a flood for the purpose is largely a question of degree. I add that that also depends on the size of the property affected relative to the amount of water. As to the naturalness of the phenomenon, I share Lord Justice Beldam’s caution in Computer Systems in so confining the origin of the accumulation giving rise to a flood causing damage to property. I doubt the relevance of the precise cause of that accu mulation, notwithstanding the association of the word “flood” with storm and tempest common in such policy conditions. A flood is no less a flood, whatever its originating cause. The fact in this case that the blocked outlet may have contributed to the flooding of the water into the house does not change that. To require, as Miss Egan suggested, some natural phenomenon which the householder can do nothing about is to confuse the task of identifying the insurable event with such preconditions of liability as insurers commonly include in their policies to protect them against negligence on the part of their policy holders.
For the same reason, I reject Miss Egan’s second submission that the in
gress of water was not caused by a flood but by other contributing factors. As Mr Pershad submitted, the question for the Judge was whether the claim damage was caused by a flood, not what had caused the flood. In my judg ment, even taking all the criteria identified in Young and Computer Systems upon which Miss Egan relied as useful guidelines, the Judge was entitled to conclude on the facts as he found them that there was a flood constituting an insurable risk and that it caused the material damage. However, for the rea sons I have given I doubt whether he needed to be so constrained. In my view, he was entitled so to conclude on the facts, giving the word “flood” its ordinary and natural meaning in the context of this policy document. Accord ingly, I too would dismiss the appeal.
(Appeal dismissed with costs)
Cases Risk Covered
Everett v London Insurance
(1865) 19 CBNS 126
BYLES J
The expression in the policy which we have to construe is, ‘loss or damage occasioned by fire’. Those words are to be construed as ordinary people would construe them. They mean loss or damage either by ignition of the article consumed, or by ignition of part of the premises where the article is: in the one case there is a loss, in the other a damage, occasioned by fire. Lord Bacon says:2 ‘It were infinite for the law to judge the causes of causes, and their impulsions one of another; therefore it contenteth itself with the immediate cause, and judgeth of acts by that, without looking to any further degree.’ If that were not so, a ship in the neighbourhood of Mount Etna or Vesuvius during an eruption, and receiving damage from substances projected therefrom, might be said to be damaged by fire. So, a shot falling amongst crockeryware might in one sense be said to occasion a loss by fire. But neither of these cases would fall within these words, which must be understood in their plain and ordinary sense.
Austin v Drew
(1815) 4 Camp 3(i()
GIBBS CJ (at 361)
I am of opinion that this action is not maintainable. There was no more fire than always exists when the manufacture is going on. Nothing was consumed by fire. The plaintiffs loss arose from the negligent management of their machinery. The sugars were chiefly damaged by the heat; and what produced that heat? Not any fire against which the company insures, but the fire for heating the pans, which continued all the time to burn without any excess. The servant forgot to open the register by which the smoke ought to have escaped, and the heat to have been tempered.
If there is a fire, it is no answer that it was occasioned by the negligence or misconduct of servants; but in this case there was no fire except in the stove and the flue, as there ought to have been, and the loss was occasioned by the coqfinement of heat. Had the fire been brought out of the flue, and anything had been burnt, the company would have been liable. But can this be said, where the fire never was at all excessive, and was always confined within its proper limits? This is not a fire within the meaning of the policy, nor a loss for which the company undertake. They might as well be sued for the damage done to drawing-room furniture by a smoky chimney.
Harris v Poland
[1941] 1 All ER 204
ATKINSON J
I can see no reason whatever for limiting the indemnity given by the policy in the way claimed by the defendant. In my judgment, the risks against which the plaintiff is insured include the risk of insured property coming unintentionally in contact with fire and being thereby destroyed or damaged, and it matters not whether that fire comes to the insured property or the insured property comes to the fire. The words of the policy are just as descriptive of one as they are of the other, and I cannot read into the contract a limitation which is not there. To enable me to accept the contention of the un<;ferwriters, I should have to read something into the contract, some such words as ‘unless the insured property is burned by coming in contact with fire in a place where fire is intended to be’. Why should I? What justification can there be for so doing? To what absurdities would it lead? A red hot cinder jumps from the fire and sets on fire some paper of value. Admittedly, there is liability. A draught from the window blows the same paper into the same fire. Is that any less an accidental loss by fire? Are the words in the policy any Jess applicable to the latter than they are to the former? A draught blows the flame of a candle against a curtain. Admittedly, there is liability. What if the curtain is blown against the flame of the candle, however? Surely the result must be the same. If it is not the same, the result is an absurdity. If it is the same, why should the result be different if one substitutes a fire in a grate for the lighted candle in a candlestick? Unless I am bound by authority to the contrary, or unless I can find a consensus of opinion to the contrary among textbook writers indicating a generally accepted interpretation of these words, I must give effect to the view I have formed.
Re Wright and Pole
(1834) 1 Ad & El 621
LORD DENMAN CJ
We all think the case quite clear on this point. The interest in question might have been the subject of insurance, but an arbitrator cannot take into consideration the possible profits of an inn, under the shape of an interest in buildings.
TAUNTON J
If a party would recover such profits as these, he must insure them qua profits. I never heard before of a recovery of profits of a business as an incidental part of the loss, under an insurance upon a house or ship.
Stanley v Western Insurance
(1868) 17 LT 513
KELLY CB
I think we must construe the words used in the policy according to their usual and popular signification, not to their strictly philosophical and scientific meaning. After making several exceptions the policy goes on to say: ‘Neither will the company be responsible for loss or damage by explosion, except for such loss or damage as shall arise. from explosion by gas.’ Now, I think the parties, when they used the expression ‘explosion by gas’, must have contemplated an explosion arising from a cause that is now frequently a cause of accidents- namely the ignition of gas used for illuminating purposes. It is quite clear that this was not an explosion by gas of that character. It appears that in the process of the plaintiffs manufacture a highly inflammable product was generated, which, on coming into contact with the atmosphere ignited. The question is, whether that product was gas within the meaning of this policy, and I think it was not. It may be ‘gas’, using the term in its strict philosophical and scientific sense; the water of the ocean is composed of gases in the strict sense of the word; but this is not what is meant in popular parlance by the word ‘gas’.
Marzouca v Atlantic and British Commercial Insurance Co Ltd
[1971] 1 Lloyd’s Rep 449
LORD HODSON
Their Lordships are not called upon to decide what form of occupancy other than residence would be sufficient to protect the assured. Occupation does not necessarily involve use as a dwelling house. Condition 8(a) with its reference to change of occupation may well contemplate use for other purposes, as, for example, for office accommodation. However, on the admitted facts in this case their Lordships are of the opinion in agreement with Eccleston J, and Luckhoo J,4 that the appellant was by 31 October 1963, already in breach of condition 8(b). It is, as Luckhoo J, put it, the building and its contents which are insured not the premises as such, and the words ‘become unoccupied’ must relate to the absence of physical presence in the building as distinct from physical presence outside the building. This does not mean that mere temporary absence necessarily involves a cesser of occupation. In the nature of things one does not spend 24 hours under the same roof for 365 days in the year: cf Winicofsky v Army and Navy General Assurance Co,5 where merely going away from the premises for an hour or two during an air raid at night did not make the premises unoccupied by night within the meaning of a declaration leading up to a burglary insurance. The occupation to be effectual must however be actual, not constructive. It must at least involve the regular daily presence of someone in the building. If there is no one present for a continuous period of more than 30 days, there is a breach of condition 8(b), and the insurance of the building and its contents comes to an tjnd. In the instant case it had come to an end some three weeks before the contractor’s men came into the building.
Cases Policy Conditions
Newcastle Fire Insurance Co v Macmorran & Co
(1815) 3 Dow 255
LORD ELDON C (at 262)
It is a first principle in the law of insurance, on all occasions, that where a representation is material, it must be complied with-if immaterial, that immateriality may be inquired into and shown; but that if there is a warranty, it is part of the contract that the matter is such as it is represented to be. Therefore the materiality or immateriality signifies nothing. The only question is as to the mere fact. ‘
Another ground was that this summons proceeded on a policy, dated 16 April 1805, and that it contained a warranty that the building belonged to the first class, described as having the stoves not more than one foot from the wall, with pipes or flues not more than two feet in length. I stated the doctrine of warranty, and on the best consideration I have been able to give the case, I do not think that the warranty was made good.
Shaw v Robberds
(1837) 6 Ad & El 75
LORD DENMAN CJ
There were two objects of insurance: certain buildings including a dwelling-house, ‘and also a kiln for drying corn in use, attached to the outward walJs of the granary, and communicating therewith by one door, the kiln built entirely of brick and iron.’ Both were destroyed by the fire. The policy was subject to the usual conditions: amongst which the third provided that, if there were any mis-representation in the description of the premises, the policy should be void; and the sixth that, if any alteration were made, either in the buildings or the business carried on therein, notice should be given to the insurers, an additional premium, if required, paid, and an indorsement made on the policy; otherwise the policy should be void.
It appeared in evidence that the kiln had been constantly used for the purpose of drying corn only; but that, in the year 1832, a vessel laden with bark having been sunk in the river near the premises, and the bark wetted, the plaintiff had allowed the bark to be dried in his kiln, as a favour to the owner of it. No notice was given to the insurers. No greater fire than usual had been made; but, in the course of drying the bark, the kiln took fire, and both the kiln and the other premises were burned down.
The jury found that corn-drying and bark-drying are different trades, that the latter is more dangerous than the former, and that the loss happened from the use of the kiln in drying the bark. A verdict was entered for the defendants, with leave to the plaintiff to move to enter a verdict for him, either for the whole amount of the loss, or, at least, for the value of the kiln.
The third and sixth conditions were relied on in argument by the defendants; and it was contended that the facts here shew either a misdescription of the kiln within the third condition, or a change of business within the sixth. The two conditions together were also said to amount to a warranty that nothing but corn should ever be dried in the kiln; and what has occurred was likened to a deviation in the case of a marine insurance. It was proved, at the trial, that a much higher premium was regularly exacted by insurance offices for a bark-kiln than for a malt-kiln. The argument, therefore, was that the premises were not truly described in the policy, or that the trade carried on there had been altered at the time of the fire without notice to the insurance office.
We are, however, of opinion that neither of the conditions applies to this case. The third condition points to the description of the premises given at the time of insuring; and that description was in this instance perfectly correct. Nothing which occurred afterwards, not even a change of business, could bring the case within that condition, which was fully performed when the risk first attached.
Equitable Fire and Accident Office Ltd v Ching Wo Hong
(1907) 96 LT 1
LORD DAVEY
The question, therefore, is whether, the premium not having been paid either wholly or partially, the policy executed by the Western Assurance Company ever became effective, and this must be decided in the same way as if an action had been brought by the respondents on that policy. The Western Company, it should be said, always repudiated any liability, and the respondents, of course, did not seek to enforce it. It is plain from the language of the condition that it applies as well to the first premium as to the renewal premium, or indeed it may be said that it applies primarily to the first premium. The instrument must be read as a whole for the purpose of ascertaining the intentions of the parties, and effect, so far as possible, must be given to every part of it. Their Lordships are of opinion that the eleventh condition qualifies and restricts the engagement of the company and converts what would otherwise be an absolute engagement into a conditional one, and that the words ‘having paid’ to the company are common form words or words of style for expressing the consideration for the company’s engagement which would become accurate when that engagement became effective. The Judicature Act provides that where the rules of law and of equity differ, the rules of equity shall prevail. It is familiar law that in equity a vendor was never held to be estopped by a statement in the conveyance that the purchase money had been paid or even by an indorsed receipt for the money signed by him so as to exclude the enforcement of the vendor’s lien. Their Lordships think that in any case the parties should not be held in equity to be estopped as between themselves from showing that the consideration had not in fact been paid. But in the present case they think that the condition read with the operative part of the instrument negatives any such estoppel; for the only meaning which can be given to the words is that the consideration must be not only expressed to be paid, but actually paid.
Stanley v Western Insurance Co
(1868) 17 LT 513
KELLY CB (at 515)
Then it was very ingeniously argued that, looking to the whole of the sentence, and reading this exception with those that preceded and followed it, the real meaning was that the company were not to be responsible for any loss arising from explosion, unless the explosion were caused by fire, and that if there were a fire on the premises, and then an explosion, and then a further fire produced by the explosion, the whole injury would be a loss within the policy, and the defendants consequently liable. I do not think that is so. That would be to add words, and to substitute for the true contract one which the parties never entered into, and which would be of a much more extensive character. It seems to me that giving the words of this policy a fair and reasonable construction they cannot have the meaning that is contended for, and therefore the defendants are not liable for the damage occasioned by the explosion. But then the case is put in another way, and is compared to a loss on premises insured against fire arising from property being destroyed in consequence of means taken to put out a fire. Now I agree with the principle laid down as to those cases, and certainly no Court ought to be anxious to do otherwise
than to take a Liberal view in favour of persons whose property is so destroyed. Anything that really results from efforts made to put out the fire by the use of water for instance, or even by destroying adjoining premises by explosion with gunpowder is clearly a loss directly, or at least, proximately caused by fire. It does not, however, follow that because an explosion arising in one way would come within the policy, that therefore an explosion arising in another and altogether different mode would also do so. I think the damages arising from explosion, whether directly from the force of the shock, or indirectly from fire caused upon the premises by it, are not recoverable.
Cases Thing Insured
Watchorn v Langford
(1813) 3 Camp 422
.
LORD ELLENBOROUGH CJ (at 423)
I am clearly of opinion that the word ‘linen’ in the policy does not include articles of this description. Here we may apply ‘noscitur a sociis’. The preceding words are ‘household furniture’, and the succeeding ‘wearing apparel’. The ‘linen’ must be ‘household linen or apparel’.
Dobson v Sotheby
(1827) Mood & M 90
LORD TENTERDEN CJ
If the property insured has not been correctly described, the defendants certainly are not liable; but I do not think there is, in this case, any misdescription which will discharge them. The word ‘barn’ is not the most correct description of the premises; but it
would give the company substantial information of their nature: there would be no difference in the risk, and the insurance would have been at the same rate, whether the word ‘barn’, or a more correct phrase, had been used; I think, therefore, that they are substantially well described.
Cases Disclosure
Pimm v Lewis
(1862) 2 F & F 778
MARTIN B
The mill had been used for years for the grinding of rice-chaff, and used publicly and openly, and the company’s officer resident in the neighbourhood well knew the mill. Did the plaintiff, then, ‘omit to communicate the matter which he might well presume they knew’? It all turns on that, for there is no pretence for imputing misrepresentation, as the defendant made no representation at all. Was the matter, however, material to be known ‘to the company’? Unless it was material. there could be no defence on any ground.
Locker and Woolf Ltd v Western Australian Insurance Co Ltd
(1936) 54 LI L Rep 211
SLESSER LJ
It is elementary that one of the matters which may be considered by an insurance company in entering into contractual relations with a pro posed insurer is the question of his moral integrity- what has been called in the cases ‘moralhazard’-and I do not think it necessary to cite authority to the effect that once the conclusion arises that had certain knowledge been in the minds of the insurance company, they might have taken a different course in agreeing to or declining a particular proposal of insurance, and that it might have affected the conditions and the rates on which they would take it, this moral hazard is one of the incidents which do become directly material.
In my view, it is quite impossible in the present case to say that the non-disclosure of the fact that the person proposing to take out an insurance policy for fire has had a motor policy declined on the grounds of misrepresentation, untrue answers, and non-disclosure, is not one which is very material for the respondent insurance company to know. It is, in fact, a non-disclosure of the fact that the person who seeks to enter into the insurance has already been overtly discovered to be a person who tells untruths, conceals matters material, and is a person who at any rate the respondent insurance company, whatever view they took, might reasonably have come to the conclusion was a highly un desirable person with whom to have any contractual relations whatever. It is unarguable, in my opinion, that such an answer was not a material matter, and was a non-disclosure of something which was essential.
Irish Cases
Dooley v The London Assurance
Court of Exchequer.
11 January 1872
[1872] 6 I.L.T.R 31
Pigot C.B., Fitzgerald, Hughes Deasy BB.
Motion, on behalf of the defendants, that all proceedings in this action be stayed, pursuant to the C. L. P. A. Act, 1856, sec. 14.
The motion was grounded on an affidavit of Frederick Downer, Agency Accountant in the office of the defendants, who deposed, that he was authorized by the defendants to make said affidavit for and on their behalf, and that the facts therein stated were within his own knowledge; that, by the writ of summons and plaint, which was issued on the 13th day of December, 1871, the plaintiff sought to recover from the defendants the sum of £151, under or by virtue of a policy of insurance, for loss and damage which he alleged that he sustained in respect of certain property stated to have been destroyed by fire; that, in consequence of a fire having taken place on the premises of the plaintiff on the 17th of September, 1871, he sent in a claim to the defendant for loss and damage to his property, to an amount exceeding the sum assured by the aforesaid policy, namely, £190 3s. 10d.; that, having been advised that a sum of £25 would fully compensate the plaintiff for the loss he had sustained from the aforesaid fire, the defendants, in order to settle the plaintiff’s claim and to avoid litigation, offered, before the commencement of said action, to pay said sum to the plaintiff’s attorney, but which offer was refused; that the defendants were, at the time of bringing this action, and still were ready and willing to join and concur in all acts necessary and proper for causing such matters as aforesaid to be decided by arbitration. To resist the motion, a joint affidavit was made by the plaintiff and his attorney. The former stated:—“That the household furniture, linen, wearing apparel, and other articles, all his property, which he insured with the defendants for £151, were destroyed by fire, on the 17th September, 1871; that on the 18th he verbally intimated the fact at the Dublin agent’s office, and on the 23rd furnished to Mr. J. M’Cann, the defendants’ agent, a detailed account of the property destroyed, according to the best of his recollection; that, although the amount of loss sustained by him amounted to £190 3s. 10d., he never in any way claimed said sum, nor any greater sum than that named in said policy; that he was never required by the defendants, or any one on their behalf, to furnish any proof of the amount of his loss, or otherwise in relation to the cause of action, and that, to his knowledge, no one attended on the part of the defendants for the purpose of examining said premises, or the loss sustained by him, until about twenty-three days after the first intimation was given at the office, when a Mr. Doyle, for the first time, came to inspect the scene of the fire, and, from the conversation he bad with the said Mr. Doyle, and the unsatisfactory answers he received when he applied at the office of defendants’ agent for a settlement of his claim, he felt it due to himself to cease all further personal communication with the defendants’ agent, and placed the matter in the hands of his attorney.” The following correspondence was then verified, the deponents adding, that the first offer of compensation was made by the letter of December 19. From the plaintiff to the defendants, dated September 23, 1871, enclosing detailed estimate of loss, and claiming £151. November 22: From the plaintiff’s attorney to the defendants’ London agent, that proceedings would be instituted, and requesting him to name a solicitor to accept service. November 23: From the agent in reply, that he had put himself in communication with the head office in reference. November 25: From the agent to plaintiff’s attorney, requesting him to delay issuing the writ for a few days, as the Secretary was ill. November 27: From defendants’ London attorneys to plaintiff’s attorney, as follows:—“Sir, we are instructed by trustee of the London Assurance to acknowledge the receipt of your letter of the 22nd instant, addressed to Mr. M’Cann, and to request that any process which you may issue against the London Assurance may be forwarded to us.” December 15, 1871: Reply, that it would be better to name an Irish solicitor, as otherwise service should be substituted. December 19: From defendants’ London attorneys to plaintiff’s attorney, as follows:—“Sir, we duly received your letter of the 15th instant, and have taken your client’s instructions on the subject. The Corporation have been carefully advised as to the extent of loss or damages sustained by Mr. Dooley, on the occasion of the fire in question, and they are assured that such loss or damages would be fully compensated by a sum of £25. They are prepared to pay that sum in *31 satisfaction under the policy, and upon hearing from you that Mr. Dooley will accept that sum in satisfaction of his claim, the amount shall be forwarded to you on his behalf, in exchange for a proper receipt. If Mr. Dooley shall decline to accept that sum, we instruct an Irish solicitor to accept service on behalf of the corporation, who will be further instructed to require a reference of the claim to arbitration, in accordance with the terms of the 13th condition endorsed on the policy.” December 20: Reply, that plaintiff declined to accept the sum named. December 21: From defendants’ London attorneys, nominating Mr. Lyle to accept service, and adding “we beg at the same time to intimate to you the desire of the corporation that the matter in difference between Mr. Dooley and the office shall be submitted to arbitration, in terms of the 13th condition embodied in the policy, and that the corporation are ready and willing to join in all acts necessary and proper for causing such matters to be decided by arbitration.” The plaintiff’s detailed account of losses, as furnished to the defendants, consisted of household furniture, £38 11s.; linen and wearing apparel, £43 0s. 10d; beds and bedding, £28 7s; pier glass, £5; pictures, prints, and drawings, £14 15s.; watches, jewellery, and trinkets, £26 10s; harness, £6; shop fixtures, £28: and said claims were made up of a great number of small items, the total amount being set down, as at the lowest value, £190 3s. 10d. The writ was issued on December 13, and service was accepted on the 23rd. Notice of motion was given on January 3rd, and the motion now stood over from Chamber. The material conditions, endorsed on the policy, were as follows:—“12. That persons insured by this corporation, sustaining any loss or damage by fire, shall forthwith give notice to the directors or secretary of the corporation, at their offices, No 7 Royal Exchange, Cornwall, if in or near London, or to their agent if elsewhere; and, within fifteen days after such fire shall have happened, shall deliver to the said directors, their secretary, or agent as accurate and particular an account of their loss or damage respectively, as the nature and circumstances of their respective cases will admit; and shall, when required, make proof of the same by their oath, solemn declaration, or affirmation, and that of their domestics or servants, and by the production of such books of accounts, and such vouchers, or evidence as may be required; and if such notice, and accurate, and particular account, or such vouchers and evidence be not furnished to the directors, secretary, or agent as aforesaid, then such policy or policies shall be void, and the premium paid thereon for the current year shall be forfeited to the corporation, and shall not be recovered back or claimed from them.
13. That in every case of loss or damage for which the said corporation shall be liable, the same, on being duly proved, shall either be adjusted and paid within 60 days next after an account thereof shall have been given to the said corporation, or its agent, or the said corporation shall have the option, at the end of the said 60 days, when the insurance may be on goods, to supply the insured with the like quantity of goods, of the same sort and kind, and of equal value and goodness with those destroyed by fire. And, in case any difference shall arise between the office and the assured, touching any loss or damage, such difference shall be submitted to the arbitration of two indifferent persons, one to be chosen by the party insured, and the other by the corporation, with liberty to appoint an umpire, and the award in writing of the said referees, or of them and their umpire, or any two of them shall be conclusive and binding to all parties.
14. That, if any fraud or deception shall be practised or attempted, or if any false declaration, or fraudulent claim or statement shall have been made or practised, in effecting said policy or policies, or procuring the same from the said corporation, or shall be made or set up by or on the part of the assured, for or in respect of any alleged loss or damage under the policy or policies from the said corporation, it is expressly stipulated and agreed that, in any or either of such cases, the policy and policies and the insurance and insurances thereby made shall be wholly and absolutely null and void, and the assured forfeit all his, her, or their right, title, and interest under the said policy and policies, and shall not recover or claim anything whatever for or in respect of such alleged loss or damage, and the premium paid on such policy or policies for the current year shall be forfeited to the said corporation, and shall not be recovered, or claimed from them.”
Serjeant Armstrong (with him Twigg ), in support of the motion. The only question in dispute is, as to the amount for which the defendants are liable. They have offered £25, as being sufficient. There is no question of fraud. [Fitzgerald, B.—Is the question whether the property alleged to have been in the house was there in fact, or, is it whether it was of the value stated? If the former, it might be improper to refer it.] The substantial question is merely as to the value of the goods; but even the question, whether the goods stated were on the premises, might properly be referred, pursuant to the stipulation in the policy.
Purcell, Q.C. (with him W. Short), contra. The granting of the application is wholly discretionary with the Court.1 On the ground of delay, the motion should be refused (proceedings and correspondence referred to). 2 As we construe the conditions, the plaintiff was bound to furnish particulars of his claim, and it was only when such particulars were duly proved, in the manner prescribed, that the loss or damage, not the fact or foundation of liability, was to be adjusted by arbitration, pursuant to the 13th condition. 3 But here the defendants did not require the stipulated proof. [Pigot, C.B.—“On being duly proved,” applies to the option of defraying the claim either in kind or in money value. But these words do not seem to control the arbitration clause, as I perceive nothing to connect the requisition of proof with the condition to refer.] The clause has reference to “loss or damage for which the corporation shall be liable.” But by another condition they would not be liable at all, if our claim was wilfully false 4 This involves a question of fraud, which would not be referred, Wallis v. Hirsch, 1 C. B. N. S., 316. 5 They do not shew why they proffered only £25, or whether they dispute the fact of the plaintiff having the goods stated, or of the goods having been consumed as alleged. [Fitzgerald, B.—The section puts it on the applicant to shew that no sufficient reason exists why *32 the matters in difference cannot, or ought not, to be referred, and therefore, he should apprize the Court of the nature of the dispute.] [Armstrong, Serjeant.—He intends that the whole account should be opened up, both on the question of the existence of the goods, and of their value.] [Hughes, B., referred to the detailed particulars furnished. Fitzgerald, B.—The nature of the goods, in this case, is such, that apparently the defendants would not be prejudiced by the inquiry on a reference as to their existence; but there might be cases where that would work a hardship.] They had the power to call upon us to establish our claim; but they remained passive. The plaintiff, stripped of his means, is delayed, and put to expense. They should have shown that, “at the time of the bringing of the action,” they were willing to leave the matter to arbitration; but they have not done so, and the facts demonstrate the contrary.
Twigg, in reply. To hold, that disputing a claim on the ground of exaggeration6 is not a difference that should be referred, would put an end to these arbitration clauses, and would reduce this section to a nullity. [Pigot, C.B.—But the effect of the 14th clause is, that the matter may be treated as fraudulent, or prohibited, and in the result, the demand would be not merely reduced, but would be extinguished altogether.] Matters of pure law may be referred, Randegger v. Holmes, L. R., 1, C. P., 679. 7 [Pigot, C.B.—Have you ever said, before the motion, that you would not rely upon fraud?] We admitted a liability by offering £25. The onus is on them, to shew that effectual relief could not be obtained by arbitration, Cook v. Catchpole, 34 L. J. Ch., 60. [Pigot, C.B.—That case does not determine the proposition ] It lay upon them to call upon us to name an arbitrator 8 Actual unwillingness on our part to refer should be shown by evidence, such as of our refusal to accede to arbitration proposed by them. It is sworn that we were willing. The moment we were informed of the action, we took the necessary steps to arbitrate.
Pigot, C.B.
I am not prepared to accede to this application, and I regret that I cannot do so. I think that the defendants have, by their own conduct, deprived themselves of the right to stay these proceedings, which, otherwise, some members of the Court would have been disposed to stay. It appears to me that this contract is one which ought to be effectuated within all legitimate limitations;9 but the provision which we have to administer is one which requires to be carefully scanned and considered, with reference to the conduct of the party who seeks to avail himself of it. It may be made the engine of delay, and I think it very important with a view to speed, that parties who are entitled under a contract, to which a condition of the present character is attached, and who are desirous of taking advantage of that condition, should intimate that desire to the opposite party at the earliest possible moment, in the ordinary course of bus ness. In this case, it appears that the fire took place on the seventeenth of September. Within three days after, the corporation were apprized of the calamity. Within less than twenty-one days they were furnished with particulars of the alleged loss and damage, and within the like period an examination of the premises was made by a person employed by the corporation, with a view to ascertain, as far as possible, the extent of that loss and damage. It was quite nugatory to apprize the corporation of the loss for any purpose but that of settling the amount claimed by the plaintiff under his policy, and, when they got the account they were called upon then to accede or not to plaintiff’s demand. They had the means under their contract of requiring proof of the extent and nature of the loss, although they were not bound to avail themselves of that means. The policy itself gave them the opportunity, and it might be embraced in a proper case. But they made no demand of that kind. The matter so stands, and the parties are left at arm’s length; the defendants being an English company, represented by a Dublin agent. The contract and the demand being before them, nothing is done until November. They know the position represented by the plaintiff: it was that of a house burned, and the insured contents burned as he represented. An investigation is made, but that investigation is not followed up That, a the result of that investigation, Doyle came to the conclusion that twenty-five pounds would compensate the plains tiff’s loss, or would be enough under the circumstances, it as clear as light. On the nineteenth of December, withous any further investigation having been made, the defendante say that, having been carefully advised as to extent of thy loss or damage, they are assured that it would be fulls, compensated by that sum. They had no means but that of Doyle’s investigation whereby to arrive at this conclusion, so that they had then the facts before them on which this previous letter was written. Yet, it was on the nineteenth of December that they first intimated their intention to seek a reference, touching the loss sustained by the plaintiff. Several communications passed between the plaintiff’s attorney and their agent, with a view to the enforcing of plaintiff’s demand. Delays were the result of his applications. It is not to be overlooked that, from the middle of September to early in December, they were not in a position or condition to say that they would avail themselves of a reference. Why did they not do so then? In none of their letters does the agent, though a settlement is demanded, make the slightest allusion to the provision of the contract to refer the dispute to arbitration. On the twenty-second of November, they are asked to name a solicitor. On the twenty-third, a reply is given by the agent, that he has put himself in communication with the head-office. It the defendants were willing then to arbitrate, that ought to have been communicated to their representatives here. Then there is the illness of their secretary. And, on the twenty-seventh of November, their solicitors write to have the process forwarded to them. That was an invitation on the part of the defendants to have the process transmitted, which they then expected to be issued. There was then no suggestion of a reference, but, on the fifteenth of December (the plaintiff’s attorney having then issued the process, which he was all but invited to issue by the letter of the twenty-seventh of November), the defendants first suggest arbitration. That the issuing of the writ was the bringing of the action is perfectly clear to my mind. It is not the service, but the issuing of it which would save the statute of limitations. The defendants knew that it was to have been issued, but, even at the very latest period when they ought to have done so, they did not express their willingness to arbitrate. If they had then done so, the writ might not have been issued It must be taken that, on the nineteenth of December, they knew that it had been issued. But, it is only then that we have the first intimation of any desire of the defendants to accept the privilege now sought. I am not prepared to accept the statement of the accountant (who does not say that he was aware of the proceedings of the corporation), that they were willing, at the time of the bringing of the action, to refer the matter in dispute, although I do not impeach his veracity. How does that gentleman know when this action was brought? I do not know what he may understand by the bringing of the action—the issuing of the writ or the service. If he means that it was on the thirteenth of December that this willingness existed, I see no grounds for that statement, and there is no indication of willingness, and no statement with refer *33 ence to the arbitration clause prior to the nineteenth. Another circumstance indirectly points to the same inference, that this willingness did not arise until after the fifteenth. It was after that date that their solicitor writes, in answer to a letter of that date, that he had taken his client’s instructions, and that it was after mature consideration they offered the twenty-five pounds; and it would seem that it was then that they first determined on arbitration. Why have I observed so much upon this? Because it is perfectly plain, upon the terms of the Act of Parliament, that the legislature contemplated prompitude on the part of those who sought to avail themselves of this provision. Because the time at which the liberty to use this enactment, and to withdraw the cause from the adjudication of a Court of law, is given, was when the action had been brought. It is perfectly reasonable that, before parties are tempted to commence a suit, and to incur even the small expense of issuing a writ, those who desire to stay the suit afterwards should prove that, at that time, they were willing to take advantage of the provision, of which they subsequently seek to avail themselves I am disposed to hold that this application is not brought within the Act of Parliament. We ought to be slow to yield to such an application, unless proper promptitude has been exhibited. It is of the greatest moment to persons having demands, large or small, against such companies, that their demands should be promptly adjusted, and that, after considerable delay and when obliged to commence an action, plaintiffs should not be met by a proposal of this character to have the matter transferred to another tribunal. As to imposing terms, it must be borne in mind that, up to the time of the motion, no intimation was given that the defendants would not seek to rely on the question of fraud by reason of an extortionate demand. The alternative given on the nineteenth of December was not to take the twenty-five pounds, and arbitrate as to the remainder of the claim, but, that, if this sum were not accepted, the corporation would defend; and in defending they would have been -entitled to rest on the clause which nullified the policy, in the event of there having been an attempt at intentional extortion. This might, however, be provided for by terms, and by imposing the costs of the motion. But, on other grounds, the defendants have so conducted their proceedings with reference to the plaintiff’s application, they have so played and parried with the plaintiff, that we ought not, I think, to send the case to another tribunal. One reason why the legislature might require an early application is, that, under this section, there is no power in the Court to refer the case at all to arbitration, but the power given to us is to stay the action, that is to impose a penalty on the plaintiff. Nor do we, by the exercise of our jurisdiction, in effect refer the matter to arbitration at once, but the parties are to be thrown at large to seek and to appoint an arbitrator. How do we know when that would be done? In a case before me, upwards of three weeks elapsed before the arbitration was agreed on. 10 Some substantial period would elapse before the tribunal was constituted, and, meantime, would slip away the opportunity of having the case tried. That is one reason why, upon the frame of the section itself, there ought to be an early act done, on the part of the person seeking the benefit of this particular clause in the contract, shewing his willingness to avail himself of it. Yet I have arrived at this decision reluctantly, because, if this case were relieved from all question of fraud, and that the only question were, what loss did the plaintiff sustain, what was the value of the goods destroyed, the course proposed would be the speedy and sensible course, and one that might lead to complete justice. 11 It would be less expensive in this, that furniture brokers, acting as arbitrators, would not need the evidence of witnesses as to the value of the goods, but would act upon their own experience. I do not see that they would possess any advantage in determining, yea or nay, whether the things were in the house, but that too could be determined by the exercise of mere common sense.
Fitzgerald, B.
The only power vested in the Court of staying the action, in carrying out the arbitration clause of the policy, is that given by section fourteen of the Common Law Procedure Amendment Act (1856). The statute has directed us not to exercise that power, unless we are satisfied that no reason exists why the matter cannot, or ought not to be referred to arbitration. I offer no opinion upon the construction of the arbitration clause, as I am not at present prepared to do so. But I am not satisfied that no reason exists why this case ought not to be referred. As to why it ought not to be referred, it does appear to me, from what has taken place, that there would seem to have been a disposition to raise a question of fraud, by suggesting that the account given is substantially an untrue representation of the contents of the house, at the time of the fire. I do not think it was the intention of the legislature that such questions should be referred to arbitration under this section,
Hughes, B.
We must not disregard how this matter is presented by both parties. Upon the abstract point, I am clearly of opinion that we are not precluded from exercising our jurisdiction of staying this action peremptorily, and leaving the parties to proceed to arbitration. It is fairly admitted by Mr. Purcell, that this motion was brought before the Court at the earliest moment. The defendants were not served till the twenty-third of December. The Christmas recess intervened, and then the motion was brought forward, without any delay as respects the conduct of the case. But then, it is said, that the defendants were not willing to refer the matters in dispute to arbitration at the time of bringing the action. I think that, giving a reasonable- construction to the terms of the section, the period at which such willingness should be shown to have existed must be taken to be, that at which the defendants became aware of the action being brought. The process issued on the thirteenth of December. The defendants, a London corporation, reside in England, and are represented by agents in Dublin. But, at the moment that they became aware of the issuing of the writ, they write the letter of the nineteenth, signifying their willingness; and their accountant testifies to the existence of that willingness. But then it said that there is a possible question of fraud If that question is surrendered, there would be no question but as to the contents of the house, and the value of those contents at the time of the fire It appears to me that the parties might, without any difficulty or delay, agree in appointing a proper and competent furniture broker, to arbitrate upon those questions within a week (a consent to that effect being made a rule of Court), providing that otherwise the action should proceed. In two hours a broker would come to a conclusion on these questions. On the other hand, the case might stand till next Easter term, if it were made a special jury case and fixed near the end of the list.
Deasy, B.
I would recommend the plaintiff’s counsel to consider the suggestions that have been thrown out.
In consequence of the suggestions of the Court, a consent was subsequently entered into, referring the case to arbitration. The question for the determination of the arbitrator to be confined exclusively to the amount of damage or loss sustained by the plaintiff.
St. Albans Investment v. Sun Alliance
[1983] IR 368
S.C.
O’Higgins C.J.
17th November 1983
These proceedings arise out of a claim made by the plaintiff company in respect of the total destruction by fire in August, 1977, of its property at Maxwell Street, Glasgow. The claim is made against the defendant insurance companies who, in association, insured the property for a total sum of £300,000. The first defendant (hereinafter called Sun Alliance) accepted a cover of £250,000 and the second defendant (hereinafter called Provincial Insurance) accepted a cover of £50,000.
Mr. Leo O’Hara is a director, and the principal shareholder, of the plaintiff company. He is also the owner of another company operating in Scotland and known as Cohar Distributors Ltd. For the purpose of this case it is sufficient to say that Mr. O’Hara carries on an extensive business in Scotland through this and other companies. In May, 1977, Cohar Distributors were sub-tenants of a building adjacent to No. 85 Maxwell Street. Because of this fact, Mr. O’Hara learned that No. 85 Maxwell Street and the adjoining building, in which his company had a sub-tenancy, were on the market: after some negotiation he bought both buildings for the sum of £25,000. It is agreed that £15,000 of that price should properly be regarded as the purchase price of No. 85 Maxwell Street. It is also accepted that, at that purchase price, Mr. O’Hara (who bought through the plaintiff company) got a remarkably good bargain. Having purchased the property, Mr. O’Hara intended to apply for an intoxicating liquor licence and to convert the ground floor into a public bar and the first floor into a discothèque; in this respect, it appears that the premises were ideally situated.
Mr. O’Hara sought insurance cover immediately in respect of fire risk and, to this end, employed Atlantic Insurance Brokers. These brokers approached Provincial Insurance and a cover of £30,000 on No. 85 Maxwell Street was sought and accepted. However, having surveyed the premises, Provincial Insurance wrote to Atlantic by letter dated the 24th May, 1977, pointing out that a sum of £30,000 only gave a rebuilding cover of £1.50 per square foot, and advising as follows:
“A realistic figure should be fixed but please note that, whilst the building remains unoccupied, our acceptance would be £50,000 so that we should expect you to find co-insurers for the balance above that amount.”
Having received that communication Atlantic, through Mr. Considine, consulted Mr. O’Hara and it was decided that cover be sought for £300,000. Mr. Considine then telephoned Mr. Murphy of Sun Alliance and a cover of £250,000 was accepted by that company and was confirmed by letter of the 23rd June, 1977, in the following terms:
“With reference to your recent conversation with our Mr. Murphy regarding the premises No. 85 Maxwell Street, Glasgow, we confirm holding cover for a sum of £250,000 for fire perils only. We understand the premises will shortly be occupied and we will then arrange to have the risk surveyed. As soon as our surveyor’s report is available we will contact you again.”
Provincial Insurance were duly informed and it is not in issue that the two companies were then on fire coverSun Alliance in the sum of £250,000 and Provincial Insurance in the sum of £50,000. In accordance with accepted insurance practice, it was expected that Sun Alliance, as the leading company in the cover, would issue the insurance policy with which Provincial Insurance would be associated. In fact, that did not happen and two separate policies in similar terms, but for the two different sums, were issued. However, no point arises on this.
In the ensuing months of June and July, Mr. O’Hara went ahead with the preparation of plans for the conversion of part of the premises into a public house, and with the preparation of the necessary documents for an application for a liquor licence. This involved the engagement of architects, a quantity surveyor and lawyers. In August, however, before any reconstruction work could take place, the premises went on fire and were totally destroyed. Subsequent to this fire on the 15th August, 1977, Sun Alliance issued its fire policy and some time later Provincial Insurance followed suit. Both these policies were in the form of “standard fire policies.” It is in relation to the form of these policies that the first issue on this appeal arises.
A standard fire policy is one which provides for the cover by the insuring company in respect of the occurrence of the risk in the following terms:
“The company will pay to the insured the value of the property at the time of the happening of its destruction or the amount of such damage or, at its option, reinstate or replace such property or any part thereof. Provided that the liability of the company shall in no case exceed, in respect of each item, the sum expressed in the schedule to be insured thereon or, in the whole, the total sum insured hereby, or such sum or sums as may be substituted therefor by memorandum hereon or attached hereto by or on behalf of the company.”
As indicated, both the policy issued by Sun Alliance and that issued by Provincial Insurance were in those terms. In each case only one item was insured, namely, the building, and it was insured for the respective sums of £250,000 and £50,000.
It appears from the evidence heard by the trial judge that insurance practice provides in certain circumstances for an endorsement in a fire policy, called a “reinstatement clause.” Where a person desiring fire cover is not satisfied with the type of cover provided by the standard fire policy and desires specifically to provide for the reinstatement of the building in the event of its destruction, a special clause to that effect, known as a reinstatement clause, may be inserted in the policy. However, it appears from the evidence that insurance companies do not easily agree to the insertion of such a clause, and that this is particularly so in the case of old buildings and also in the case of unoccupied buildings.
In these proceedings the plaintiffs claim that each of the two defendants, to the extent of its share of the sum for which the property was insured, is bound to indemnify on the basis of the cost of rebuilding or reinstating the property which was destroyed. This claim is put forward on alternative grounds.
In the first place the plaintiffs contend that the insurance effected by Mr. Considine with each defendant was on the basis of a rebuilding cover and with the intention that the policy which would issue would contain a reinstatement clause. The plaintiffs contend that this was the clear intention of all the parties at the time that the original insurance was effected. Alternatively, the plaintiffs submit that, even if the correct cover is that contained in the standard fire policy which was issued by each defendant, such cover (on the facts and circumstances of this case) extended to the cost of rebuilding.
The first of these alternative submissions was put forward strongly in the High Court. It rested on the evidence of Mr. Considine and on the contents of the letter from Provincial Insurance in which that defendant advised a realistic insurance figure for rebuilding. Mr. Considine stated that he made Sun Alliance aware of the contents of that letter; and he argued that Sun Alliance and Provincial Insurance must have been aware that he was seeking cover on a rebuilding basis. He admitted that such requirement was not expressly mentioned by him and that the insertion of such a clause in a fire policy was rare. Both Sun Alliance and Provincial Insurance adduced evidence that cover of the kind suggested would never have been contemplated by them, particularly in the case of an old building such as the one owned by the plaintiffs. Mr. Justice McWilliam decided that issue against the plaintiffs in the following terms: “In deciding what the parties intended, it is clear that Mr. O’Hara, in naming the sum of £30,000 in the first instance, was insuring himself against the loss of the cost price or value of the property. When he got the letter from Provincial Insurance in May, he accepted the sum of £300,000 recommended by Atlantic and did not then consider whether £300,000 would be his entitlement or not. From this, I conclude that, at this time, the question of reinstatement or rebuilding was not considered by him at all. This is borne out by the fact that, after the fire and after the issue of the policies, neither the plaintiffs nor their agents raised any question about reinstatement or rebuilding although minor errors in the policies were noted and pointed out. This being so, I am of opinion that there was no agreement by the parties as to reinstatement or rebuilding and that the plaintiffs are only entitled to be indemnified for their loss and are not entitled to recover on the basis of an agreement for reinstatement.”
On this appeal the plaintiffs submit that the learned trial judge’s conclusion and finding in this respect was wrong and that he should have held that both defendants were liable for reinstatement cover to the extent of the sums insured on the basis of an express contract to that effect. I do
[1983]
1 I.R. St. Albans Investment v. Sun Alliance
O’Higgins C.J. 372
S.C.
not agree. I have considered very carefully all the evidence which was before the learned judge and I have come to the conclusion that his decision on this aspect of the case was fully justified on the evidence and was correct. Mr. O’Hara entrusted the arrangement of the insurance cover to an experienced firm of insurance brokers. Mr. Considine, the principal of that firm, did not expressly specify reinstatement cover. It was established that such cover is not normal cover and is unusual, at the very least, in the case of old and unoccupied buildings. On the evidence, I can see no basis on which a term of such special significance should have been implied and, in my view, the learned trial judge was correct in refusing to so hold.
The alternative submission made on behalf of the plaintiffs, in support of a claim based on the costs of rebuilding, was to the effect that it was only in this manner, on the facts of this case, that the plaintiffs could be indemnified. The trial judge rejected this submission and proceeded to assess the loss on the basis of market value. Clearly he was influenced in this direction by his recollection of Mr. O’Hara’s evidence with regard to an intention to rebuild. The following extract from the judgment indicates the manner in which the judge approached this issue: “There was a conflict of evidence as to the suitability of the location for new licensed premises but I am not concerned to decide whether such a business, if commenced, would necessarily have been financially successful or not. What does appear to be relevant is whether the plaintiffs intend to proceed with similar plans or to rebuild the premises in any form if compensation on this basis is awarded. This Mr. O’Hara has refused to state, from which I conclude that there are no special circumstances, as in Harbutts v. Wayne Tank Co. 2 which make it necessary to have any building on this site, although, by reason of the fire, he has lost the opportunity of putting into effect the plans which he was considering.”
In that passage, in so far as he refers to the evidence of Mr. O’Hara, I think the judge’s recollection is at fault. I have read the transcript of this evidence with care and I cannot see any basis for the comment that Mr. O’Hara had refused to state whether he intended to rebuild. Indeed, as I read his evidence, I formed the contrary impression: not only did he deal with the matter fully in his direct evidence but he also maintained a view during the course of his cross-examinations that he always had the intention to rebuild. In particular, I would refer to the transcript at p. 28 of volume 2, (commencing with Q. 255) where Mr. O’Hara was asked a number of questions on this topic. In his answers he made it clear that it was always his, or rather the plaintiffs’ intention, to rebuild on the site. What would be built depended on the cost, the financial resources available and, in particular, the amount of compensation which he would obtain. He made it clear that, in this respect, the £300,000 for which the destroyed property had been insured was critical. He denied suggestions that he would be unable to rebuild if the cost exceeded that sumeven if it went as high as £1 million. He asserted that he would do so if he got the insurance money.
In fact, Mr. O’Hara complained in his evidence that the defendant insurers had failed to honour an undertaking as to rebuilding which, he understood, was conveyed to him by the loss adjusters (McLaren, Dick & Co. Ltd.) by letter of the 20th September, 1977. That firm of loss adjusters acted for the defendant insurers and at one stage were willing, apparently, to act also for the plaintiffs. The letter to which Mr. O’Hara referred was addressed to the plaintiffs and was in the following terms:
“We refer to our recent telephone conversation with Mr. O’Hara and confirm that although in terms of the policy insurers have the option to insist that the proceeds of the policy be applied in the reinstatement of the property, so far as possible, this option is rarely exercised and primarily the decision as to whether or not to rebuild rests with you. If, for example, you do not consider it necessary to rebuild the property on the existing site, you may prefer to base your claim on the diminution in market value of the site due to the fire damage. Alternatively, if you require to have this accommodation reconstructed at this location, you are entitled to base your claim on the cost of reconstruction less a reasonable allowance for the improvement which would result from having a new building instead of the old structure.”
Mr. O’Hara complained that, following that letter, he asked on a number of occasions for information as to what kind of a building he would be allowed to reconstruct, in other words, he wished to know how much money would be made available to him to enable reconstruction or rebuilding to take place. His complaint was that he had not received any satisfaction in this respect and that he had been offered merely compensation on the basis of market value, and so he had initiated these proceedings. Therefore, I must conclude that, in relation to the disclosure of an intention to rebuild, the trial judge, in delivering his judgment, either did not appreciate or did not correctly recall the evidence of Mr. O’Hara. However, that does not necessarily mean that the conclusion which the judge reached was erroneous.
I now turn to what I consider to be the correct conclusion on the facts of this case but, before doing so, I think some general principles which are applicable should be stated.
The standard fire policies which were issued by the defendant insurers were described as “unvalued policies”see Ivamy on General Principles of Insurance Law (4th ed. p. 466). This means that the amount of the insurance specified in the policies does not necessarily represent the amount of the indemnity. The position was put thus in the last century in an Irish case: I quote from the judgment of Pennefather B. in Vance v. Forster 12 at p. 50 of the report:
‘It has been truly stated that a policy of insurance is a contract of indemnity, and that while the insured may name any sum he likes as the sum for which he will pay a premium, he does not, by so proposing that sum, nor does the company by accepting the risk, conclude themselves as to the amount which the plaintiff is to recover in consequence of the lossbecause, although the plaintiff cannot recover beyond the sum insured on each particular item of insurance, he cannot recover even that sum unless he proves that he has sustained damage, and then he will recover a sum commensurate to the loss which he has sustained . . .”
Of course, the sum for which the property is insured has considerable relevance, in the event of partial loss, under the modern pro rata average clause. However, where there has been total destruction of the property, the average clause does not apply and the amount recoverable depends on what is established as a full indemnity. At this stage I think it is well to remind the parties that this form of insurance is about indemnitynothing less and nothing more. Let me do so in the words of Brett L.J. who, in Castellain v.Preston 10 , said at p. 386 of the report:
“In order to give my opinion upon this case, I feel obliged to revert to the very foundation of every rule which has been promulgated and acted on by the Courts with regard to insurance law. The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified. That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity, or which will give to the assured more than a full indemnity, that proposition must certainly be wrong.”
What is the position in this case? Mr. O’Hara, through the plaintiffs, bought a property for a trifling sum. In this respect he was either very lucky or he displayed considerable business acumen. The property which he bought was ideally situated in a developing area. It provided convenient and suitable storage and other accommodation for his existing business in an adjoining building and, in particular, its ground and first floors were suitable for conversion into a public bar and discothèque. That he intended this conversion was fully accepted by the trial judge. It was not in dispute that he had engaged architects and surveyors to draw up plans for the structural alterations entailed and that he had employed a firm of lawyers to proceed with the application for an intoxicating liquor licence. This property, ideally suited for the purposes which he had in mind, was totally destroyed by fire. What then was his loss?
If the building which was destroyed could have been replaced by another, similarly situated, with more or less the same convenience and possibilities, then his loss could be measured by the cost of acquiring such other buildingwith due regard being paid to the value of the vacant site less the cost of demolition of the destroyed building. But, as the judge found, there was no such other building available. Various other premises had been suggested but none was in any way similar or suitable or could fairly be regarded as a replacement for that which had been destroyed. Could a notional market value compensate for the loss? I do not think so. The premises were not on the market; they were bought as an investment for development and not for resale. In my view, the assessment of a notional figure, based on a hypothetical sale, could not meet what the plaintiffs have lost by the destruction of the one building which suited their particular requirements and plans. If these requirements are to be met and the plans are to proceed, another building on the same site must be provided.
In this respect this case is very similar to Reynolds v. Phoenix Assurance Co. Ltd. 4 In that case the insured bought an old maltings for a trifling sum of £16,000. They immediately insured it for £18,000 in order to cover the purchase price plus an addition for the cost of acquisition. They planned to use the premises as a grain store and later, with the installation of extra machinery, for the making of animal feeding stuffs. The insurance was later increased to £500,000 and, finally, to a figure of £628,000 to cover the building and machinery against fire. The risk was accepted by four insurance companies, with the defendant company issuing the policy as the leading company. The policy was a standard fire policy. The premises were almost completely destroyed by fire and the question of proper compensation became the subject of litigation. On the facts, Forbes J. rejected the insured’s contention that they had contracted on a reinstatement basis; nevertheless, he held that the cost of reinstatement still remained a possible means of measuring the loss, even though prior agreement to that effect could not be found in the contract. He was of the view (p. 453) that “where the owner is not inevitably to be dispossessed [from the site] the market is not an ineluctable solution, and the commercial logic of the market is not the necessary criterion” when considering the loss. In such circumstances he held that the test should be that stated by O’Connor L.J. in Murphy v.Wexford County Council 9 at p. 240 of the report:
“Would he [the owner], for any reason that would appeal to an ordinary man in his position, rebuild it if he got replacement damages, or is his claim for such damages a mere pretence?”
Accordingly, holding that the insured did have a genuine intention to rebuild if given the insurance monies, Forbes J. concluded (p. 453) by deciding the issue before him in the following terms:
“The upshot is that I am satisfied that the plaintiffs do have the genuine intention to reinstate if given the insurance money; that this is not a mere eccentricity but arises from the fact, as I find, that they will not be properly indemnified unless they are given the means to reinstate the building substantially as it was before the fire but with appropriate economies in the use of materials.”
Another case which was referred to in argument was Carrick Furniture House v. General Accident .3 It appears to me that the same reasoning was adopted in that case, with the result that the insured was held entitled to the replacement cost.
I cannot see why a different conclusion should be reached in this case. The building which was destroyed was required as an adjunct to Mr. O’Hara’s existing business and was an essential feature of his plans for the future. Alternative accommodation, equally suitable, was not available. On the evidence, in my view, it was not open to conclude that Mr. O’Hara had any intention other than to rebuild. Of course, this depended on the agreement of the defendant insurers in that the payment of sufficient compensation was essential. The letter from the loss adjusters, (McLaren, Dick & Co. Ltd.) dated the 20th September, 1977, a short time after the fire, indicated clearly a point of view which coincided with what Mr. O’Hara had in mind. This was to the effect that he could rebuild if he wished to do so. It is apparent that this letter was not acted upon in the sense that there was no follow-up. Subsequent exchanges between the parties ended with Mr. O’Hara being offered accommodation based on a hypothetical market value and so this litigation ensued.
I have come to the conclusion that the indemnity to which the plaintiffs are entitled can only be secured by rebuilding on the site a suitable building. Obviously, an exact replacement of what was there is neither possible nor necessary. However, some building providing the essential accommodation which is required should be constructed. At the trial, evidence was given by Mr. Dobson (of the firm of Doig & Smith, quantity surveyors, Glasgow) that the construction on the site of a warehouse-type building providing appropriate accommodation would have cost £256,935 in the year 1977. This would have involved the use of concrete blocks instead of sandstone which, in any event, would not have been available. There was also other evidence suggesting higher figures for a substitute building. All figures given in relation to 1977 or 1978 would, as a result of inflation, require to be almost doubled to meet the present-day situation. As the trial judge did not consider rebuilding as the basis for indemnity, this evidence was not pronounced upon by him and, as a result, there was no finding as to the type and cost of a suitable substitute building. In addition, any new building
would involve the application of the betterment principle and an appropriate allowance would have to be made in respect of new materials for old. It seems to me that this aspect of the case now requires a further hearing in the High Court.
Accordingly, I would direct that this action be remitted to the High Court to find the cost of constructing, within a reasonable period after the fire, a suitable replacement building on the site; such a finding should include an allowance for betterment.
In my view, in failing to concede and agree that the plaintiffs were entitled to rebuild in the sense of constructing on the site a suitable replacement, the defendant insurers have been in breach of their contracts. Accordingly, they are liable to the plaintiffs in damages. It would seem to me that these damages should correspond to the increase in the cost of constructing the building to-day, compared with the cost in 1977. It may be also that there are other headings of damages which can be established. Accordingly, I would direct that, in addition, the High Court be directed to enquire into and determine what damages should be awarded to the plaintiffs.
I would allow this appeal and would discharge the order made in the High Court.
Griffin J.
The events leading to the issuing of the two policies of fire insurance by the defendants in this case are set out in the judgments of the Chief Justice and the learned trial judge. The first defendant (Sun Alliance) and the second defendant (Provincial Insurance) were on cover for £250,000 and £50,000 respectively.
The case made on behalf of the plaintiffs in all the negotiations which took place before proceedings were instituted, in the pleadings, and on the hearing in the High Court, was that the contract of insurance effected in each case included what is known as a reinstatement clause or memorandum, in which event the policy holder would be entitled to be paid the cost of reinstating the damaged or destroyed building up to the limit of the sum insured. Cover of this nature is not included in a standard fire-insurance policy. The evidence established that cover of this kind is not given unless it is expressly sought by the proposer for insurance; and that, because of its age and because it was unoccupied, it would be most unusual for an insurance company to grant cover of this kind in the case of a building such as that owned by the plaintiffs. Even if the defendant insurers had been asked to grant reinstatement cover, the officials of both companies were quite adamant that they would not have provided it. Mr. Considine, the plaintiffs’ insurance broker, accepted that the insurers had not been asked to provide such cover, and that this was solely due to an omission on his part.
The learned trial judge held that there was no agreement to grant reinstatement cover, and I agree with the Chief Justice that, on the facts, the trial judge was fully justified in so holding. Indeed, in view of the evidence given at the trial, it is difficult to see how he could have come to any other conclusion.
However, the plaintiffs claim that, even if there was no reinstatement clause in the contract, they are entitled under the terms of the policy to the cost of rebuilding the premises, as that is the only way, they allege, in which they can be paid the value of the property.
Under the policies issued respectively by Sun Alliance and Provincial Insurance, each defendant agreed that, if the property insured or any part of such property should be destroyed or damaged by fire (inter alia), each defendant would pay to the plaintiffs the value of the property at the time of the happening of its destruction or the amount of such damage (or, at its option, reinstate or replace such property or any part thereof) subject to a limit of £250,000 in the case of Sun Alliance, and to a limit of £50,000 in the case of Provincial Insurance. Each of these two policies was a standard fire insurance policy.
It is well settled for upwards of one hundred years that such a policy is a contract of indemnity under which an insured may recover his actual loss, not exceeding the maximum amount specified in the policy. What is generally regarded as the authoritative statement of the right of an insured to be indemnified under such a policy is that of Brett L.J. in Castellain v.Preston 10 (at p. 386 of the report), which statement has been quoted by the Chief Justice in his judgment. In the case of such a policy, therefore, what the insurer agrees to do is to indemnify the insured in respect of loss or damage caused by fire, and the insured is entitled to be paid his actual loss no more and no less. The net issue in this appeal is the basis on which the amount of that loss is to be ascertained. The plaintiffs claim that they can be compensated properly only by the cost of rebuilding, whilst the defendant insurers say that, on the facts of the case, the correct basis should be that of market value at the time of the destruction of the premises.
The premises in question consisted of a large five-storey sandstone building in Maxwell Street and Howard Street in Glasgow. In the year 1977 these premises were approximately 100 years old and had been built for use as a warehouse, as had many of the buildings in the same streets. When erected, they were ideally situated for use as a warehouse as they were close to the quays and almost directly opposite St. Enoch’s railway station. However, with the changes in transport which occurred in modern times, this area was altered significantly. The railway station closed down some 30 years ago and was unoccupied thereafter; it became a derelict building site and since then it has been used as a car park. By 1976, many of the windows in this warehouse had been bricked up. In the middle 1950’s strengthening ties were used to keep the walls in position. In the immediate neighbourhood several other warehouses had bricked-up windows and some warehouses had been vacant for some years.
Towards the end of 1976, these premises, which were then unoccupied, came on the market. The plaintiffs were sub-tenants of an adjoining building in Fox Street and Mr. O’Hara, the owner of the plaintiffs, became interested in them. The asking price was £35,000 and after negotiation, towards the end of 1976 and the beginning of 1977, a price of £25,000 was agreed for all the premises for salethese included premises in Fox Street adjoining the Maxwell Street premises. Mr. O’Hara did not want these latter premises but he had to take them as part of the bargain since the vendors would not sell the Maxwell Street premises without also selling the Fox Street premises. It is agreed that the price paid for the premises destroyed in the fire was £14,900 and it is also agreed that, at that price, they were a bargain. The floor area of these premises was approximately 17,100 sq. feet, which is something less than 3,500 sq. feet on each floor. The sale was closed in May, 1977.
What Mr. O’Hara had in mind at the time of the purchase was that he would endeavour to obtain a public-house licence for portion of the ground floor being approximately 1,500 square feet in area, and that he would have a discotheque on the first floor immediately over the public house. He instructed an architect to prepare a plan for the alterations and the architect obtained from a quantity surveyor a preliminary estimate of the likely cost of the alterations. Before any further steps had been taken, the premises, still vacant, were destroyed by fire on the 15th August, 1977. As the portion that remained after the fire was dangerous, it was demolished at a cost of £9,000 shortly thereafter; the site then became, and has remained at all times, a vacant derelict site.
What is the loss that was suffered by the plaintiffs as a result of the fire? As Sir James Campbell C. said in Murphy v. Wexford County Council 9 at pp. 233-4 of the report:
“. . . the principle to be applied in such a case is that of restitution, or restitutio in integrum, as it is called, but I cannot agree that this principle is necessarily or even generally only consistent with restoration or reinstatement. It means . . . that the law will endeavour, so far as money can do it, to place the injured person in the same position as if the contract had been performed, or before the occurrence of the tort . . .”
That case was one of malicious damage, but the principle is the same. In Munnelly v. Calcon Ltd. 2 in which the plaintiff’s premises had been demolished as a result of the wrongful act of the defendants, Mr. Justice Henchy put the matter thus at p. 399 of the report:
“I do not consider that reinstatement damages, which may vastly exceed damages based on diminished value, are to be awarded as a prima facie right or, even if they are, that the plaintiff’s intention as to reinstatement should be the determining factor. I do not think the authorities establish that there is a prima facie right to this measure of damages in any given case. In my view, the particular measure of damages allowed should be objectively chosen by the court as being that which is best calculated, in all the circumstances of the particular case, to put the plaintiff fairly and reasonably in the position in which he was before the damage occurred, so far as a pecuniary award can do so.”
And at p. 400 he said:
“. . . a court, in endeavouring to award a sum which will be both compensatory and reasonable, will be called on to give consideration, with emphasis varying from case to case, to matters such as the nature of the property, the plaintiff’s relation to it, the nature of the wrongful act causing the damage, the conduct of the parties subsequent to the wrongful act, and the pecuniary, economic or other relevant implications or consequences of reinstatement damages as compared with diminished-value damages.”
The plaintiffs claim that the loss should be evaluated by reference to the cost of reinstatement or, alternatively, by an equivalent modern replacement; the defendant insurers claim that the amount could best be ascertained by reference to the value of the premises at the time of the fire. In support of their claim that the loss should be ascertained by reference to the cost of reinstatement, the plaintiffs rely on Reynolds v. Phoenix Assurance Co. Ltd. 4 In that case the insured purchased old maltings (measuring 300′ x 80′) for £16,000 in the summer of 1972 for use as a grain store, and for the milling of grain and other materials in the production of animal feeding stuffs. The premises were destroyed by fire in November, 1973, at which time they were insured for over £600,000. On the facts of that case, Forbes J. held that the insured were entitled to be compensated on the basis of reinstatement in the sum of £246,883 (together with certain architects’ and surveyors’ fees) which he held was sufficient, on the evidence he heard and accepted, to put the insured in the position in which they would have been had the insurers not refused to pay under the contract. The plaintiffs say that that case is on all fours with the instant case and that they should be compensated on the same basis.
The learned trial judge took a different view. He evaluated the loss by reference to the value of the premises at the date of the fire, in respect of which he had been given valuations ranging from £35,000 to £130,000. In arriving at this conclusion, the trial judge said in the course of his judgment: “What does appear to be relevant is whether the plaintiffs intend to proceed with similar plans or to rebuild the premises in any form if compensation on this basis is awarded. This Mr. O’Hara has refused to state; from which I conclude that there are no special circumstances, as in Harbutts v. Wayne Tank Co. 2 , which make it necessary to have any building on this site, although, by reason of the fire, he has lost the opportunity of putting into effect the plans which he was considering.” Counsel for the plaintiffs says that in that passage, the judge was wrong and that he erred on the facts as Mr. O’Hara, in the course of his evidence (at volume 2 of the transcript at QQ. 255-282) had said that he did intend to rebuild, although he was uncertain as to whether he would build the same building or a smaller one. This Mr. O’Hara undoubtedly said at the hearing; but the learned trial judge, who had heard and seen all the witnesses and had the opportunity of evaluating their evidence, had abundant evidence of the refusal of Mr. O’Hara from a period commencing shortly after the fire right up to the time of the trial (some four and a half years) to state what his intentions were in relation to rebuilding. It appears to me that it was that refusal to which the judge was referring and, therefore, it is necessary to consider the evidence in relation to the attitude of Mr. O’Hara and the stand which he adopted in his negotiations and discussions with the representatives of the defendant insurers and with the loss adjusters retained by them.
Immediately after the fire, Sun Alliance retained a firm of loss adjusters (Messrs. McLaren, Dick & Co. Ltd.) as is usual in such cases. When Mr. Andrews of that firm went to examine the premises within a day or two after the fire, he met Mr. O’Hara and told him who and what he was. Mr. O’Hara asked whether it was possible that the firm would act for him also; on being told (somewhat surprisingly to me) that it was, he engaged them to act on his behalf also (vol. 2 – Q. 59). On the 20th September, 1977, Mr. Andrews wrote to Mr. O’Hara advising him of his rights under the policy and of the options open to him and the alternative ways in which he could base his claim. This letter was in terms which, in my view, clearly made it one written to Mr. O’Hara by the loss adjusters not as agents for the defendant insurers but as the plaintiffs’ adjusters. Unfortunately, Mr. O’Hara does not seem to have heeded their advice: instead, he acquired a number of textbooks on fire insurance and some articles written in professional periodicals on the principle of indemnity. From his reading of that material he concluded that, as he was insured for £250,000, he was entitled to that sum and not a penny less, and that he was entitled to settlement on a rebuilding basis regardless of whether he rebuilt or not: see the transcript of evidence at pp. 22, 23, 28 of book 4. That was a misconception by him of the law on the question.
In my view, the correct legal position is stated in the joint judgment of Kitto, Taylor and Owen JJ. in the High Court of Australia in British Traders Insurance Co. Ltd. v. Monson .13 At pp. 92-3 of the report of that case they said:
“It is far too late to doubt that by the common understanding of business men and lawyers alike the nature of such a policy controls its obligation, implying conclusively that its statement of the amount which the insurer promises to pay merely fixes the maximum amount which in any event he may have to pay, and having as its sole purpose, and therefore imposing as its only obligation, the indemnification of the insured, up to the amount of the insurance, against loss from the accepted risk.”
The stand which Mr. O’Hara took then was the one he maintained at all times thereafter. In one sense it was consistent that he should maintain it, because he and his advisors maintained at all times (not only in the pleadings and in the particulars furnished but to the end of the hearing in the High Court) that the policies included a reinstatement clause or memorandum. From October, 1977, onwards, he called to the offices of Sun Alliance in Glasgow and in Dublin on numerous occasions. On most of those occasions he was armed with his textbooks and articles, and he quoted liberally from them. Until the early part of 1978 he dealt in Dublin with Mr. Colgan, a senior claims official. In his dealings with Mr. Colgan, the attitude of Mr. O’Hara was and remained that he wanted £250,000 regardless of what he contemplated doing with the premises; that he would give no indication as to what his intentions were in regard to rebuilding; and that it was no concern whatsoever of Sun Alliance, nor were they entitled to inquire, what he did with the proceeds of the claim (vol. 4 – QQ. 254-6). At the end of 1977 he retained a firm of loss adjusters (Messrs. Sidney Balcombe & Sons Ltd.) on behalf of the plaintiffs; thereafter he was advised by Mr. Grewcock of that firm. In May, 1978, an offer of £41,500 was made by the defendants’ loss adjusters to Mr. Grewcock, and this offer was refused.
Mr. O’Hara continued to call to the Dublin office of Sun Alliance and, on the 21st June, 1978, an important meeting took place in their offices in Dublin; it was attended by Mr. O’Hara, Mr. Grewcock, and Mr. Rigby (the claims superintendent of Sun Alliance). In respect of that meeting, Mr. Rigby in his evidence (vol. 4 – Q. 466) said: “Mr. O’Hara on behalf of St. Alban’s had taken no steps, as far as I knew, with regard to rebuilding, would not tell me whether he intended to rebuild, and would not tell me how much he had purchased the property for, would not tell me what he thought to be the market value.” Mr. Rigby was requested to write to Mr. Grewcock setting out the position of Sun Alliance and their proposals; this he did by letter dated the 27th June, 1978. In that letter he set out the respective positions taken by the plaintiffs and Sun Alliance on the applicability of reinstatement conditions, he referred to the provisions of the policy in regard to the cover granted to the plaintiffs and to the view of Sun Alliance that their liability would be met by the payment of a sum based on the value of the property at the time of the firewhile appreciating, nevertheless, that other factors might have to be taken into consideration. The letter then contained the following passage: “On the basis of the foregoing, therefore, our loss adjusters submitted an offer in the sum of £41,500 which has been rejected. You are aware from recent discussions that we are amenable to reviewing this figure if it is shown to be inadequate. Insured is not prepared to discuss settlement based on the foregoing principles, but solely requests payment of the sum insured (£250,000). We are not prepared to acceptand as a matter of public policy would not be entitled to acceptthat payment of the sum insured represents indemnity. Indeed, to date insured refuses to advise us whether it is his intention to rebuild the property or not.” I have added the emphasis.
That letter was written to the plaintiffs’ consultant, Mr. Grewcock, who had been present at the meeting of the 21st June, 1978. The allegation in that letter of the refusal of Mr. O’Hara to state his intentions was not refuted at any time. There was no evidence, nor was there any suggestion made at the trial, that Sun Alliance had been informed, at any time prior to the hearing of the action, of any intention of Mr. O’Hara to rebuild. Significantly, Mr. Grewcock was not called as a witness at the trial.
If Mr. O’Hara had a genuine intention to rebuild, I can see no reason whatsoever why he should have repeatedly refused so to inform Sun Alliance as that would have been highly material information which would have enabled them to assess properly the amount which would give a true indemnity to the plaintiffs. It is inconceivable that any business man would attempt to reinstate these buildings at an estimated cost of about £1,000,000. It is equally inconceivable that, in times of inflation and constantly escalating building costs, no steps should have been taken by Mr. O’Hara, if he intended to rebuild, to make preparations and, if necessary, to arrange for the erection of a modern purpose-built building which would be suitable to his needs at a cost, according to the evidence of some £256,000bearing in mind that Mr. O’Hara’s evidence was that he was aware that if the old buildings had not been destroyed, it would have required an expenditure of between £100,000 and £150,000 to alter the old buildings so as to make them suitable for his purposes. No plans or specifications of any kind were prepared, nor was a bill of quantities drawn up for any proposed building; the site was just left lying derelict up to the time of the trial and, indeed, to the time of the appeal. Further, there was evidence that since the fire Mr. O’Hara has purchased for £16,000 another warehouse of approximately 6,000 square feet. A quantity surveyor did give evidence of the cost of erecting a replacement building at 1977 prices, but he was requested to prepare his bill only days before the trial, as was the valuer who gave evidence of the value of the premises.
In my opinion, the learned trial judge was quite justified in holding that Mr. O’Hara had refused to state, at a time when he might reasonably have been expected to do so, whether he intended to rebuild, and that the judge was justified in drawing the inference that the plaintiffs had not formed a genuine intention to rebuild.
In my view Reynolds v. Phoenix Assurance Co. Ltd. 4 is clearly distinguishable from this case. In that case, the judge, having heard and seen both insured in the witness box, had no hesitation in accepting their evidence; he found that the insureds’ solicitors made it clear throughout the correspondence that the insureds’ intention was to rebuild; that the insured did have the genuine intention to reinstate; that the maltings were ideally suitable for use in connection with the insureds’ business without any alteration or additional expenditure on their part, apart from the provision of the necessary machinery; and that, in the lengthy negotiations and correspondence which took place in the months following the fire, the insurers had accepted that, so long as the insured intended to reinstate, the true measure of indemnity was the cost of reinstatement which, they agreed, was £243,000.
Evidence of the value of the premises in this case was given by three valuers. On behalf of the defendant insurers two valuers valued the premises at £35,000 and £50,000 respectively; on behalf of the plaintiffs, one valuer assessed their value at £130,000. However, the plaintiffs’ valuer had been asked to make his valuation only a few days before the trial, being four and a half years after the premises had been demolished. The learned trial judge fixed £65,000 as being the value of the premises at the date of the fire; in my judgment he was justified in so holding and I would uphold this finding. On the hearing of this appeal it was agreed that the site value should be taken to be £10,000. In the result, the plaintiffs are entitled to the sum of £64,000 when the amended site value is taken into account. Accordingly, in respect of the 14 grounds of appeal, the plaintiffs fail save in respect of damages, which should be increased by £10,000 by reason of the value of the site.
Provincial Insurance have cross-appealed against the order of costs made against them. As Sun Alliance had lodged with their defence a sum in excess of that obtained by the plaintiffs, the usual order for costs was made in their case, i.e., costs to the plaintiffs to the date of lodgement and the costs of the action to Sun Alliance. The decree against Provincial Insurance was for £10,957.50, and the plaintiffs obtained an order for the costs of the action against themeven though the plaintiffs had failed on the only case made in the pleadings and on the hearing, i.e., that the contract was one for reinstatement and that they claimed reinstatement. They lost on that ground, as the trial judge held that the contract was not one for reinstatement and that they were not entitled to reinstatement. Nevertheless, the High Court order required Provincial Insurance to pay all the costs. In my view, having regard to the course of the trial and the findings of the learned trial judge on the issues litigated, this is not a case in which an order for the full costs should have been made against Provincial Insurance; that part of the order should be set aside. As there were no submissions in relation to the correct order that should have been made against Provincial Insurance, counsel should be given an opportunity to make their submissions in respect of this matter before the order of this Court is made up.
Hederman J.
The plaintiffs claim £250,000 from the Sun Alliance and London Insurance Co. Ltd. and £50,000 from the Provincial Insurance Co. Ltd. on foot of fire policies in respect of premises at No. 85 Maxwell Street, Glasgow, in Scotland, which premises were totally destroyed by fire in August, 1977.
The plaintiffs’ claim is based on two alternative grounds. First, the plaintiffs contend that the insurances effected by Mr. Considine with the defendant insurers were made on the basis that the policies which would issue would contain a reinstatement clause for rebuilding the premises. Alternatively, the plaintiffs claim that, if the cover is that contained in the standard fire policy which was issued by each defendant, that cover, in the circumstances of this case, extended to the cost of rebuilding the premises at No. 85 Maxwell Street.
At the hearing in the High Court, the trial judge accepted evidence that this type of cover is not given in cases of standard fire insurance policies. The insurance broker who acted on behalf of the plaintiffs, Mr. Considine, was aware of this and was aware of the fact that it would be most unusual to obtain reinstatement cover in the case of old buildings, or unoccupied buildings, because of the inherent dangers attached to such buildings with regard to the risk of fire. Mr. Considine accepted that he did not ask the defendant insurers to provide reinstatement cover. I agree with the Chief Justice and Mr. Justice Griffin that the trial judge was correct in holding that reinstatement cover was not provided by these insurance policies.
Therefore, policies, which were agreed to be standard fire-insurance policies, only provided indemnity cover to the plaintiffs, that is to say, cover under which the plaintiffs were entitled to receive from the defendant insurers a sum that was the equivalent of what the plaintiffs had actually lost. The dispute in this case is concerned with how best, by an award of damages, can the plaintiffs be put fairly and reasonably into the position they occupied before the fire took place.
The plaintiffs’ case is that the Court can only do so by awarding them the costs of rebuilding the premises; while the defendants say that, in the circumstances of this case, it should be done by reference to the market value of the premises at the time of the fire.
As this was a policy of indemnity, the plaintiffs could not recover the cost of rebuilding unless they had a genuine intention of rebuilding and it would have been reasonable for them to do so. In the course of his judgment, the trial judge said: “From this, I conclude that, at this time, the question of reinstatement or rebuilding was not considered by him at all. This is borne out by the fact that, after the fire and after the issue of the policies, neither the plaintiffs nor their agents raised any question about reinstatement or rebuilding although minor errors in the policies were noted and pointed out.” Further, the learned trial judge stated: “What does appear to be relevant is whether the plaintiffs intend to proceed with similar plans or to rebuild the premises in any form if compensation on this basis is awarded. This Mr. O’Hara has refused to state, from which I conclude that there are no special circumstances, as in Harbutts v. Wayne Tank Co. 2 which make it necessary to have any building on this site, although, by reason of the fire, he has lost the opportunity of putting into effect the plans which he was considering.”
Counsel for the plaintiffs takes issue with that finding because Mr. O’Hara said in evidence that he did intend to rebuild, if he got the insurance money. The trial judge appears not to have accepted that evidence having regard to all the other evidence, which indicated that Mr. O’Hara had refused at all times to tell the defendant insurers whether he intended to rebuild or not. Mr. O’Hara went further in indicating to the defendant insurers that it was none of their business whether he intended to rebuild or not. As Mr. Justice Griffin has referred to the relevant portions of the evidence of the insurance officials, it is not necessary for me to repeat their evidence.
In my opinion, the trial judge was justified in holding that Mr. O’Hara did not have the intention to rebuild. When the trial judge referred to the refusal of Mr. O’Hara to state if he intended to rebuild, in my view the judge was referring to this evidence. This is further demonstrated by the words used, which are identical with those used by Mr. Rigley of Sun Alliance in his letter of the 27th June, 1978, to the plaintiffs’ loss adjuster, Mr. Grewcock.
In Munnelly v. Calcon Ltd. 1 Mr. Justice Henchy said at p. 399 of the report:
“In my view, the particular measure of damages allowed should be objectively chosen by the court as being that which is best calculated, in all the circumstances of the particular case, to put the plaintiff fairly and reasonably in the position in which he was before the damage occurred, so far as a pecuniary award can do so.”
In my view the trial judge was justified in taking market value as the measure of damages necessary to put the plaintiffs fairly and reasonably in the position they would have occupied had the fire not occurred.
Indeed, while the plaintiffs always claimed the loss of rebuilding, which their quantity surveyor estimated at a sum close to £300,000 (including architects’ fees etc.), Mr. O’Hara and his advisors seem to have overlooked the fact that from any such sum there would have to be deducted the cost of converting the old premises, which on the evidence, would have been between £100,000 and £150,000, and an allowance for betterment, which would seem from the decided cases to be usually between 25 and 33 per cent. Therefore, if Mr. O’Hara had intended to rebuild or had rebuilt, in my view the deductions from the sum of £300,000 would have reduced the sum claimed to a sum not appreciably greater than the sum awarded in this case.
With the adjustment for the site which was agreed at the hearing, the plaintiffs are entitled to recover an additional £10,000 but, on my findings, I agree with Mr. Justice Griffin that the plaintiffs do not succeed on any ground of appeal other than damages. I also agree that an order for the full costs of the action in the High Court should not have been made against the second defendant, and that counsel should be given an opportunity to make submissions before this Court makes any order in respect of costs.