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Court of Appeal revises the test for assessing the sum payable under an insurance policy covering property damage

In Endurance Corporate Capital Limited v. Sartex Quilts & Textiles Limited [2020] EWCA Civ 308 and when determining the measure of indemnity payable in respect of property damaged, the Court of Appeal declined to adopt and apply Christopher Clarke LJ’s (obiter) views in Great Lakes Reinsurance (UK) SE v Western Trading Ltd [2016] EWCA Civ 1003; [2016] Lloyd’s Rep IR 643, declined to adopt the trial judge’s views and departed from a more general understanding that the insured’s intentions in relation to the property are important factors in determining the value of it to the insured and the amount payable: see for example Colinvaux (12th Edn) para 11-060 to 11-061.

In summary the facts were as follows.  In May 2011, an old factory in Rochdale in poor condition, which was to be used for manufacturing purposes, was damaged by fire.  Not long after the fire, the insured was looking (i) to purchase other premises and to relocate any manufacturing to them and (ii) to redevelop the fire-damaged premises into small industrial units. By about a year post fire the insured was looking to relocate the business in Pakistan and in the years which followed to redevelop the fire damaged premises into a venue for weddings or other functions or the like.  By the time of trial, about 8 years post fire, little had been done to reinstate the fire-damaged premises.

The policy contained an express reinstatement clause but, as is common, it contained conditions precedent to reinstatement, including that reinstatement should be implemented timeously and the costs should be incurred.  Also, in the event of damage, the reinstatement clause did not provide that the insured could reinstate on another site.  On the facts those pre-conditions were not satisfied such that the express reinstatement clause was not engaged.  In those circumstances, the policy provided for “no payment beyond the amount which would have been payable in the absence of the [reinstatement clause]”.

The insured and insurers both relied upon the Court of Appeal’s decision in Great Lakes, and insurers argued that the words quoted above meant that unless the insured demonstrated a genuine fixed and settled intention to reinstate on site, the sum payable was the market value.

The Court of Appeal held that for an insured to recover for property loss on the reinstatement basis of indemnity, it was not necessary to show that it had a genuine, fixed and settled intention to reinstate. Indeed the Court held that whether the insured intended to reinstate the building was of no relevance to the measure of indemnity.

Which measure of indemnity was applicable depended upon the use which the insured intended to put the property at the time of the fire and seemingly it mattered not that, during the limitation period, the insured did not intend to reinstate the property on site and, for much of the time, claimed to be looking to buy a property in Pakistan.

The decision also raises questions about the efficacy of some reinstatement clauses and whether or not in some cases an insured may be better off not seeking to rely upon on a reinstatement clause at all and whether or not some reinstatement clauses are essentially superfluous (an argument made but not addressed by the court in this case).  By way of example the reinstatement clause had limited reinstatement to the site of the property damaged, whereas for the purposes of the recovery under the insuring clause the Court thought it relevant that insurers had not identified suitable alternative premises for the insured.

The decision might also point to desirability of an insurer expressly stipulating market value in the event that the reinstatement clause is not engaged.

Jason Evans-Tovey acted for the insurers at first instance and on appeal.

A copy of the judgment can be found here.

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