SIG Perspective by the CILA Claimant SIG Opened by: Jonathan - - PowerPoint PPT Presentation

▶
sig perspective
SMART_READER_LITE
LIVE PREVIEW

SIG Perspective by the CILA Claimant SIG Opened by: Jonathan - - PowerPoint PPT Presentation

Jan 06, 2023 179 likes •557 views

Reinstatement: A Claimant SIG Perspective by the CILA Claimant SIG Opened by: Jonathan Clark, CILA President Speaker: Roger Franklin, Partner, Edwin Coe LLP Tuesday 22 nd November 2016 Edwin Coe LLP, London Western Trading Ltd v Great Lakes

slide-1
SLIDE 1

Reinstatement: A Claimant SIG Perspective

by the CILA Claimant SIG

Opened by: Jonathan Clark, CILA President Speaker: Roger Franklin, Partner, Edwin Coe LLP

Tuesday 22nd November 2016 Edwin Coe LLP, London

slide-2
SLIDE 2

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Developments in the Law of Reinstatement

2

slide-3
SLIDE 3

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Background

3

1

slide-4
SLIDE 4

The Boak Building Western Trading Ltd v Great Lakes Reinsurance UK Plc

4

slide-5
SLIDE 5

Western Trading Ltd v Great Lakes Reinsurance UK Plc

The Boak Building

  • Historic and listed
  • Industrial use (originally a tannery, then rag trade)
  • Approximately 30,000 square feet
  • Planning permission for conversion into 31 flats (along with neighbouring

sites)

  • Stripped out and awaiting development (but development plans mothballed

in 2008)

  • Currently used for rough storage

5

slide-6
SLIDE 6

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Ownership Mr Singh – Freehold Owner Western Trading Ltd (owned by Mr Singh) Tenants

6

slide-7
SLIDE 7

Western Trading Ltd v Great Lakes Reinsurance UK Plc Ownership

  • Boak freehold registered in name of Mr Singh
  • Mr Singh director and sole shareholder in Western Trading Ltd
  • Western Trading Ltd vehicle for Mr Singh’s property portfolio (approximately

£20m)

  • Western Trading Ltd “let” Mr Singh’s properties from him (for which it paid a

“rent”), and “managed” them (i.e, was responsible for maintenance and upkeep, arranging insurance - in its own name - and letting the properties)

7

slide-8
SLIDE 8

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Policy

  • The Policy included material damage, loss of rent and liability cover. The

sum insured for buildings was £2,121,800.

  • The sum of £2,121,800 represented what was understood to be the

rebuilding cost of the Property (the market value was much less).

  • The premium charged by the Insurer included a percentage of the rebuilding

cost of £2,121,800

8

slide-9
SLIDE 9

Western Trading Ltd v Great Lakes Reinsurance UK Plc

  • The insuring clause of the Material Damage section of the Policy provided

as follow:

“Subject to the General Conditions and Exclusions of this Certificate… we the Underwriters agree to… to indemnify the Assured against loss of or damage to the property specified in the Schedule (hereinafter referred to as ‘the Property’) caused by or arising from the Perils shown as operative in the Schedule, occurring during the period of this insurance. “Underwriters shall not be liable for more than the Sum Insured stated in the Specification or in the Certificate in respect of each loss or series of losses arising

  • ut of one event at each location as stated in the Schedule.”

9

slide-10
SLIDE 10

Western Trading Ltd v Great Lakes Reinsurance UK Plc

  • The material cover included a reinstatement clause in the following terms

(with emphasis added):

4) It is hereby agreed that in the event of the property insured under item 1 of this Section of the Certificate being lost, destroyed or damaged by any peril insured hereunder the basis upon which the amount payable under each of the said Items of the Certificate is to be calculated shall be the reinstatement of the property lost, destroyed or damaged subject to the following special provisions and subject also to the terms and conditions of the Certificate except in so far as the same may be varied. For the purpose of the insurance under this Memorandum ‘reinstatement’ shall mean:

10

slide-11
SLIDE 11

Western Trading Ltd v Great Lakes Reinsurance UK Plc

a) The carrying out of the following work, namely, i. Where property is lost or destroyed, the building of the property, if a building… in a condition equal to but not better or more extensive than its condition when new.

5)

a) The work of reinstatement (which may be carried out upon another site and in any matter suitable to the requirements of the Assured subject to the liability of the Underwriters not being thereby increased)… c) No payment beyond the amount which would have been payable under the Policy if this memorandum had not been incorporated therein shall be made until the cost of reinstatement shall have been actually incurred.”

11

slide-12
SLIDE 12

Western Trading Ltd v Great Lakes Reinsurance UK Plc

  • Thus the material damage cover in the Policy included two significant

benefits to the Claimant:

˗ First, the cover was written on a reinstatement basis. The policy defined “reinstatement” as “the rebuilding of the property… in a condition equal to but not better or more extensive than its condition when new.” ˗ Second, the Policy provided that the work of reinstatement “may be carried out upon another site and in any manner suitable to the requirements of the Assured subject to the liability of the Underwriters not being thereby increased.”

12

slide-13
SLIDE 13

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Claim

  • The Primary relief sought by the Claimant was for a declaration
  • The Alternative relief sought by the Claimant was an award of damages in

respect of (i) the cost of reinstating the Property and (ii) loss of rent

13

slide-14
SLIDE 14

Western Trading Ltd v Great Lakes Reinsurance UK Plc

The Defence

14

slide-15
SLIDE 15

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Defence

  • Lack of insurable interest;
  • Misrepresentation as to occupancy;
  • Non disclosure as to insurable interest and occupancy;
  • Non disclosure as to need for loss of rent;
  • Non disclosure as to intention to develop the property;
  • Breach of warranty of basis clause (occupation);
  • The Claimant in any event had suffered no loss because:

˗ Had not reinstated; and ˗ No diminution in value

15

slide-16
SLIDE 16

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Defence

The issue of Value and Loss:

  • Pre Fire Value – £75,000
  • Post Fire Calculation – the “Argus Developer” for Residual Valuation

˗ GDV less ˗ (Acquisition costs i.e land value) ˗ (Construction costs) ˗ (Professional fees) ˗ (Marketing fees) ˗ (Finance) ˗ (Developers Profit)

16

slide-17
SLIDE 17

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Defence

The issue of Value and Loss: All of this designed to show that:

  • No loss (absence of listed carbuncle has in fact improved site)
  • No intention to reinstate (because not economic)

17

slide-18
SLIDE 18

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Claimant’s Response

The issue of Value and Loss: But…

  • Proposed development keystone for larger development
  • GDV ignores fact that site already owned and doing nothing
  • Claimant had history of holding property for rental income
  • Tonkin v UK Insurance Ltd [2006] EWHC 1120 (TCC)
  • Policy provided for reinstatement

˗ On another site ˗ In any manner suitable to the requirements of the assured subject to U/W liability not being increased

18

slide-19
SLIDE 19

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Claimant’s Response

The issue of Value and Loss: Furthermore…

  • Where, as here, the insured is a tenant who is obliged to replace lost property,

then the amount of the insured’s loss is the cost of reinstating the lost property

19

slide-20
SLIDE 20

Western Trading Ltd v Great Lakes Reinsurance UK Plc Tonkin v UK Insurance Ltd [2006] EWHC 1120 (TCC)

Party Reinstating has three options

1. To reinstate the property to a lay-out and condition that, as closely as possible, mirrors what was there before 2. To reinstate the property, but, at the same time, to take advantage of its destruction to make certain minor changes so as to improve what was therefore before 3. So long as made clear to insurer, to make significant changes to improve what was there before

20

slide-21
SLIDE 21

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Judgment at First Instance

  • No misrepresentation
  • No non disclosure
  • No breach of warranty

21

slide-22
SLIDE 22

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Judgment at First Instance

  • As to the issue of insurable interest, the Judge concluded that the

underlying fiscal reasons for the structure of the family business was “none

  • f the Defendant’s business” if the “Claimant must account to Mr Singh for

the Property”.

22

slide-23
SLIDE 23

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Judgment at First Instance

The Claim for relief:

  • The prima facia rule is that the assured’s loss in the event of damage to

buildings is the cost of reinstatement (Colinvaux (2013 supplement)

  • Furthermore, the Defendant owes an express contractual duty to

indemnify the Claimant on that basis

  • The facts of this case do not require a departure from the prima facia

rule

23

slide-24
SLIDE 24

Western Trading Ltd v Great Lakes Reinsurance UK Plc The Judgment at First Instance

The Claim for relief:

  • A declaration was therefore a particularly suitable remedy “as it should

protect the interests of the Defendant as well as the Claimant”

24

slide-25
SLIDE 25

Western Trading Ltd v Great Lakes Reinsurance UK Plc

The Appeal

  • 1. The Judge failed to decide whether Insurers were in breach of indemnity, and if they were, in

respect of what damage.

  • 2. The Judge was wrong to hold that where an Insurer has repudiated the Policy, the Insurer

cannot rely on the proviso to the reinstatement clause, that the costs of reinstatement will

  • nly be paid once they have been incurred.
  • 3. The Judge was wrong to grant a declaration that the Claimant is entitled to be indemnified

under the terms of the Policy in respect of losses it has suffered, because the Claimant has not suffered any loss and there is no realistic prospect that such a breach will occur in future.

  • 4. To the extent that the Judge decided that the Claimant intended to reinstate the insured

property, he was wrong to do so, and/or misdirected himself in law as to the meaning of reinstatement in the context of the policy. 25

slide-26
SLIDE 26

Western Trading Ltd v Great Lakes Reinsurance UK Plc

The Appeal Judgment

Where real property is destroyed, the measure of indemnity depends on: a) The terms of the policy; b) The interest of the insured in, or its obligations in respect of, the property insured; and c) The facts of the case including, in particular, the intention of the insured at the time of the loss

26

slide-27
SLIDE 27

Western Trading Ltd v Great Lakes Reinsurance UK Plc

The Appeal Judgment

In light of Authorities: a) Reynolds v Phoenix Assurance Co Ltd [1978] b) Leppard v Excess Insurance [1979] c) Mclean Enterprises Ltd v Ecclesiastical Insurance [1986] d) Lonsdale & Thompson v Black Arrow Group [1993]

27

slide-28
SLIDE 28

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Reynolds v Phoenix Assurance Co Ltd [1978]

  • Insured purchased old property (maltings) for £16,000
  • Sum insured £550,000 based on reinstatement cost, but no specific reinstatement

insuring clause in policy. Value of modern equivalent was £55,000

  • Following loss, insurers argued (i) loss was only £5,000 (i.e, DV); alternatively (ii) loss

should be measured on market value or cost or modern replacement (iii) no commercial person would spend £250,000 rebuilding an obsolete building if modern equivalent was faction of the price

  • Court said, no, insured had genuine intention to reinstate which was not eccentric

28

slide-29
SLIDE 29

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Leppard v Excess Insurance [1979]

  • Claimant owned cottage insured for £14,000
  • Policy provided indemnity for full value of loss with reinstatement at insurer’s option.
  • Property purchased as investment for subsequent sale
  • Court held that it was evident that insured never intended to live in the cottage, which

had a sale price of £4,500 at the time of loss

  • Therefore, market value was correct basis of indemnity, which was the advertised

price less the site value of £1500

29

slide-30
SLIDE 30

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Mclean Enterprises Ltd v Ecclesiastical Insurance [1986]

  • Claimant owned loss making hotel
  • Agreed to sale of business and property, subject to contract and survey
  • Fire occurred, insurers repudiated on grounds of fraud and disputed the basis of

indemnity

  • Court said not proved that insured would have reinstated if insurers had paid

promptly; the insured had sold the property, and had not done so as a result of the fire.

30

slide-31
SLIDE 31

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Lonsdale & Thompson v Black Arrow Group [1993]

  • Landlord under lease covenanted to insure demised premises
  • Policy provided for indemnity calculated as the cost of reinstatement
  • Landlord contracted to sell freehold, but premises destroyed before completion.

Completion nevertheless proceeded and full price paid

  • Insurers argued that disposal of interest and payment of full completion price meant

Landlord was fully indemnified

  • Court said Landlord had a liability to the tenant to reinstate, and therefore could

recover the full indemnity calculated as the cost of reinstatement

31

slide-32
SLIDE 32

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Applying these principles

  • The Policy provided for indemnity on reinstatement basis
  • Western Trading Ltd had a contractual obligation to reinstate
  • There was no failure to reinstate with reasonable dispatch while liability not admitted

and the measure of indemnity in dispute

  • Therefore, judgment at first instance upheld

32

slide-33
SLIDE 33

Western Trading Ltd v Great Lakes Reinsurance UK Plc

Conclusions

  • In particular circumstances, the court will recognise informal commercial relations
  • The measure of indemnity depends on (i) the policy, (ii) the insured’s interest in, and
  • bligations in respect of, the property, and (iii) the facts of each case including the

intention of the insured

  • The intention must be genuine, fixed and settled
  • Intention is assessed at the time of the loss, and on the assumption that the

insurance proceeds are paid promptly

  • Time for reasonable dispatch does not run until insurers confirm (i) liability, and (ii)

that the measure of indemnity is the cost of reinstatement

33

slide-34
SLIDE 34

Questions

34

slide-35
SLIDE 35

Contact

Roger Franklin Partner Edwin Coe LLP t: 020 7691 4044 e: roger.franklin@edwincoe.com Please follow are regular Insurance blog – www.edwincoe.com/blogs

“Roger Franklin is known to be excellent and has wide-ranging technical knowledge”. Legal 500 2016

35

slide-36
SLIDE 36

Reinstatement: A Claimant SIG Perspective

by the CILA Claimant SIG

Opened by: Jonathan Clark, CILA President Speaker: Roger Franklin, Partner, Edwin Coe LLP

Tuesday 22nd November 2016 Edwin Coe LLP, London