Zagora Management Limited & Others – v – Zurich Insurance PLC and others
In this recent decision, the Technology and Construction Court allowed claims brought by the leaseholders under “Standard 10 Year New Home Structural Defects Insurance Policies” (“the Policies”), but rejected all the claims against the Approved Inspector.
The case concerned a development of two blocks of flats in Hulme, Manchester (“the Property”). The claimants were the freeholder, Zagora Management Ltd (“Zagora”), and 26 long leaseholders, who between them owned 30 flats. The defendants were (1) Zurich Insurance plc (“ZIP”), which had issued the Policies to the leaseholders; and (2) Zurich Building Control Services Ltd (“ZBC”), which had undertaken the role of building inspector and issued final certificates under the Building Regulations (“the Certificates”).
As against ZIP, the Claimants sought to recover under the Policies the cost of remedying a number of serious defects at the Property, pleaded at £10.9m. Zagora also sued ZIP based under what was referred to as an “agreement to rectify”.
As against ZBC, thirteen of the Claimants, including Zagora, claimed damages representing the diminution in their respective interests as the Property, on the basis that ZBC knew that the statements made in the Certificates were untrue, or was reckless as to their truth.
The claims against ZIP
(i) Zagora’s claim under the Policies
Zagora claimed that it was entitled to sue ZIP under the Policies because it had a freehold interest in the Property as a whole. By contrast, ZIP argued that Zagora was not, and never had been, insured under the Policy.
It was common ground that Zagora had never been issued with a certificate identifying it as the buyer; however, Zagora claimed that did not matter, as it became a co-insured in relation to each flat when it acquired the freehold of the Property in 2013.
Although acknowledging the ingenuity of Zagora’s argument, the Judge (HHJ Stephen Davies) had no difficulty in concluding that it was wrong. Each insurance certificate identified the buyer by name; the only situation provided for in the Policy where the buyer’s identity could change was in the event of an onward sale of the flat in question. That did not apply in this case, as Zagora’s predecessor was never issued with an insurance certificate. Further, the Policies did not allow for there to be more than one insured with separate interests in the same flat. In the circumstances, the Judge held that Zagora was not an insured under the Policy.
(ii) The leaseholders’ claims under the Policies
The Judge found that the Property was seriously defective and that the leaseholders were entitled to recover the reasonable cost of repairs. Before coming to that conclusion, however, the Judge addressed a number of issues of policy construction; in particular, ZIP’s contentions that (a) the claims were subject to a maximum liability provision (“the Cap”), and (b) the Policies did not indemnify the cost of repairs that the claimants never intended to carry out.
Zagora asserted that the Cap imposed a maximum liability of £25m. ZIP’s case, by contrast, was that the Cap limited each leaseholder’s claim to the declared purchase price of its flat, with the result that the total maximum liability was the declared value of 30 flats i.e. £3.634m. The Judge agreed with ZIP, and found that it was not unreasonable for it to have wanted to limit its cover for a 10-year policy. Accordingly, the leaseholders’ claims were capped at the total purchase price of their flats.
As to the correct indemnity, the Claimants contended they were entitled to recover the reasonable cost of repair without first having to undertake those repairs. Whereas ZIP argued that the Policies did not cover repairs which would never be carried out.
The Policy provided that ZIP would pay “the reasonable cost of rectifying or repairing the physical damage [or] the reasonable cost of rectifying a present or imminent danger”. The term “reasonable cost” was, in the Judge’s view, neutral as to whether it was a cost already occurred or a cost to be incurred. Accordingly, there was no obvious reason why it should have the limited meaning for which ZIP contended.
(iii) The “agreement to rectify” claim
Zagora claimed that at a meeting in June 2013, ZIP agreed to resolve certain defects, regardless of the strict position under the Policies.
The Judge commented that, where parties have no pre-existing contractual relationship, it would be necessary to show that they agreed on all matters essential to the formation of a contract. However, the need to do so would be less acute where there was a pre-existing contractual relationship. The difficulty here, however, was that the relationship between Zagora and ZIP did not fit neatly into either category, given that by the time of the crucial meeting, there was a dispute as to the claimants’ contractual rights under the Policy.
In any event, the Judge found that what was actually agreed between the parties was merely a “step along the road” to what the parties would have expected to be a pragmatic resolution of a serious problem, and did not represent a binding and enforceable contract. Accordingly, Zagora’s claim failed on the basis that the agreement lacked contractual certainty.
The claims against ZBC
The Claimants contended that they would not have acquired the individual flats, or (in the case of Zagora) the freehold, had they known the true position regarding the value of their interests. As their claim was brought in deceit, the Claimants were required to show not only that ZBC knew that the representations in the Certificates were untrue or were reckless as to their truth, but that they also relied on those representations.
It was common ground that ZBC knew at the time that it had not taken reasonable steps to satisfy itself that the Building Regulations had been complied with, and had thus been reckless. The issue therefore turned on reliance.
ZBC’s evidence was that it never anticipated that Zagora, as a subsequent purchaser of the freehold, would have relied on the Certificates. The Judge accepted Zagora’s evidence, and found that it was “impossible” to conclude that it intended Zagora to rely on the certificates 2 to 3 years after they were issued. Accordingly, Zagora’s claim failed.
Contrary to the position vis-à-vis Zagora, ZBC accepted that it did anticipate that the leaseholders would rely on the Certificates. However, there was a complete absence of evidence that the leaseholders or their solicitors were provided with the Certificates either before exchange or completion. Therefore, even though the Claimants were able to prove deceit on ZBC’s part, their claims also failed at the reliance hurdle.
Conclusion
The case illustrates the various complexities and challenges facing policyholders, and particularly leaseholders, when bringing claims under new home warranties. The case is also a reminder of the practical difficulties of bringing claims against Approved Inspectors. Indeed, in the recent decision in The Lessees and Management Company of Herons Court v Heronslea and others [2018] EWHC 3309 (TCC), a claim against an Approved Inspector failed, this time because Approved Inspectors were not subject to the Defective Premises Act 1972.
Alex Rosenfield is an associate at Fenchurch Law
Pallister Limited v (1) Fate Limited (in liquidation) (2) The National Insurance and Guarantee Corporation Limited (3) UK Insurance Limited
In this recent decision in the Queen’s Bench Division, the court examined the meaning of “property belonging to” in the context of a landlord’s insurance policy. The court also examined the scope of the decision in Mark Rowlands v Berni Inns Ltd [1986].
Palliser Limited (‘Palliser’) was the lessee of the three upper floors of 228 York Road, London (‘the Building’), which contained 7 flats. The Building was owned by Fate Limited (‘Fate’), which also operated a restaurant on the ground floor. Under the terms of the lease, Fate agreed to take out insurance that covered damage to the Building.
On 1 January 2010, a fire occurred in the restaurant as a result of Fate’s negligence, causing extensive damage to the three upper floors.
In 2016, Palliser sued Fate. The claim settled in 2017 after Fate became insolvent. Following a case management conference in March 2018, the claim was allowed to continue against Fate’s insurers (‘the Insurers’) under the Third Parties (Rights Against Insurers) Act 2010 (‘the Act’).
Palliser claimed an indemnity from the Insurers under the Public Liability section of Fate’s policy (“Section 6”), for losses suffered as a result of the fire. Two heads of loss were claimed: (1) refurbishment costs; and (2) lost profits, on the basis that Palliser had lost the opportunity to sell the 7 flats and reinvest the proceeds in subsequent developments.
There were three issues for the Court to decide:
1. Did Fate’s policy cover its liability to Palliser (the First Issue)?
2. Under the lease, did Palliser impliedly exclude Fate’s liability for negligence because Fate agreed to take out insurance that covered damage to the Building (‘the Second Issue’)?
3. Did Palliser establish that it had suffered a loss of profits?
Palliser’s claim for lost profits failed on the facts, and this article concentrates on just the First and Second Issues.
The First Issue
Fate’s policy (‘the Policy’) stated that the insured was “Fate”, its business was “restaurant”, and the risk address was “228 York Road, London”.
Section 6 provided cover for “Accidental Damage to Property not belonging to you or in Your charge or under Your control or that of any Employee”. The question to be answered, therefore, was whether the three upper floors fell within this designation.
Palliser argued that “not belonging to” had a different meaning to “not owned by”. In this regard, it said that, because it had control and exclusive possession of the flats, the property did not belong to Fate, in that sense. Further, Palliser said that the Buildings section of the Policy (“Section 9”) did not cover the flats as they were not occupied for the purposes of the business.
The Insurers argued that Section 6 did not cover Palliser’s loss, as the whole building was owned by Fate. They argued that “not belonging to you” was synonymous with “not owned by you”, and that the granting of exclusive possession to Palliser did not mean that Fate, as the landlord, was no longer an owner. They also argued that, because Section 9 provided cover for the Building, the exclusion in Section 6 for property belonging to Fate made perfect sense.
The Judge agreed with the Insurers, and found that the Building did indeed “belong to” Fate as the freehold owner. Further, the Judge said that Section 6 and Section 9 should be viewed as fitting together, with cover for the buildings (which included the upper-floors) being dealt with in Section 9, not Section 6. Accordingly, Palliser’s claims failed, subject to a small portion of the refurbishment costs for fixtures and fittings (£8,500) which unquestionably did not belong to Fate. However, that smaller sum would still be dependent on the Judge’s finding on the Second Issue.
The Second Issue
The Judge referred to this issue as the ‘Berni Inns’ defence (in reference to the case of Mark Rowlands Ltd v Berni Inns Ltd [1986] QB 211). There, a lease provided that a landlord would insure a building against fire and lay out the insurance monies to rebuild it, while the tenant was to contribute to the cost of the premium by an “insurance rent”, and was relieved from its repairing obligations in the event of damage by fire.
The building was destroyed by a fire as a result of the tenant’s negligence, following which the landlord’s insurers (using their rights of subrogation) sued the tenant in negligence. The Court of Appeal held that the covenants in the lease meant that the buildings insurance was effected for the benefit of the tenant as well as the landlord, and that the contractual arrangements precluded the landlord from recovering damages in negligence from the tenant.
Palliser submitted that Berni inns was distinguishable, as here it was the landlord which had been negligent, not the tenant. However, even if it was wrong about that, Palliser argued that the Berni Inns defence did not apply because Fate underinsured the building.
The Insurers argued that the Berni Inns defence did apply, making reference to the fact that Palliser had not paid for the insurance, and that the covenants in the lease were very similar to those in Berni Inns.
Although the Judge agreed that Berni Inns was significantly different to the present case, he did not decide whether the defence applied, and instead held that that its application had to be qualified because the building was underinsured. He held that it could not be correct that the tenant had impliedly excluded the landlord’s liability in negligence, since, if it were, there would be an implied exclusion even where the landlord failed to take out buildings insurance at all. As a result, Palliser was at least entitled to recover the £8,500 refurbishment costs.
Conclusion
The case is an interesting example of how the Act will work where insurers run coverage and liability defences at the same time.
So, on the First Issue, because the damage was covered by the property damage section, rather than the third-party liability section of the Policy, the Act did not apply.
As to the Second Issue, although the Judge found in favour of Palliser (albeit only for a small sum), it is unclear whether the outcome would have been different had the Building been adequately insured.
Alex Rosenfield is an associate at Fenchurch Law
Bluebon Ltd (in liquidation) – v – (1) Ageas (UK) Ltd (2) Aviva Insurance Ltd (3) Towergate Underwriting Group Ltd (2017)
What was the proper construction of an electrical installation inspection warranty?
Bluebon Limited (‘Bluebon’) brought proceedings against their insurers, Ageas and Aviva (‘the Insurers’), and their broker, Towergate, following a fire at their premises at the Star Garter Hotel, West Lothian (‘the Hotel’) on 15 October 2010.
Bluebon had purchased the Hotel in December 2007, and the relevant insurance policy (‘the Policy’) incepted on 3 December 2009, for a period of 12 months.
The Policy contained the following Electrical Installation Inspection Warranty (‘the Warranty’):
“It is warranted that the electrical installation be inspected and tested every five years by a contractor approved by the National Inspection Council for Electrical Installation (NICEIC) and that any defects be remedied forthwith in accordance with the Regulations of the Institute of Electrical Engineers.”
The last electrical inspection at the Hotel had taken place in September 2003.
The insurers asserted that there had been a breach of the Warranty since no inspection had been carried out in the 5-year period immediately prior to inception, with the result that the Policy was either voided or suspended from inception.
At a hearing of preliminary issues, the Judge, Mr Justice Bryan, was required to determine the following:
- The proper construction of the Warranty – was the five-year period to be calculated from the date of the last electrical inspection, or from Policy inception?
- Was the Warranty a True Warranty, a Suspensive Warranty, or a Risk Specific Condition Precedent, and what was the consequence of a breach?
The First Issue
The Insurers argued that the natural meaning of the Warranty was that the 5-year period had to be calculated from the date of the last inspection, and, if no inspection had been carried out in the last 5 years, the inspection would have to be undertaken prior to or immediately upon inception (with there being no cover until such inspection had taken place). In support of that analysis, they said that the Warranty did not require the inspection to occur within 5 years of inception, and that a reasonable person, having all the background knowledge available to the parties, would know that inspections needed to be undertaken regularly.
Bluebon argued, perhaps optimistically, that the proper construction of the words “be inspected and tested every five years” meant “every five years starting with the date of imposition of the stipulation” i.e. from Policy inception. In support, Bluebon said that the language of the Warranty was “forward-looking”, and that if the Insurers had intended otherwise, the Policy could have stated “has been inspected and tested” or “is inspected and tested.”
The Judge found that Bluebon’s construction made no commercial sense in the context of a 12-month policy, and rendered the Warranty meaningless, since there would be no requirement for an electrical inspection until (at least) after the fourth annual renewal. This provided no protection from the risk of fire and, unsurprisingly, Bluebon’s construction was rejected. It followed that Bluebon had not complied with the Warranty.
The Second Issue
The Insurers’ primary case was that the Warranty was a True Warranty i.e. a term which took effect as a condition precedent to the existence of any cover, such that the breach rendered the Policy void from inception. Alternatively, they said the warranty was a Suspensive Warranty, which had the effect of suspending cover during the period of the breach. Neither construction required a causal link between the breach and the fire, and, accordingly, the Insurers asserted that they had no liability to Bluebon.
Bluebon, by contrast, argued that the Warranty was a ‘Risk-Specific Condition Precedent’ i.e. a term which required compliance as a condition precedent to the Insurers’ liability to provide cover in respect of risks relating to the electrical installation. Put another way, Bluebon said that unless the fire was caused by the electrical installation, their breach was irrelevant.
The Judge again rejected Bluebon’s argument, finding that it would be entirely unbusinesslike for the Warranty to suspend cover in respect of losses arising from defects in the electrical installation (pending inspection of the installation), but not for losses arising out of the fire generally. The Judge’s interpretation was that, while the Warranty was breached, there could be no cover for any losses arising out of fire.
Having regard to his findings on the proper meaning of the Warranty, the Judge found that the Warranty was a Suspensive Condition.
Insurance Act 2015 implications
Although the outcome in Bluebon may not be particularly surprising, it is interesting to consider whether it would have been decided differently under the Insurance Act (‘the Act’).
The Act does not change what an insurance warranty is, but does change the effect if breached. Under Section 11 of the Act, an insured will be protected in the event of a breach of warranty. Providing that it can show that the term was ‘totally irrelevant to the loss’ i.e. the breach “could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.”
There are two interpretations of how Section 11 might have applied in Bluebon (or for that matter generally), both of which have been postulated by the Law Commission.
Under the ‘non-causation’ interpretation, the Insurers would have been entitled to rely upon the breach of the Warranty, because the absence of an electrical inspection might have made a difference, given the type of loss that occurred i.e. a fire. It would not have been open to Bluebon to argue that the fire would have started even if the electrical inspection had taken place.
Under the ‘causation’ interpretation, it would have been open to Bluebon to establish that the fire was due to some other cause, so that the Insurers would be liable under the Policy. That is because, in that scenario, the ‘circumstances’ of the loss were such that compliance with the Warranty would not have made any difference.
Of course, unless and until the true meaning of Section 11 is determined by the Courts (and, given its importance, the point is likely eventually to end up at the Supreme Court), the interpretation will doubtless remain a matter for debate.
Alexander Rosenfield is an associate at Fenchurch Law
BAE Systems Pension Funds – v – RSA
Third Parties (Rights against Insurers) Act 2010
An analysis of the first judgment on the Third Parties (Rights against Insurers) Act 2010 (‘the Act’)
BAE Systems Pension Funds Trustees Limited (‘the Claimant’) brought proceedings against 4 Defendants following the construction of a large warehouse. The damages sought exceeded £10 million.
Protective proceedings were issued against the Defendants on 24 August 2016. In February 2017, the third Defendant, Twintec Limited (‘Twintec’), went into administration, and a few weeks later Twintec’s solicitors revealed that it was insured by RSA. The Claimant accordingly applied to join RSA to the claim.
RSA resisted the application on the grounds that:
- They were not in fact liable to indemnify Twintec for the claim;
- The policy and any dispute as to coverage was subject to French law and must be determined by arbitration or by the French courts.
The First Ground
It was uncontroversial that Twintec had become a ‘relevant person’ under section 1 of the Act i.e. it had incurred a liability to the Claimant, and had become insolvent in one of the ways specified by the Act.
Section 2 entitled the Claimant to bring proceedings directly against RSA seeking a declaration as to Twintec’s liability and/or a declaration as to RSA’s potential liability to the Claimant.
RSA argued, somewhat ambitiously, that Twintec was not entitled to indemnity because of an exclusion for pre-existing circumstances, and, if there was thus no cover, section 2 was not engaged.
The Judge, Mrs Justice O’Farrell DBE, found that Section 2 was engaged even where there was a dispute as to coverage. This did not require the Claimant to establish that there was a relevant insurance policy which necessarily responded to the loss – all that was needed was for the Claimant to make a claim that there was such a policy.
RSA argued that a number of difficulties could arise if Section 2 was engaged where cover was disputed. In particular, they suggested that this could pave the way for any insurer to be joined to an action, or possibly an insurer who had provided cover for a previous irrelevant period. The Judge gave short shift to this point, and stated that the Court, in these circumstances, could simply strike out those proceedings as having no prospect of success. The Judge’s decision was obviously right. Were it otherwise, the 2010 Act would not avail a Claimant where an insurer had denied indemnity.
RSA also suggested that there was an irreconcilable conceptual difficulty insofar as they would be faced with defending a claim for a declaration, when, in their view, the Claimant did not have the right to step into Twintec’s shoes. Again the Judge was unpersuaded, and found that it was entirely a matter for RSA as to the submissions they wished to make in response to the Claimant’s claim (and whether they wished to take any substantive part in the proceedings at all).
The Second Ground
The policy contained two dispute resolution clauses. The first clause provided for any dispute between the parties to be referred to the French courts and “shall be subject exclusively to French legislation”.
The second clause provided that, in the event of a dispute regarding the activation of cover, the parties agreed to refer their disputes to two arbitrators chosen by each party.
The claimant argued that the coverage dispute was caught by neither of the clauses. RSA, by contrast, argued that the coverage dispute was caught by both clauses.
The Judge was satisfied that the coverage dispute would be covered by one or other of the clauses i.e. it should be decided by either the French courts, or by arbitration. It did not, however, affect her finding as to whether section 2 was engaged.
The Result
The Judge granted the Claimant’s application to join RSA to the Claim, and, somewhat predictably, made it clear that in order to engage section 2 of the Act, a Claimant need not establish, as a pre-condition, that there is valid coverage. Were it otherwise the case, insurers would have carte blanche to reject any claims made against insolvent insureds.
Alexander Rosenfield is an associate at Fenchurch Law
Dalecroft Properties Limited – v – Underwriters
Dalecroft Properties Limited – v – Underwriters subscribing to Certificate Number 755/BA004/2008/OIS/00000282/2008/005
[2017] EWHC 1263 (Comm)
This recent decision by the Commercial Court provides a neat recap of the applicable law pre the Insurance Act 2015, which still applies to many claims brought by policyholders today.
The Claimant, Dalecroft Properties Limited (‘Dalecroft’), owned a property in Margate (‘the property’). The property was a mixture of commercial and residential parts, and was insured with the Defendants (‘the Underwriters’).
The property was a five-storey building, and included a restaurant, a charity shop and an amusement arcade, the upper floor of which had previously been used as a discotheque (‘the disco building’).
The brief insurance history is as follows:
- On 1 August 2007, Tristar (the Underwriters’ Agents) issued Dalecroft with a schedule for the period 1 August 2007 – 31 July 2008 (‘certificate 001’).
- Shortly after, Dalecroft requested an increase to the sums insured. Accordingly, on 16 August 2007, Tristar issued Dalecroft with a new schedule marked CANCEL & REPLACE (‘certificate 002’).
- At the August 2008 renewal, Tristar issued Dalecroft with a schedule for the period 1 August 2008 – 31 July 2009 (‘certificate 003’).
- On 19 November 2008, Dalecroft’s brokers requested that “the property should be registered in the name of Dalecroft Properties Ltd’. On 20 November 2008, Tristar issued Dalecroft with a new schedule marked CANCEL & REPLACE (‘certificate 004’). The period of insurance ran from 19 November 2008 to 31 July 2009, and the premium was stated to be £0.00.
- On the same day, Dalecroft’s broker noted that Tristar had failed to correct Dalecroft’s name on the policy and so, on 21 November 2008, Tristar issued a further schedule marked CANCEL & REPLACE (‘certificate 005’). Again, the insured period ran from 19 November 2008 – 31 July 2009, and the premium was stated to be “£0.00.”
A fire occurred on 16 May 2009, which required the property to be demolished and rebuilt. Dalecroft then made a claim on the policy, which the Underwriters sought to avoid.
In the subsequent proceedings, Dalecroft claimed an indemnity from the Underwriters for its losses arising from the fire. The Underwriters counterclaimed for a declaration that they were entitled to avoid the policy on the grounds of misrepresentation/non-disclosure, and a breach of warranty.
In all but one of allegations of misrepresentation, Dalecroft denied that what it said was untrue. It also said the matters complained of by the Underwriters did not induce the making of the contract, as the relevant contract was not made until 2008, by which point the Underwriters had issued a revised certificate headed “Cancel and Replace.”
The issues to be decided were:
a) Which was the relevant policy?
b) Did Dalecroft misrepresent any matters to the Underwriters?
c) Were there any breaches of warranty?
d) Was the risk divisible into commercial and residential parts?
Which was the relevant policy?
Dalecroft submitted that the relevant policy was contained in certificate 005, this being the policy in force at the date of the fire.
The Underwriters, by contrast, submitted that correct policy was certificate 003 i.e. the policy issued at renewal in August 2008.
The Judge, Mr Richard Salter QC, agreed with the Underwriters. He accepted that certificates 004 and 005 were marked CANCEL & REPLACE; however, neither certificate was a new policy.
Misrepresentation/Non-Disclosure
The Underwriters relied on the following misrepresentations/non-disclosures in the August 2008 Proposal/Statement of Fact:
a) That the residential units were vacant for refurbishment;
b) That the property was in a good state of repair;
c) That the property had no flat roof;
d) That the property had not been subject to malicious acts or vandalism;
e) The non-disclosure of the fact that the property had been the subject of an Emergency Prohibition Order (‘EPO’) dated 6 June 2008.
Apart from point (a), the Underwriters made out their case in respect of each alleged misrepresentation/non-disclosure.
There was compelling evidence that the property had suffered from broken windows, leaking and drainage issues (amongst other issues). Accordingly, Dalecroft had misrepresented that the property was in a good state of repair.
As regards the status of the roof, the Judge noted the experts’ views that the flat proportion of the roof comprised 50.43% of the entire roof area. As such, the representation that there was no flat roof was also incorrect.
As to the alleged malicious acts of vandalism, the Judge found that there was a history of “continual disturbances of vandalism and drug taking”, together with at least one further specific incident where a police officer was assaulted. Therefore, this too had been misrepresented.
Finally, the Judge accepted that the EPO had been misrepresented. There was a long list of defects to the property (which significantly increased the risk of fire), and nothing to suggest that the issues had been remedied. In the circumstances, the Judge found that this was a matter about which a prudent insurer would have wished to know.
The Judge found that each of points (b) – (e) were material, and that the Underwriters had made out their case on inducement. Accordingly, Dalecroft’s claim had to fail.
Although not strictly necessary, the Judge went on to consider the remaining issues.
Were there any breaches of warranty?
The Underwriters alleged that Dalecroft breached a Commercial Unoccupancy Condition in the policy (‘the Condition’) in that it had failed to ensure that:
a) The Basement and disco building were free of combustible materials;
b) The charity’s letterbox was sealed;
c) The Charity Shop and the Basement were properly secured;
On the evidence, the Judge was satisfied that Dalecroft was in breach of the Condition. In particular, it was clear from the available photographs that there were loose combustible materials in the disco building, and that neither the charity shop nor its letterbox were secured against unauthorised entry.
Was the risk divisible into commercial and residential parts?
Dalecroft argued that the risk was divisible, and that, because the alleged misrepresentations/non-disclosures related only to the residential parts, it was entitled to an indemnity for their losses in relation to the commercial part.
The Judge disagreed. The condition broken by Dalecroft was directed at risks which jeopardised the entire property. It followed that the Underwriters were discharged from all liability.
Summary
The Underwriters, on the facts of this case, were entitled to reject all claims made against them. The Judge was keen to emphasise, however, that even if the new law had applied, Dalecroft’s claim would still have failed. In this respect, he was satisfied that Dalecroft made “no real effort” to make a fair presentation, and that Underwriters would still have declined to take on the risk.
Alexander Rosenfield is an associate at Fenchurch Law
Peel Port Shareholding Finance Company Ltd – v – Dornoch Ltd
Can a Claimant obtain an order for pre-action disclosure against a solvent insured?
The Claimant, Peel Port Shareholder Finance Company Ltd (‘Peel Port’), suffered a fire at its premises at Sheerness Docks, Kent, on 14 January 2013. Its case was that the damage was caused by the activities of ‘European Active Projects Ltd’ (‘EAPL’).
Peel Port claimed that EAPL had no defence to the claim, and that judgment would be awarded in its favour for sums exceeding £1m. Further, it claimed that EAPL would be unable to meet any judgment, and would be wound up as a result.
EAPL’s insurers, Dornoch Ltd (‘Dornoch’) denied that the claim was covered, on the basis that EAPL did not comply with the “hot working” endorsement to their public liability policy (“the policy”). Dornoch did not, however, disclose a copy of the policy to Peel Port.
Peel Port took issue with Dornoch’s non-disclosure, and argued that sight of the policy was essential to their understanding of (a) whether the endorsement had been properly incorporated into the policy; and (b) the effect of the endorsement when construed in the context of the policy as a whole.
The application
Under the framework provided for in CPR 31.16, Peel Port issued an application for pre-action disclosure against Dornoch for a full copy of the EAPL policy. CPR 31.16 states as follows:
1) This rule applies where an application is made to the court under any Act for disclosure before proceedings have started.
2) The application must be supported by evidence.
3) The court may make an order under this rule only where–
a. the respondent is likely to be a party to subsequent proceedings;
b. the applicant is also likely to be a party to those proceedings;
c. if proceedings had started, the respondent’s duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and
d. disclosure before proceedings have started is desirable in order to –
i. dispose fairly of the anticipated proceedings;
ii. assist the dispute to be resolved without proceedings; or
iii. save costs
The parties’ submissions
Peel Port argued that disclosure of the policy should be ordered, as this might obviate the need for any further litigation against EAPL, thereby preventing wasted costs.
Dornoch accepted that the procedural grounds for issuing the application were made out, and that the policy itself was disclosable. However, they resisted the application on the basis that a statutory mechanism for obtaining information about the policy already existed in Third Parties (Rights against Insurers) Act 2010 (‘the Act’).
In light of the above, Dornoch argued that any order for disclosure under CPR 31.16 would undermine and be inconsistent with the Act.
The decision
The Judge, Mrs Justice Jefford, refused Peel Port’s application. In arriving at her decision, the Judge gave weight to the following factors:
1) The advent of the Act meant it was unlikely that Parliament envisaged a situation where litigants could use CPR 31.16 to obtain insurance policies from the insurers of insolvent insureds;
2) There had never been an express statutory mechanism which entitled a litigant to obtain the policy of a solvent insured;
3) CPR 31.16 would not come to a prospective litigant’s avail in proceedings against the insured, as the policy could not fall within the parameters of standard disclosure i.e. it was not relevant to the case.
It was central to the Judge’s decision that EAPL was not insolvent. Peel Port tried to deflect this point by saying that EAPL would not be able to meet a judgment awarded against it. However, the Judge found that the circumstances were not sufficiently exceptional. Accordingly, there was no basis to depart from the established practice against disclosure of a solvent insured’s policy.
Alexander Rosenfield is an associate at Fenchurch Law