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 Reinsurance UK Plc Developments in the Law of Reinstatement 2
1 Western Trading Ltd v Great Lakes Reinsurance UK Plc Background 3
Western Trading Ltd v Great Lakes Reinsurance UK Plc The Boak Building 4
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
Western Trading Ltd v Great Lakes Reinsurance UK Plc Ownership Mr Singh – Freehold Owner Western Trading Ltd (owned by Mr Singh) Tenants 6
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
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
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 out of one event at each location as stated in the Schedule.” 9
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
Western Trading Ltd v Great Lakes Reinsurance UK Plc a) The carrying out of the following work, namely, Where property is lost or destroyed, the building of the property, if a building… in i. 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
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
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
Western Trading Ltd v Great Lakes Reinsurance UK Plc The Defence 14
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
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
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
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
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
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
Western Trading Ltd v Great Lakes Reinsurance UK Plc The Judgment at First Instance No misrepresentation No non disclosure No breach of warranty 21
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 of the Defendant’s business” if the “Claimant must account to Mr Singh for the Property”. 22
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
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
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