Royaume-Uni & Europe
Assurance et réassurance
Judge considers test for awarding an indemnity under a property policy on a reinstatement basis
The dispute in this case centred on the basis on which the insured was entitled to an indemnity under its property insurance policy following a serious fire at its works. The insured sought an indemnity on a reinstatement basis, even though it has still not reinstated the property, 8 years after the fire. The insurers argued that the indemnity should be by reference to the market value of the buildings, plant and machinery.
The policy had an express reinstatement clause, but it did not apply because the costs of reinstatement had not yet actually been incurred. Accordingly, the amount payable under the policy was expressed to be "the amount which would have been payable in the absence of this condition".
The insurers sought to rely on the Court of Appeal decision in Great Lakes Reinsurance v Western Trading, where Clarke LJ said, obiter, that "I doubt whether a claimant who has no intention of using the insurance money to reinstate, and whose property has increased in value on account of the fire, is entitled to claim the cost of reinstatement as the measure of indemnity unless the policy so provides". However, the judge in Hodgson v NHBC cast doubt on that view and noted that "The views expressed in the Great Lakes case are … at odds with the views expressed in a leading textbook".
In this case, the judge said that he read Great Lakes as authority only for the view that "it is necessary to look at all the circumstances, which can include the position up to the date of trial" and that "in some circumstances" the absence of a continuing intention to reinstate would indicate that the reinstatement basis would not be appropriate, as it would over-compensate the insured. There was no general rule, therefore, requiring the insured to show that it had, and continues to have at the date of trial (or expiry of the limitation period, if earlier) a genuine, fixed and settled intention to reinstate. Instead, the court is required to decide what measure of indemnity fairly and fully indemnifies the insured for its loss.
On the facts, the judge concluded that the insured had in any event intended to reinstate at the time of the fire. Looking at all the other circumstances of the case, including events after the fire, the judge held that the insured's intention continued, even though little had been achieved in respect of the reinstatement works, 8 years after the fire. Accordingly, the reinstatement basis applied.
In reaching this decision, the judge did not think that it was relevant that the insurer had itself offered to indemnify the insured on the reinstatement basis a year after the fire. At that time, the insurer had been considering the position should the express reinstatement clause apply, and so was not bound by its earlier stance when considering the position in the absence of that clause.
The insurers had also argued that, if the reinstatement basis applied, there should be a deduction on account of betterment (because the insured would be receiving "new for old"). The judge agreed that betterment is "an inherent principle of the indemnity principle". However, the amount of deduction is fact sensitive and depends on the damage suffered and repairs which are proposed. Here, the insurers had been unable to meet the burden of proving the appropriate level of deduction.
COMMENT: This case demonstrates that the issue of whether an insured needs to have a genuine and settled intention to reinstate in order to obtain an indemnity on the reinstatement basis (in the absence of an express term covering the position) continues to be controversial. Although the judge did find an intention to reinstate on the facts, where no such intention exists, it appears to still be arguable (although not, it seems, conclusive) that the reinstatement basis is not appropriate.