UK: Failure To Comply With Reinstatement Conditions Where A Claim Has Wrongfully Been Declined: Implications Of Western Trading Ltd v Great Lakes Reinsurance (UK) PLC

Last Updated: 13 April 2015
Article by Dominic How

The recent decision by the English High Court in the case of Western Trading Ltd v Great Lakes Reinsurance (UK) PLC [2015] provides useful guidance to insurers should they wish to rely on the insured's failure to comply with the reinstatement conditions under a property policy, in the event that a claim has been wrongfully declined. The case further highlights the Court's reluctance to uphold a lack of insurable interest to defeat a claim and the increased scrutiny placed on the relevant underwriter's evidence on inducement when seeking to avoid a policy.

Edwin Co were acting as solicitors for the Insured and Kennedy's for Insurers.

The case involved two neighbouring properties in central Walsall which were destroyed in a fire in July 2012. The properties were insured under a Property Owner's policy placed with an underwriting agency of Great Lakes.

The Insured sought a declaration that it was entitled to be indemnified under the terms of the policy. Both defences raised by Insurers failed on the facts. The Court held that the Insured did have a sufficient insurable interest in the properties. The Judge was prepared to pierce the corporate veil in circumstances where he felt that this defence was raised as a technicality and was unjust. Furthermore, the Court did not agree that Insurers were entitled to avoid the policy. They had failed to establish either that any of the alleged misrepresentations were material or that sufficient reliance had been placed upon them by the relevant underwriter.

As a valid policy was deemed to be in place, the question arose as to whether the Insured was entitled to proceed to claim the full cost of reinstatement as the appropriate remedy. Insurers sought to argue that the Insured was precluded from claiming the reinstatement value as it had failed to comply with the reinstatement conditions in the policy. The policy expressly provided that reinstatement must be carried out "with reasonable despatch otherwise no payment". However, the Insured argued that it could not afford to reinstate in the event that the policy did not respond and was unable to comply with this condition owing to the declinature of the claim.

Insurers further argued that since the Insured had not reinstated and had showed no intention of doing so, it would only be entitled to payment made on an indemnity basis (i.e., the diminution in value of the property). The properties were classified as Listed buildings. The destruction of the buildings by the fire made it possible to utilise the centrally located site to build new flats without having to comply with the Listed Building Requirements. This increased the value of the site by making it more attractive to developers. In the circumstances, the Insured had not suffered a loss and was in no worse position than it had been prior to the fire. Accordingly Insurers submitted that no payment should be made under the policy on this basis.

The Court rejected these arguments. It considered that requiring an insured to incur the cost of reinstating a property if insurers have wrongly denied liability and repudiated the policy would be overly harsh: "The assured cannot reasonably be expected to take a decision about whether to spend what may be millions of pounds until it knows the fundamental financial ramifications of committing to reinstate." As such, a requirement on the insured to reinstate cannot be read to arise until insurers have confirmed that they will provide an indemnity under the policy.

The Judge found that the Insured had a contractual right to be indemnified for the cost of reinstating the properties and as a result, a declaration was granted in the Insured's favour. The value of the land before and after the fire is therefore irrelevant, unless this differential leads the insured to decide that it would prefer to sell rather than reinstate. If there is to be no reinstatement then there would be no obligation on the insurer to pay because the insured has not invoked the relevant contractual commitment. On the facts, however, the Judge was satisfied that the Insured did have a genuine wish to reinstate.

The Court's decision confirms that insurers are not entitled to "have their cake and eat it" by seeking to claim that the insured had breached the reinstatement conditions where the failure to do so was as a result of a wrongful denial of liability. This position applies equally to insureds who cannot afford to pay for the reinstatement as well as profitable businesses which may have to divert funds to the detriment of some other business activity.

Western Trading adds some much needed clarity to the pre-existing line of authorities on the issue dating pre-dominantly from the 1970's (see for example, Reynolds v Phoenix [1978]) which decided upon the most appropriate form of indemnity to grant. However, at the time it was common for property insurance policies to give an insurer the option of either paying the insured value of lost property or reinstating the property. It was not a contractual right for the insured – as it is now in most policies – since the reinstatement conditions were not incorporated into property insurance wordings until more recently. Therefore, it is no longer relevant to determine whether the insured had a genuine intention to reinstate. The Judge believed that the grant of a declaration was the most appropriate remedy in the circumstances. Such a declaration should remove from insurers any concern about whether there was a genuine intention to reinstate. If the insured does not reinstate, then insurers will be spared the consequences of the declaration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.