UK: Insurance Law Quarterly – Spring 2006 Where Are We Now With Valuation?

Last Updated: 23 May 2006
Article by Roger Doulton

Section 20(5) of the Marine Insurance Act 1906 provides that a representation as to a matter of ‘expectation or belief’ is true if made in good faith. It is often argued that a valuation, by its very nature, must always fall within this categorisation. Consequently, it is further argued that underwriters may not rely on an inaccurate valuation for the purposes of avoidance whenever it is made in good faith.

Accurate valuation lies at the heart of commercial property underwriting but what remedies do underwriters have in the event of an inaccurate valuation? Following Rendall v Combined Insurance (2005), the position is now extremely unclear.

A similar point arose in a personal lines context in Economides v Commercial Union (1997) where an insured inaccurately estimated the value of jewellery against the background of a declaration at the foot of the proposal form in terms that the ‘statements and particulars given above…were to the best of my/our knowledge and belief, true and complete…’ Commercial Union argued that as well as honest belief in the value there was an implied representation of fact that the insured had reasonable grounds for his belief. This argument was rejected: an underwriter could only avoid where the insured had ‘wilfully shut his eyes to the truth’ and/or made a ‘blind guess’. Rendall has now confirmed that the Economides approach is not limited to personal lines.

Rendall reinsured a local carrier, Combined Insurance, for its insurance of Aon’s employees for accidental death and/or bodily injury incurred on a business trip. Aon provided an estimated number of travel days for its employees; this estimate was inaccurate. Reinsurers’ argument, that there was an implied representation that the estimate had been made on reasonable grounds, got short shrift. So too did a representation that the figures had been arrived at by reference to Aon’s historical information and experience, against the background of Aon making it plain that the figures were estimated.

A similar result in the context of commercial property insurance would leave underwriters unable to avoid. It is often suggested that this does not really matter, because underwriters are protected by the average clause (and/or that undervaluation is immaterial for this reason). This is not a complete answer especially within the context of a property portfolio where average may apply across the account rather than property by property and/or vis-à-vis outwards reinsurers.

The cases so far do not deal specifically with commercial property valuation. It is hoped that a court could be persuaded to require a commercial insured to take those sort of steps that are usual in their business. An insured would not usually speculate without advice when they were selling the property. Why should they be able to do so when representing value to insurers? Such a defence could be characterised in the following way:

  • within the context of commercial property insurance it is reasonable to import an implied representation of fact (against which a misrepresentation argument could be run) that valuation has been arrived at reasonably; and/or
  • there is a non-disclosure of the fact that the valuation is unprofessional or unbusinesslike.

We must wait to see whether such a defence can succeed. No underwriter could be sure of the outcome.

Personal Injury and General Damages

Part of body/Nature

Case

Court/Judge

Date

Age* and Gender

Brief Details

Award £

Wrist

L (a child) v Whittington

Birmingham County Court (Harris DDJ)

January
2005

13
Female

Sustained injury to right wrist in an RTA. Difficulties getting dressed, brushing teeth, writing at school and using a knife and fork. Symptoms settled within seven months of the accident.

£1,450
(agreed and approved)

Spine

Joanne Blackett v Adam Riley

Middlesbrough County Court (Kramer DDJ)

March
2005

18
Female

Fractures to spine, shoulder and ribs when the car she was a rear-seat passenger in was involved in an accident. Development of deep vein thrombosis and post-traumatic stress disorder.

£18,000

Face

Wanklyn v Nolan

Bridgend County Court (Jenkins DJ)

August
2005

20
Male

Assaulted and struck with a glass whilst on holiday in Greece. At trial C displayed a clearly visible scar across the left cheek and through the left ear.

£12,000

Lower back

W v Hull and East Yorkshire Hospitals NHS Trust

Out of court settlement

October
2005

32
Female

Lower back injuries following a negligently performed lumbar puncture procedure in July 2001. C suffered from chronic and ongoing lower back pain.

£20,000 settled plus Smith v Manchester award of £12,000

Repetitive strain injuries

(1) Elizabeth King (2) Emily Rimmer v Virgin Atlantic Airways Ltd

Winchester County Court (Tugendhat J)

October
2005

(1) 23 and
(1) 25 when symptoms presented
Both female

Both claimants were employed by the defendant as beauty therapists. They suffered from repetitive strain symptoms in their wrists, forearms, elbows and shoulders within a few months of starting to carry out the Shiatsu massage technique.

(1) £12,000 (court award)
(2) £9,000 (out of court settlement)

Eye

B v East Somerset NHS Trust

Out of court settlement

October
2005

77 Male

C underwent cataract surgery, the operation notes were sparse and only contained the name of the surgeon, anaesthetist and type of operation. C suffered from a loss of peripheral vision in his right eye and a loss of colour vision.

£17,500 (out of court settlement)

Bowel and respiratory problems

Chloe Denise Eddie (by her litigation friend Karen Eddie) v Frimley Park Hospital NHS Trust

Queen’s Bench Division (Openshaw J)

November
2005

Nine months
Female

Mother was wrongly informed that C was not suffering from cystic fibrosis. However, C’s symptoms continued to worsen and she suffered two rectal prolapses and periods of vomiting and constipation.

£25,000 (out of court settlement)

Asbestos exposure

Fox v Manchester City Council

Manchester County Court (Harrison DJ)

December
2005

70 (at date of knowledge)
Male

Exposed to asbestos during the course of his employment when carrying out repair and maintenance work in premises owned by the defendant. C developed pleural plaques and bilateral pleural thickening as a result.

£20,500

Burns

Brain v (1) Tanfastic Megatan Tunbridge Wells Ltd (2) D Ali (T/A Tanfastic Megatan)

Maidstone County Court

December
2005

25
Female

Attended tanning salon for a sunbed session. First degree burns to her buttocks, back and to the back of her arms and legs. Negligence as more powerful UV tubes had been installed without notice.

£1,250

Brain

Andre Crofton (by his father and litigation friend John Crofton) v National Health Service Litigation Authority

Queen’s Bench Division (Reid HHJ)

January
2006

Newborn
Male

Shortly after birth, C diagnosed with coarctation of the aorta that required surgical repair. C suffered irreversible neurological damage when the surgery to be performed was delayed.

£200,000

*At time of injury unless otherwise stated

The personal injury and general damages awards table is a regular feature of the ILQ and is prepared by Tom Walshaw, an associate in the General Insurance team.

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.

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