OCTOBER 2016 INSURANCE UPDATE Property policies - The effect of reinstatement provisions On 10 October 2016, the English Court rebuild the premises, although no reinstatement work had of Appeal (Court) handed down an important at that stage been carried out. The judge dismissed the insurers’ defences and granted the declaration. The Court, decision on the measure of indemnity under a making a minor variation to the judge’s ruling, upheld his property policy and, in particular, the effect of general conclusions. reinstatement provisions. The Court laid down the following general principles: In Great Lakes Reinsurance v Western Trading,1 1. Where real property was destroyed, the measure of the insured company was the occupier and manager of indemnity to which the insured was entitled depended premises belonging to the company’s controller, Mr Singh. on: The insured was under an obligation to insure the premises i. the terms of the policy; and to reinstate them in the event of loss or damage. The premises, for which planning permission to convert into ii. the interest of the insured in, or its obligations in apartments had earlier been obtained, were unoccupied respect of, the property insured; and and used for storage. They were insured under a policy iii. the facts of the case, including, in particular, the for the sum of £2,121,800, representing the rebuilding intention of the insured at the time of the loss. If cost of the property. The market value was only £75,000. the insured had a limited interest in the property, it The policy provided that the insurers would indemnify the would be material to consider whether the subject insured against loss or damage, but reinstatement costs matter of the insurance was the whole interest in were payable only if the reinstatement work had been the property insured and not solely that of the commenced and carried out with reasonable despatch. insured himself and, if it was the whole interest, If the cost of reinstatement had not actually been incurred, whether the insured was accountable to others for there was to be no payment beyond the indemnity any sum received in excess of his interest. amount. The insurers sought to avoid the policy for 2. Where the insured was obliged to a third party to non-disclosure and misrepresentation, and also for the replace the lost property, the cost of doing so was insured’s lack of insurable interest. prima facie the measure of indemnity where there The matter went to trial, the insured seeking a declaration was a genuine intention to replace. Even where the that it was entitled to reinstatement costs if work was insured was the owner of the property, and not commenced. At the trial, Mr Singh stated his intention to someone with an obligation to reinstate or repair, the 1 [2016] EWCA Civ Insurance Update | 1 indemnity was to be assessed by reference to the value 3. If the insured wished to claim reinstatement costs, the of the property to the insured at the time of the peril. insured’s intention to reinstate had to be genuine, fixed In most cases of damage or destruction, the insured’s and settled, and there had to be a reasonable prospect loss was the cost of reinstatement. that reinstatement could be brought about. Although that might not be the case if, for instance, the 4. Although reinstatement costs were not recoverable insured was trying to sell the property at the time of under the policy until the insured had begun to reinstate the loss, or intending to destroy it, or if no one in his with reasonable despatch, the insured would not have right mind would reinstate. It was doubtful whether a failed to act with reasonable despatch whilst insurers claimant who had no intention of using the insurance denied any liability or asserted that the insured was not money to reinstate was entitled to claim the cost of entitled to be compensated on the basis of reinstatement. reinstatement as the measure of indemnity, unless the If you have any questions, or require further information policy so provided. regarding any aspect of this update, please contact us. KEY CONTACTS Crossley Gates Professor Robert Merkin QC Partner Special Counsel T +64 9 300 3823 T +64 9 303 2019 [email protected] [email protected] ABOUT DLA PIPER NEW ZEALAND DLA PIPER OFFICES DLA Piper New Zealand is part of DLA Piper, a global law firm Auckland Wellington operating through various separate and distinct legal entities. DLA Piper Tower Chartered Accountants House Further information can be found at www.dlapiper.com 205 Queen Street 50 - 64 Customhouse Quay Auckland NZ 1010 Wellington NZ 6011 COPYRIGHT T +64 9 303 2019 T +64 4 472 6289 If you would like to reproduce any of this publication, please contact [email protected] [email protected] [email protected] This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. Copyright © 2016 DLA Piper. All rights reserved. | OCTOBER 16 Insurance Update | 2.