England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London. WC2A 2LL
		19 April 2010

GAVIN KEALEY Q.C. sitting as a Deputy High Court Judge:

Introduction

1. This case concerns a dispute between two insurance companies about double insurance. The Claimant is The National Farmers Union Mutual Insurance Society Limited (the "NFU"), insurers of Mr. Spaull and Ms. Armstrong, while the Defendant is HSBC Insurance (UK) Limited ("HSBC"), insurers of Mr. Abel Smith.
2. The source of the dispute is a fire which broke out on 27^th October 2007 and caused extensive damage to the main building of a property known as The Old Hall, Langham, Rutland. The property was the subject matter of a trust, The Old Hall Settlement. The fire occurred only 17 days after Mr. Abel Smith and others (the "Sellers"), trustees of The Old Hall Settlement, had exchanged contracts for the sale of The Old Hall to Mr. Spaull and Ms. Armstrong (the "Buyers") for a price of £1.81 million, and before completion.
3. The Sellers were insured by HSBC in respect of The Old Hall under a renewed policy issued on 16^th November 2006 for the period 11^th December 2006 to 10^th December 2007. The buildings cover under that policy provided for a sum insured of £2, 365, 455.
4. On 10^th October 2007, the Sellers exchanged written contracts with the Buyers for the sale of The Old Hall. Completion was scheduled for 7^th November 2007. The sale contract provided, by clause 2.3, that the risk of damage to or destruction of The Old Hall passed to the Buyers upon exchange.
5. Shortly before sale contracts were exchanged, on 5^th October 2007, the Buyers took out their own buildings insurance with the NFU in respect of The Old Hall for the period 4^th October 2007 to 4^th October 2008. The cover under that policy provided for a sum insured of £2 million.
6. Thus the fire on 27^th October 2007 occurred between the dates of exchange of contracts for sale and completion, at a time when The Old Hall was at the risk of the Buyers and was the subject matter of buildings insurance taken out independently by each of the Sellers and the Buyers in respect of their respective interests with different insurers.
7. After the fire, the Buyers were initially unwilling to complete the sale and purchase of The Old Hall. However, following service upon them on 10^th March 2008 of a notice to complete within 10 working days, the sale was completed on 21^st March 2008 at the full purchase price.
8. Having been paid the full purchase price, the Sellers ultimately suffered no loss as a result of the fire and made no claim under their policy with HSBC. For their part, the Buyers made a claim on their buildings cover with the NFU in respect of the damage caused to The Old Hall by the fire and, I understand, have been paid £1, 850, 000 by the NFU in settlement of their insurance claim.

The Policies

9. In the HSBC policy, the terms on which buildings cover was provided in respect of The Old Hall were set out in Section One. The other sections of the policy covered a variety of other risks including contents, accidents to domestic staff, public liability, valuables and family legal protection. Helpfully written in plain English, "Section One - Buildings" provided so far as relevant as follows:

WHAT IS COVERED	WHAT IS NOT COVERED
This insurance covers the buildings for physical loss or physical damage	We will not pay...
....
This section of the insurance also covers
....
E. anyone buying your home who will have the benefit of section one until the sale is completed or the insurance ends, whichever is the sooner	if the buildings are insured under any other insurance

10. The HSBC policy also set out a number of Claims Conditions which were said to be applicable to the whole of the insurance: in other words, applicable to all sections of the policy including but not limited to Section One. Claims Condition 2 was as follows:

"OTHER INSURANCE

We will not pay any claim if any loss, damage or liability covered under this insurance is also covered wholly or in part under any other insurance except in respect of any excess beyond the amount which would have been covered under such other insurance had this insurance not been effected. "

11. The NFU policy, which the Buyers had taken out, contained a number of standard sections of cover for a wide variety of risks ranging from buildings cover to pet insurance. The only section relevant in the context of this case was the Buildings section on page 10 of the policy, which provided: "Buildings are insured against damage by the following... Fire". At pages 72 to 74 of the policy were set out a number of "General Conditions", said to be applicable to the whole of the policy (i.e. to all sections of cover). One of those General Conditions provided as follows:

"Other insurance

If when you claim there is other insurance covering the same accident, illness, damage or liability, we will only pay our share. This does not apply to an accident or illness insured under the Accidents to the family or Personal accident and illness sections of your policy, or under the Contents section - "Additional insurance " Fatal injury to you or your husband or wife. "

The Issues

12. Having paid an indemnity under its policy to the Buyers, the NFU now seeks a contribution from HSBC. It contends, on the basis of the terms recited above, that, at the time of the fire, the HSBC policy also provided buildings cover to the Buyers against the risk of damage to the buildings of The Old Hall, with the result that this is a case of double insurance. This is denied by HSBC which contends that, since the Buyers were insured in respect of the buildings of The Old Hall by another insurance than its own (i. e. by the NFU), on the proper construction of the HSBC policy, they were not covered by HSBC at all. Alternatively, HSBC contends that the effect of its policy is that, since the Buyers were insured by the NFU, HSBC's liability is limited to that of an excess insurer attaching in excess of the cover provided to the Buyers by the NFU policy.
13. By Order dated 25^th June 2009, Beatson J. ordered the trial of three preliminary issues, as follows:

(1) Whether on a true construction of the entirety of the HSBC policy it did not provide cover to [the Buyers] for damage due to the fire, because on a true construction of the entirety of the NFU Mutual policy it provided cover and there is no conflicting clause in that policy which cancels it;

(2) Whether on a true construction of the entirety of the NFU Mutual policy that policy, under General Conditions, only contains a general pro rata clause where there is other insurance covering the same damage;

(3) Whether the extended cover for buyers in the HSBC policy is limited to assisting its insured in the event that a buyer does not complete the purchase.

14. This is the trial of those issues. They have been formulated with a degree of sophistication which may possibly be refined to a simple question: upon a proper construction of the HSBC and NFU policies, does the former provide insurance cover to the Buyers in respect of the fire damage to The Old Hall which occurred on 27^th October 2007, in circumstances where the latter does likewise, with the result that there was double insurance by the two policies which entitles the NFU to a contribution from HSBC towards the indemnity it has paid the Buyers in respect of that damage?

Analysis

15. Double insurance arises where the same party is insured with two (or more) insurers in respect of the same interest on the same subject-matter against the same risks. If a loss by a peril insured against occurs, the general rule is that, subject to any particular modifying terms and to the limits of indemnity provided under each insurance contract, the insured may recover for the whole of the loss from either insurer. Upon such indemnity being paid to the insured by either one of the two insurers, that insurer is, in general, entitled to recover a contribution from the other. To quote from Lord Woolf in Eagle Star Insurance Co. Ltd. v Provincial Insurance PLC [1994] 1 AC 130, 138

"As was pointed out by Lloyd L. J. at the beginning of his judgment in the Legal and General case [1992] QB 887, 891, in general 'the principles on which one insurer is entitled to recover from another in a case of double insurance have been settled since Lord Mansfield's day. ' As Kitto J. stated in Albion Insurance Co. Ltd. v Government Insurance Office of New South Wales (1969) 121 CLR 342, 349-350, 'a principle applicable at law no less than in equity, is that persons who are under co-ordinate liabilities to make good one loss (e. g. sureties liable to make good a failure to pay the one debt) must share the burden pro rata: ' the object being, as Hamilton J. stated in American Surety Co. of New York v Wrightson (1910) 103 LT 663, 667:

'to put people who have commonly guaranteed or commonly insured in the same position as if the principal creditor or the assured had pursued his remedies rateably among them instead of doing as he is entitled to do, exhausting them to suit himself against one or other of them. "'

16. Since, however, the right to a contribution between insurers depends in general on the existence of co-ordinate liabilities to make good one loss, it can be varied or excluded by contract: either by contract between the co-obligors or by contract between insured and insurer: Legal and General Assurance Society Ltd. v Drake Insurance Co. Ltd. [1992] QB 887, 893. There was, in this case, no contract between the NFU and HSBC. The issue in this case, therefore, is whether, properly construed, both the NFU and HSBC policies imposed co-ordinate liabilities upon those insurers to indemnify the Buyers in respect of the fire damage to the Old Hall, or whether there existed in either policy contractual terms having the effect of limiting or excluding the liability of the insurer to indemnify under that policy in circumstances where and/or to the extent that the other insurer was liable to provide an indemnity under the other policy.
17. The general principles of construction are to be found summarised by Lord Hoffmann in Investors Compensation Scheme Ltd. V West Bromwich Building Society [1998] 1 WLR 896, 912-913. I shall not repeat them here but shall be guided by them, as well as by the guidance set out in the recent case decided in the Court of Appeal of Pratt v Aigaion Insurance Company SA [2009] 1 Lloyd's Rep 225. I also remind myself of the words of Lord Wilberforce in Reardon Smith Line v Hansen Tangen [1976] 1 WLR 989, 996: ".. what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. " A convenient synopsis of the relevant general principle is to be found in the judgment of Langley J. in Tioxide Europe v CGU International Insurance Plc [2005] Lloyd's Rep IR 114 at paragraph 40: "The general principle is that the proper construction is to be determined by the ordinary and natural meaning of the words used in the contractual and commercial setting in which the words appear. The niceties of language may have to give way to a commercial construction which is more likely to give effect to the intention of the parties. " I also take into account the guidance of Lord Steyn (otherwise dissenting) in Deutsche Genossenschaftsbank v Burnhope [1995] 1 WLR 1580, 1587: "The commercial or business object of a provision, objectively ascertained, may be highly relevant... But the court must try not to divine the purpose of the contract by speculating about the real intention of the parties. It may only be inferred from the language used by the parties, judged against the objective contextual background. "
18. The objective contextual background against which the policies are to be construed includes, as it seems to me, the following matters:

a. From the time of an exchange of contracts for the sale and purchase of a property, a buyer has an equitable proprietary interest in it and, subject to contractual terms to the contrary, at common law will generally assume the risk of physical damage thereafter occurring to it. While the Standard Conditions of Sale (Fourth Edition) provide in Condition 5. 1. 1 that the seller retains the risk of physical damage occurring to the property until completion, that is not invariable and the Law Society's Protocol Working Party has offered alternatives that have the effect of restoring the common law position: see Emmet and Farrand On Title 2009 paragraph 1. 148. Moreover, in circumstances where the common law applies, damage to or the destruction of the buildings comprising the property occurring after exchange and before completion will not normally entitle a buyer to refuse to complete and pay the full purchase price: Poole v Adams (1864) 10 LT 287, 288. Thus, upon exchange of contracts, a buyer of a property will commonly acquire an insurable interest in it entitling the buyer to take out his own buildings insurance in respect of physical damage occurring to the property after exchange.

b. Further, in circumstances where the common law applies and damage occurs to property between the times of exchange and completion where the seller has but the buyer lacks buildings insurance, the buyer will not be able to assert any interest in the proceeds of the seller's buildings insurance: it was decided as long ago as 1881 in Rayner v Preston (1881) 18 Ch D1, a case where the vendors had agreed to sell a house which they had insured against fire and the house was damaged by fire occurring between exchange and completion, that the purchaser was not entitled to the insurance proceeds.

c. An attempt was made by the legislature to reverse the effect of Rayner v Preston when it enacted section 47 of the Law of Property Act 1925. However, it is apparent that this section did not achieve its intended purpose (see per Lawrence Collins J. in Englewood Properties Limited v Patel [2005] 1 WLR 1961, 1974 - 5, and para. 2. 17 of The Law Commission's Working Paper no. 109, 1988) for the reasons explained in Megarry & Wade, The Law of Real Property, 7^th edition, paragraph 15-058.

d. Unless the sale contract provides otherwise, upon completion, a seller of a property will expect to receive the full purchase price from a buyer notwithstanding physical damage to the buildings comprising it occurring in the interval after the date of exchange and before completion. Nevertheless, a seller retains an insurable interest in the property between the times of exchange and completion because not only does he still have legal title in the property but also because there is always the risk that a buyer will not complete the purchase in which case, were physical damage to occur after exchange, the seller would suffer a loss: Castellain v Preston (1883) 11 QBD 380, 385.

e. Whilst it might be prudent for a buyer of property independently to take out buildings insurance in respect of the property as from the time of exchange, and while the buyer will commonly take out such insurance (as to which see the observations in Megarry & Wade, The Law of Real Property, 7^th edition, paragraph 15-058) unless the contract of sale provides otherwise it is not obligatory as between seller and buyer for the latter to do so. However, if the buyer does not do so, and damage occurs to the property after exchange, the seller might find the buyer either unwilling to complete in respect of a property that is damaged and, so far as the buyer's interest is concerned, uninsured; or unable to raise the finance with which to complete: neither of which outcomes would normally be welcome to a seller who, as one might expect in a non-commercial context, is liable to have made personal plans or assumed contractual obligations (such as the purchase of a new property) in the expectation that the sale of his own property will complete for the full purchase price as and when scheduled.

f. If the buyer takes out his own insurance taking effect as from the time of exchange, there is likely to be duplication of insurance by seller and buyer. The cost of this duplication might not be substantial and, for the reasons set out at paragraph 2. 17 of The Law Commission's Report no. 191 "Transfer of Land, Risk of Damage after Contract of Sale" 1990, there are several practical reasons for both seller and buyer to be separately insured. However, the cost of duplication can be avoided if the parties arrange for the seller's existing insurance to be extended to cover the buyer, or if the terms of the seller's insurance provide for such extension to occur and to cover the buyer, in respect of the period between exchange of contracts and completion of sale.

g. Nevertheless, there is in law no requirement on a buildings insurer of a seller of property to extend the seller's insurance to cover a buyer in respect of buildings risks occurring between the times of exchange and completion, and there is in law nothing to prevent such a buildings insurer from undertaking to extend the seller's insurance in such a way but only if the buyer is himself uninsured.

19. Approaching the matter unassisted by the authorities cited by the parties in which issues of double insurance have been judicially investigated by the courts of a variety of different jurisdictions, in my judgment the correct analysis in this case proceeds as follows. "Section One - Buildings" in the HSBC policy granted buildings cover to the Sellers and this cover continued, as it seems to me, for so long during the policy period as the Sellers had and retained an insurable interest in The Old Hall. Therefore, it continued beyond the date of any exchange of contracts up to the time of completion. It was important that it should do so since, if it did not and there was an occurrence of physical damage to The Old Hall between the times of exchange and completion which induced a buyer not to complete and pay the full purchase price, or to delay completion and payment, the Sellers would suffer loss that might prove irrecoverable.
20. "Section One - Buildings" in the HSBC policy also granted buildings cover to anyone buying the Sellers' home (in this case, The Old Hall) until the earlier of the date of completion or the termination of the policy period, but it did not do so in unqualified terms. Immediately adjacent to the provision granting cover appeared the qualification that HSBC will not pay if the buildings are insured under any other insurance. Whilst this qualification was not in terms confined to the situation where the other insurance had been taken out by anyone buying the Sellers' home, it was, in my view, obviously directed primarily to such buyers. In my judgment, the qualification was clear and clearly to the following effect: the grant by HSBC of buildings insurance to any buyers of The Old Hall, effective to cover the risks of physical loss or damage to The Old Hall occurring at any time before the earlier of completion and the ending of the HSBC policy, was subject to the proviso that cover would not be provided to such buyers in respect of physical loss or damage occurring at any such time if those buyers had, themselves, taken out buildings insurance for their own account which covered the same buildings risks. Thus, in my view, the grant of buildings cover by HSBC to buyers of its insured's home was directly qualified by the proviso: the one cannot properly be separated from the other and any buyer had to take the grant as it found it, viz. as a qualified extension of cover.
21. Both the grant of buildings cover to otherwise uninsured buyers, and the denial of an indemnity to buyers enjoying the benefit of other buildings insurance covering the same risks as those otherwise insured by the buildings section of the HSBC policy, explain and fulfil the purpose of the provisions in question:

a. As indicated above, the provision of cover to buyers would give HSBC's insured Sellers valuable protection if those buyers were otherwise uninsured: in the event of damage occurring after exchange of sale contracts but before completion, those buyers who had assumed the risk of physical loss or damage occurring after exchange but who had not on their own account taken out buildings insurance against that risk would be protected by the HSBC policy and thereby either enabled or encouraged to complete - all to the benefit of HSBC's insured Sellers.

b. While the provision of cover to uninsured buyers would confer a benefit on those buyers (since they would potentially have the benefit of the cover without the need, themselves, to pay any premiums) it seems to me that the primary purpose of providing buildings cover to buyers of HSBC's insured's home was to benefit HSBC's own original insured. This is reinforced, in my judgment, by the contractually agreed terminus of such cover: putting to one side the possible earlier termination of the policy period, the provision of buildings cover to buyers of HSBC's insured's home ended upon completion. This was the time when the Sellers would cease to have an insurable interest in their (former) home and the time when they will have been paid the full purchase price. Thereafter there would be no reason for HSBC to continue to provide buildings cover to the buyers not least because no benefit would accrue to HSBC's original insured by so doing.

c. However, if the buyers had their own buildings insurance covering equivalent risks to those insured by HSBC, there would be no good reason in a contract of insurance between HSBC and the Sellers for HSBC to extend insurance protection to those same buyers:

i. If the buyers had their own insurance, HSBC's insureds, the sellers, would be unlikely to need their buildings protection to be extended to those buyers.

ii. HSBC would have no commercial reason to confer a benefit on buyers who were not its original insureds, who had paid it no premium, and who in fact enjoyed the benefits of buildings cover procured from other insurers.

ii. HSBC would have no commercial reason to confer on the insurers of those buyers a benefit that would accrue in the event of double insurance.

d. Thus, it may be inferred, the reason why, in its contract of insurance with the Sellers, HSBC would wish to extend buildings cover to buyers would be to provide a measure of protection to its insured, the Sellers, over the period when the Sellers retained an insurable interest in the property in question in circumstances where the buyers were without their own buildings insurance: in which event the extension of cover would be of potentially significant benefit to, and included in the premium paid by, its insured.

e. This reason moreover informs the meaning and effect of the qualification in the HSBC policy: if the buyers had their own buildings insurance, it was not necessary in the context of its relationship with its insured, the Sellers, for HSBC to provide extended protection to a party with whom it enjoyed no original contractual relationship: accordingly, while generally extending buildings insurance to buyers of its insured's home up to the time of completion or the termination of the policy, whichever occurred soonest, HSBC specifically excluded the payment of any indemnity to buyers under itspolicy if those buyers had their own buildings cover under any other insurance which protected them in respect of the home that they were buying.

22. Since, in my view, the grant by HSBC of buildings insurance to any buyers of The Old Hall was subject to the exception that an indemnity would not be provided to them in respect of physical loss or damage occurring up to the time of completion if those buyers had, themselves, taken out buildings insurance covering the same risks, the question arises whether, in this case, at the time of the fire the Buyers had taken out such insurance with other insurers. As Templeman L. J. put it in National Employers Mutual General Insurance Association Ltd. v Haydon [1980] 2 Lloyd's Rep. 149, 156, "A clause of express absolution from one policy by reference to another only applies if there is another policy which indemnifies against the same risk. "
23. In my view, the Buyers had taken out buildings insurance covering the same risks as those in the HSBC policy with another insurer. As a result, HSBC did not cover, or - put another way - provide an indemnity to, the Buyers in respect of the fire and damage to The Old Hall. I say this for the following reasons:

a. The NFU policy covered the Buyers against the risk of damage to the buildings of The Old Hall by fire.

b. It contained no provision excluding coverage in the event that the Buyers were otherwise insured in respect of the same risk.

c. The only relevant "other insurance" provision in the NFU policy stipulated, so far as material in the context of this case, that the policy would respond on a pro rata basis if, at the time of any claim (which, in my view, must mean at the time of any covered occurrence) there was another insurance covering the same damage.

d. At the time of the claim/occurrence, the HSBC policy did not comprise another insurance within the scope of the "Other insurance" clause in the NFU policy: this was because the existence of the NFU policy, and the coverage it

provided to the Buyers in respect of the fire and consequential damage to The Old Hall, meant that the qualification in the HSBC policy was triggered.

e. Therefore, the HSBC policy did not cover - in the sense of provide any indemnity to the Buyers in respect of - the fire and damage to The Old Hall.

f. Since, for the reasons above, the HSBC policy provided no cover to the Buyers in respect of the fire and damage to The Old Hall, the "Other insurance" provision in the NFU policy was not triggered. Therefore the NFU was liable to the Buyers under its policy to the full extent of the physical damage to The Old Hall, without any pro rata apportionment, subject only to the indemnity limit for buildings cover in that policy.

24. The effect of my analysis, set out above, is that the only policy covering the Buyers in respect of the fire and damage to The Old Hall was the NFU policy. Accordingly, since in relation to the fire and the damage to The Old Hall, the Buyers were not insured with both the NFU and also HSBC (i.e. were not insured in respect of the same interest on the same subject-matter against the same risks), this is not a case of double insurance.
25. I should add in this context that, in my judgment, the qualification under HSBC's buildings cover in respect of the Buyers in this case is not itself qualified by the "Other Insurance" provision in paragraph 2 of the Claims Conditions of HSBC's policy which, it will be recalled, stated:

"We will not pay any claim if any loss, damage or liability covered under this insurance is also covered wholly or in part under any other insurance except in respect of any excess beyond the amount which would have been covered under such other insurance had this insurance not been effected. "

26. Paragraph 2 of the Claims Conditions was of general application, applying to all sections of the HSBC policy of which there were six: Buildings, Contents, Accidents to Domestic Staff, Public Liability, Valuables and Family Legal Protection. By contrast, the qualification provision in HSBC's Buildings Section was a special clause applying specifically to qualify any potential extension of the insurance granted by HSBC to its insured so as to cover a buyer of the insured's home. The clause in that section granting an indemnity to the buyer of an insured's home made it clear, in my judgment, that, so far as relevant to the facts of this case, the extension was limited to those buyers of the insured's home who, at the time of an insured occurrence, were unprotected by buildings cover of their own or in their favour. As a matter of construction, this special clause takes precedence over the general provisions in the Claims Conditions, particularly in this context Claims Condition 2.
27. The above analysis is, in my judgment, sufficient to dispose of the Preliminary Issues. However, Mr. Mark Simpson Q.C., who appears on behalf of the NFU, submits that the issue of construction in this case is to be determined by reference to a trilogy of cases involving motor insurance. Those cases deal with situations where there is potentially double insurance but where one or other or both of the relevant policies purport to deny or limit coverage and an indemnity in the event that the insured is covered in respect of the (otherwise insured) loss under another insurance. There are in this context three main classes of policy provision that attempt to avoid or limit an indemnity in the event of other insurance covering the insured: (i) the first class covers those clauses that purport to exclude an indemnity altogether in the event of other insurance - provisions known in the United States as "escape" provisions; (ii) the second class comprises those clauses that limit the insurer's liability to a rateable proportion of the loss in the event of other insurance - "rateable proportion" provisions; and (iii) the third class comprises those clauses that provide that, in the event of other insurance, the subject policy operates as an excess policy and only responds if and when the insured loss exceeds the amount of coverage recovered or recoverable under the other policy - "excess" provisions.
28. In cases of insured loss where each policy otherwise covering such loss purports to exclude liability to indemnify altogether in the event of co-extensive insurance, it has been held, as a matter of construction of the "escape" provision in each policy, that the category of co-extensive insurance does not include any insurance which contains an equivalent exclusion: in other words, as Lord Woolf described it in Eagle Star Insurance Co. Ltd. v Provincial Insurance PLC (loc. cit) page 141, the two exclusions cancel each other out. The result is that, subject to any other applicable policy terms, both policies respond in full to the insured loss but, since there is therefore double insurance, liability is ultimately shared between the insurers.
29. Perhaps the best known of these authorities is Weddell v Road Transport and General Insurance Company Limited [1932] 2 KB 563. Mr. J. R. Weddell took out motor insurance with Road Transport and General Insurance Company Limited. That insurance extended cover to any relative or friend of the insured permitted by the insured to drive his motor car "provided.. that such relative or friend [was] not entitled to an indemnity under any other policy". It also contained a rateable proportion clause providing that, if any loss covered under the policy was also covered under another policy, then the insurer should not be liable for any more than its rateable proportion of that loss. Mr. J. R. Weddell had a brother, Mr. L. W. Weddell, whom he permitted to drive his insured motor car. The brother also owned a car which he insured with Cornhill Insurance Company. The Cornhill policy extended cover to its insured, Mr. L. W. Weddell, while driving any motor car not belonging to him "if no indemnity is afforded the insured by any other insurance". It also provided, as a condition precedent to liability, that notice of any accident or claim should be given within three days.
30. During the period of both insurance policies, Mr. L. W. Weddell had an accident while driving Mr. J. R. Weddell's motor car in which a Mr. Ward was injured. Mr. Ward made a claim against Mr. L. W. Weddell. Mr. L. W. Weddell failed to give notice of the accident or the claim to Cornhill within the three days stipulated in the Cornhill policy, and Cornhill refused to indemnify him. Therefore, Mr. L. W. Weddell made a claim on Mr. J. R. Weddell's policy against Road Transport. Road Transport refused to indemnify him on the basis that he was insured by Cornhill at the time of the accident. Rowlatt J. held, as a matter of construction of each policy, that the exclusion in each policy of an indemnity in the event of co-extensive coverage under another policy did not apply to such other policies as contained an equivalent exclusion; or, put another way, that the application of the "escape" provision in either one of the policies would mean that, so far as the other policy was concerned, there was no co-extensive insurance - with the result that, as a matter of construction, the "escape" provision in neither policy could be applied.
31. Rowlatt J. put it as follows:

"It is to be borne in mind that the risk covered by the [Road Transport] clause as to a relative or friend is an extension of the scope of the policy. It gives protection to a person other than the assured. So, too, the clause in the Cornhill company's policy covering the assured when driving a car not belonging to him is an extension of the primary purpose of the policy, which is to cover risks to and in connection with a particular car or cars of the assured mentioned in the schedule. The general purpose of the proviso seems to be to make such extensions operate only as secondary cover, available only in the absence of other insurance regarded as primary, not including one would suppose, other insurance also of a secondary character. In my judgment it is unreasonable to suppose that it was intended that clauses such as these should cancel each other (by neglecting in each case the proviso in the other policy) with the result that, on the ground in each case that the loss is covered elsewhere, it is covered nowhere. On the contrary the reasonable construction is to exclude from the category of co-existing cover any cover which is expressed to be itself cancelled by such coexistence, and to hold in such cases that both companies are liable, subject of course in both cases to any rateable proportion clause which there may be. In other words, it is true to say that the relative or friend is not 'entitled to indemnity under any other policy' within the meaning of the Road Transport policy, and not 'afforded' indemnity 'by any other insurance' within the meaning of the Cornhill policy, when the other policy negatives liability where there are two policies. At that point the process must cease. If one proceeds to apply the same argument to the other policy and lets that react upon the policy under construction, one would reach the absurd result that whichever policy one looks at it is always the other one which is effective. "

Rowlatt J. concluded that, apart from the failure to comply with the notice provisions in the Cornhill policy, both Road Transport and Cornhill were liable to Mr. L. W. Weddell and, therefore, that Road Transport was bound to indemnify him in respect of one half of all sums for which he might be found liable to Mr. Ward.

32. The principle of Weddell v Road Transport and General Insurance Company Limited (loc. cit. ) is one of construction of insurance contracts. As Bridge L. J. put it in National Employers Mutual General Insurance Association Ltd. v Haydon (loc cit. page 154):

" Where two concurrent policies of insurance cover the same risk and each contains a clause excluding liability in the event of the risk being covered by another policy, it is obvious, in my judgment, that the principle applied in Weddell... whereby liability is shared equally between the two insurers, produces the only just and sensible result. As Mr. Justice Rowlatt observed in the course of his judgment in that case, it would be absurd to say in such circumstances that whichever policy one looks at it is always the other which is effective. It would be absurd because by that route both insurers would escape liability and the assured would be left without cover. But the question whether that principle applies in the circumstances of any particular case and as between any two particular insurance policies must, in my judgment, depend not on any general principle of law, but upon the true construction of the two policies applied to the relevant circumstances. "

See also, per Ralph Gibson L. J. in Legal and General Assurance Soc. Ltd. v Drake Insurance Co. Ltd. [1992] 1 All ER 283, 295 - 6 and per Lord Woolf in Eagle Star Insurance Co. Ltd. v Provincial Insurance PLC (loc. cit. ) at page 141G.

33. I do not gain much assistance from Weddell in the context of this case. The wording there was significantly different from that with which I am concerned: in particular, Rowlatt J. was dealing with two policies which contained conflicting "escape" provisions. The only "escape" provision in this case is that contained in the HSBC extension of cover to buyers of its insured's home. If value is to be taken from Rowlatt J.'s judgment in the context of this case, it is the implicit acknowledgement in it that "escape" provisions are effective to include in the category of co-existing cover any insurance that does not, itself, contain an equivalent "escape" provision. Thus, if anything, this authority may be seen to be adverse to the NFU case.
34. Furthermore, I observe that, in the course of his judgment, Rowlatt J. also indicated that the general purpose of the provisos comprising the "escape" provision in each of the policies with which he was concerned seemed to "be to make such extensions operate only as secondary cover, available only in the absence of other insurance regarded as primary, not including one would suppose other insurance also of a secondary character. " I doubt whether this indication reflects a recognised principle of construction and I do not base my judgment upon it. However, if it does, then it serves only to reinforce HSBC's arguments in this case: adopting Rowlatt J.'s terminology, the NFU cover that the Buyers in this case took out in order to cover them specifically in respect of the buildings of The Old Hall would be primary cover, while the provisional extension of cover in the HSBC policy would be secondary. On that basis, as the Buyers were covered by their own primary insurance with the NFU, the effect of the "escape" provision in the HSBC policy would mean that the HSBC cover was not available to them.
35. A similar conclusion to that in Weddell v Road Transport and General Insurance Company Limited was reached by Roche J. in the earlier case of Gale v Motor Union Insurance Company, Loyst v General Accident Fire and Life Assurance Corporation [1928] 1 KB 359 although by a different route of analysis. The facts were broadly similar in both cases: in the latter, Mr. Gale and Mr. Loyst each took out motor insurance with different insurers to cover them in respect of their own vehicles; each insurance was extended to cover both friends permissibly driving the insured's motor car and also the insured while driving the car of another with that other's permission; and each insurance contained "escape" provisions: clauses excluding coverage for insured events if those events were insured under other policies. Unlike the case in Weddell, both insurances also contained a "rateable proportion" provision. While Mr. Loyst was driving Mr. Gale's motor car with his permission, he collided with a cyclist, was found liable and, confronted by a disclaimer of an indemnity by both insurers (each of which claimed that the other was exclusively bound to indemnify Mr. Loyst), personally discharged his liability and claimed against both insurers.
36. The relevant "escape" and "rateable proportion" provisions in Mr. Gale's Motor Union Insurance policy were Conditions 6 and 10:

"6. The extension of the indemnity to friends and relatives of the insured is conditional upon such friend or relative.. not being insured under any other policy.

10. If at the time of the happening of any accident... covered by this policy, there shall be subsisting any other insurance or indemnity.. covering the same.. then the company shall not be liable to pay or contribute more than a rateable proportion of any sum or sums payable in respect thereof for compensation. "

The equivalent provisions in Mr. Loyst's General Accident policy were Clauses 2(2) and 5:

"2(2) The insured will also be indemnified hereunder whilst personally driving a car not belonging to him provided.. that there is no other insurance in respect of such car whereby the insured may be indemnified.

5. If at the time of the occurrence of any accident.. there shall be any other indemnity or insurance.. the corporation shall not be liable to pay or contribute more than a rateable proportion of any sums payable in respect of such accident.. "

37. Roche J. concluded that the "escape" provision in each policy was qualified and explained by the "rateable proportion" provision in each, and that the former only applied if there was another policy which provided a complete indemnity to the insured. However, since in his view each policy provided for the payment of a rateable proportion and not a complete indemnity, neither "escape" provision applied. Therefore, the "rateable proportion" provisions in each policy applied and each insurer was liable rateably for the insured's loss. He explained his analysis as follows:

"The whole clause [2(2) of the General Accident policy] means in my judgment 'provided there is no other insurance in respect of such other car under which the assured might secure an indemnity, meaning a full and complete indemnity in the existing circumstances. ' In other words if the assured is completely protected elsewhere by insurance then he is not entitled to recover under these policies or either of them. But in cases where these policies provide for a proportionate or partial indemnity, neither gives a full indemnity or complete protection. Accordingly, upon a true construction of these various clauses the assured is not deprived of the indemnity altogether which would be the result if condition 6 of the Motor Union Company's policy and clause 2 sub-clause 2 of the Accident Corporation's policy stood alone. The provision as to rateable contribution qualifies and explains the preceding clause negativing liability. "

38. There is a suggestion in the penultimate sentence of the passage above, taken from Roche J.'s judgment, that, if there had been no "rateable proportion" provisions in the policies, the effect of the "escape" provisions in both policies would have been to deprive Mr. Loyst of an indemnity altogether. I venture to doubt whether this is what Roche J. meant but, if it is, it would be inconsistent with the subsequent authorities, including Weddell and, in my view, would be wrong. The conclusion he reached is, however, entirely consistent with the subsequent authorities on the basis that the "escape" provisions in both policies cancelled each other out such that the "rateable proportion" provisions in each policy remained in full force and effect, and applied.
39. Again, in the context of the case that I have to decide, I derive only limited assistance from the judgment of Roche J., dealing as he was with different wordings from those with which I am concerned. In the first place, unlike the situation in Gale, the only policy in this case to contain an "escape" provision was the HSBC policy. There was no conflicting clause in the NFU policy. Secondly, in relation to the "escape" provision specifically applicable to the extension of cover to buyers of HSBC's insured's home, there was no "rateable proportion" provision serving to qualify it. Thirdly, the "excess" provision in the HSBC Claims Conditions, which was of general application, is not, in my view, apt to qualify the special "escape" provision applicable only to buyers of HSBC's insured's home.
40. It was suggested on behalf of the NFU that the "escape" provision in the HSBC policy stating that HSBC would not pay "if the buildings are insured under any other insurance" meant "if the buildings are fully insured under any other insurance"; and that the buildings were not fully insured by the Buyers under the NFU policy because of the presence in it of a "rateable proportion" provision. The apparent source of this submission was Roche J.'s approach to construction in Gale. In the context of this case, this submission is, to my mind, misconceived. The rateable proportion clause in the NFU policy only took effect if there was other insurance covering the same damage as that covered by the NFU. However, there was in this case no such other insurance: the HSBC policy did not comprise such other insurance because of the effect and application of HSBC's "escape" provision by which the extension of cover to buyers of HSBC's insured's home was qualified and, to these Buyers, was disclaimed.
41. Both Gale and Weddell were followed by Tucker J. in Austin v Zurich General Accident & Liability Insurance Company Limited (1944) 77 Lloyd's List Law Reports 409, (1944) 77 Ll. L. Rep. 409, the third of the trilogy of English cases on which the NFU relies. Again this was a case of motor insurance: Mr. Austin, who was insured by Bell Assurance Association, was driving a car belonging to Mr. Aldridge who was insured by Zurich. Mr. Aldridge and another were passengers. The car was involved in an accident as a result of which Mr. Aldridge died and the other passenger was seriously injured. Claims were brought against Mr. Austin and settled.
42. Mr. Austin made a claim on his own insurers, Bell, pursuant to a policy which extended liability cover to him while driving a car belonging to another coupled, however, with an "escape" clause in the form of a proviso disclaiming an indemnity in the event that Mr. Austin was covered by any other insurance. The Bell policy also contained, in Condition 2 an "excess" provision, as follows:

"If at the time of the occurrence of any injury.. loss, or damage, there shall be any other indemnity or insurance of any nature.. wholly or partly covering the same, the underwriters shall not be liable to pay or contribute towards any such injury, loss or damage except in excess of the sum or sums actually recovered or recoverable under such other indemnity or insurance. "

43. Bell indemnified its insured, Mr. Austin, and being subrogated to Mr. Austin's rights, brought an action against Zurich under the policy that Zurich had issued to Mr. Aldridge. The Zurich policy extended cover to any person driving Mr. Aldridge's car with Mr. Aldridge's permission but again subject to an "escape" clause in the event of an indemnity being available to any such person under any other policy. It also contained in Special Condition 5 a "rateable proportion" provision as follows:

"If at the time any claim arises under this policy there is any other existing insurance covering the same loss damage or liability the company shall not be liable.. to pay or contribute more than its rateable proportion of any loss damage compensation costs or expense. "

44. Tucker J. rejected the claim brought against Zurich by Bell in Mr. Austin's name on the basis that Mr. Austin had failed to comply with a condition precedent in the Zurich policy relating to notice. However, in the course of his judgment, he considered the effect of the "escape" provisions in both policies and the inter-relationship between the "excess" provision in the Bell policy and the "rateable proportion" provision in the Zurich policy. It is apparent from his judgment that Tucker J. was not prepared to give effect to the "escape" provisions for the reasons given previously by Roche J. and Rowlatt J. in respectively Gale and Weddell. As to the effect of the "excess" and "rateable proportion" provisions, he said as follows:

"Mr. Samuels [Counsel for Bell/Austin], while relying strongly upon Weddell's case, suggested that perhaps the language of the rateable proportion clause in the 'Bell' policy providing that they should be liable for any excess over and above any sums recovered or recoverable under any other policy might entitle him in the present case to recover 100 per cent against the 'Zurich' instead of the 50 per cent awarded by Mr. Justice Rowlatt. In my view the present case is indistinguishable from Weddell's case, which does not appear to have been questioned in any Court of law, and I have no doubt has been acted upon in insurance circles for the past 12 years. I therefore follow it. I can see no reason why the considerations which induced Mr. Justice Rowlatt to arrive at the conclusion that each company was liable to indemnify the assured to the extent of 50 per cent of his loss are not equally applicable in the present case. I am accordingly of the opinion that if the plaintiff is entitled to succeed, the judgment in his favour should be limited to 50 per cent of his total loss, namely one-half of the sum claimed in the statement of claim"

45. I have to say that I am not confident that I understand the analysis which led Tucker J. to conclude that the case before him was indistinguishable from that in Weddell other than in respect of the conflicting "escape" provisions, or the basis of Tucker J.'s observation that since in Weddell Rowlatt J. had arrived at the conclusion that each insurer was liable as to 50% of Mr. L. W. Weddell's claim, therefore the same result should obtain in Austin. In Weddell, the effect of the cancelling out of the two competing "escape" provisions meant, in the words of Rowlatt J., that both insurers were liable "subject of course in both cases to any rateable proportion clause which there may be". One policy alone (the Road Transport policy) contained a "rateable proportion" provision while the other policy (the Cornhill policy) contained neither a "rateable proportion" nor an "escape" provision. Rowlatt J. affirmed the decision of the arbitrator in that case in which Road Transport had been found liable as to 50%. It may be seen, once the two "escape" provisions were cancelled out, that this was because of (a) the rateable proportion clause in the Road Transport policy and (b) the fact that, apart from the omission to give notice, Cornhill was liable. I do not understand Rowlatt J. to have decided that, if Cornhill had been liable to Mr. L. W. Weddell, it would only have been liable for 50% or some other rateable proportion of Mr. L. W. Weddell's claim. Since the Cornhill policy contained no "rateable proportion" or other limiting provision, I apprehend that, if it had not been for the condition precedent, Cornhill would have been liable as to 100% of Mr. L. W. Weddell's claim subject only to such monetary limit of indemnity as the policy provided.
46. Moreover in contrast to Weddell, in the case of Austin, after the cancelling out of the two competing "escape" provisions, one policy (the Bell policy) contained an "excess" provision while the other policy (the Zurich policy) contained a "rateable proportion" provision. I am uncertain as to how one can equate those provisions in order to come to the result that each of Bell and Zurich agreed to pay its insured, if that insured was equivalently covered by another insurer, 50% of the insured loss.
47. If I were required to express a view as to whether, in construing the policies in question in Austin, it would have been more correct to have concluded that the Zurich policy was liable to indemnify Mr. Austin to the extent of its limits (without contribution from the Bell policy), above which the Bell policy provided excess cover, I would think that this was indeed more correct (and likewise, therefore, that HSBC's alternative argument, if relevant, should succeed: as to which, see further the analysis of the U.S. courts in Great Northern Ins. Co. v Mount Vernon Fire Ins. Co. 798 N. E. 2d 167 (N. Y. 1999) and Jones v Medox lnc. 430 A 2d 488 (DC 1981) App at 489, 491 - 494). However, the wording with which I am confronted is materially different from that under consideration in Austin: (i) the "escape" provision in the HSBC policy is not cancelled out by any equivalent provision in the NFU policy; (ii) it directly qualified the grant of cover to the Buyers; (iii) it is clear in its terms and there is good reason why it should be given effect to in accordance with those terms; and (iv) applying, as it did, specially to buyers of HSBC's insured's home, it is not in my judgment subject to qualification by reference to the HSBC policy's general Claims Conditions. Even, therefore, if one were to equate the "rateable proportion" provision in the NFU policy with the "excess" provision in the HSBC policy, or to treat them as in competition or conflict with each other, or to conclude when they are in conflict with each other that they are to be treated in the same manner as that in which Tucker J. would probably have treated them, it is of no relevance in the context of this case: neither the "excess" provision in the HSBC policy nor the "rateable proportion" provision in the NFU policy was triggered, or potentially triggered, in circumstances where, as in this case, the "escape" provision in the specific coverage extension applied.
48. The possible tension between what Rowlatt J. said in Weddell and Tucker J.'s observations in Austin has been recognised in Australia and New Zealand. Mr. Simpson, and Mr. James Thom Q. C. who appeared on behalf of HSBC, took me to a large number of Commonwealth and U.S. authorities covering "escape", "rateable proportion" and "excess" provisions and, on occasion, their inter-relationships. In the specific context of this case and the confined exercise of construction on which I am engaged, only limited value can be extracted from a trawl of all these authorities. Moreover, a large number of these or similar authorities (including the trilogy of English cases to which I have just referred) were addressed by the Australian Law Commission in its Report No. 20 on Insurance Contracts, 1982. It prefaced its detailed analysis of the authorities with the following observation:

"The authorities dealing with interactions of the type mentioned in the preceding paragraph [interactions between "escape", "rateable proportion" and "excess" provisions] are difficult to follow and impossible to reconcile. "

This observation, it seems to me, as well as my own reading of these authorities, confirms the suspicion that there is limited value in endeavouring to extract any clear consensus of analytical approach helpful to this case.

49. However, I have been assisted by the analysis of the majority judges in the New Zealand Court of Appeal decision in State Fire Insurance v Liverpool & London Globe Insurance [1952] NZLR 5. While that was not a case which involved any insurance containing an "escape" provision, the reasoning of the majority of the Court is instructive. The facts may be stated briefly as follows: A local Board concerned with the rendering of services to the public was insured against claims arising out of the negligence of its officers under a policy taken out with State Fire. One of the Board's officers had independently also taken out his own policy of insurance with Globe under which he was personally insured against claims alleging negligence on his part. A claim was made against the officer for negligence. That claim was compromised and the issue arose between the insurers as to their respective liabilities.
50. The State policy contained an extension of cover clause covering the liability of the Board's officers that was expressed to be subject "to the proviso that if the Assured's officers are otherwise indemnified in respect of their legal liability the indemnity under this policy in respect of the legal liability of the Assured's officers shall not apply until the full amount of the indemnity otherwise provided has been applied as far as it shall go in satisfaction of the liability. " In other words, the State policy contained an "excess" provision explicitly qualifying the extension of cover in respect of the Board's officers. The State policy also contained, in what appears to have been one of its generally applicable Conditions, a form of "rateable proportion" provision. The Globe policy, taken out by the officer on and for his own account, also contained a "rateable proportion" provision - but no "excess" provision.
51. The majority judgment of the New Zealand Court of Appeal was delivered by Hutchison and Cooke J. J.. (I have been taken also to the judgment of Finlay J. who came to the same conclusion as the majority but via a different analytical route based in large part on a distinction between primary and secondary insurances. I prefer the analysis of the majority. ) They were taken to the trilogy of English cases (Gale, Weddell and Austin) and recognised an "apparent difference of opinion between Rowlatt J. and Tucker J. ". The result of the English cases, they thought, was, so far as the existence of liability was concerned as distinct from the proportions in which it should be shared, to subordinate any rateable contribution provision to the clause giving the indemnity. Drawing from those English cases to that extent, and putting to one side the apparent difference between the judgments in Weddell and Austin, they drew a distinction between the clause in the State policy giving the Board's officer an indemnity (which, as set out above, was explicitly subject to the proviso in effect that, in the event of other covering insurance, it should operate as excess cover) and the separate rateable proportion provision in the same policy; and concluded that the "rateable proportion" provision should be subordinated to the indemnity provision: therefore, any inconsistency between the two provisions was to be reconciled in favour of granting primacy to the indemnity clause and the excess provision within it. The result was that, in respect of the coverage provided to the Board's officer, it operated as excess coverage. As Hutchison J. put it in the majority judgment, page 29:

"The Court in the present case is not faced with the problem of reconciling two clauses giving indemnity which, if construed in a certain way, might produce an absurdity. The present case is, therefore, different from the English cases. The Court is, however, in effect faced with the problem of resolving an apparent conflict between the clause giving the indemnity in the State policy and the contribution provision in that policy: and that conflict should, we think, be resolved by the application of the principle that - so far as the existence of liability is concerned - the rateable contribution condition should be subordinated to the clause giving the indemnity. That method of construction appears to us to be particularly appropriate in the present case, because the endorsement on the State policy is a special provision, whereas the rateable contribution clause is a general provision. So construing the policy, the result, as it appears to us, is that the State policy gives the officer no right of indemnity until his rights under the Globe policy are exhausted.

As far as the officer is concerned, the State policy is, we think, an 'excess policy'...

In short, the position, in our view, is that the State policy places no obligation upon [State] to indemnify the officer until his own insurer has first been called upon for the indemnity provided by its policy, and [Globe] in its claim to contribution, relying, as it must, on the existence of the extension in the State policy, must, in our opinion, take that clause as it finds it, with its proviso as well as the first part of it. "

52. By parity of reasoning with that of the majority judgment in the Court of Appeal in State Fire, it is confirmed in my judgment that, in the circumstances of this case, the HSBC policy provided no indemnity to the Buyers in respect of the fire damage to The Old Hall. The clause granting buildings cover to the Buyers did so on terms that made it clear that no payment would be made - in other words that coverage would not be extended - if the Buyers had their own buildings cover. Adopting the terminology of the majority judgment, the Buyers and therefore the NFU must take the extension clause as they find it, viz. as a qualified extension of cover. They cannot take the extension without the qualification. Also, as I have said above, and as appears to be supported by the reasoning of the majority judgment in the Court of Appeal, the qualified extension of buildings cover to the Buyers is not, itself, further qualified by the generally applicable Claims Conditions in HSBC's policy: not only is the former a special provision taking precedence over the latter to the extent of any conflict between the two but also, for the reasons set out by the majority judgment in the Court of Appeal, the latter is subordinated to the former so far as the existence of liability is concerned.
53. I do not propose in this judgment, since to my mind it is not necessary, to go through any of the other authorities from the Commonwealth or the United States which the parties have put before me, which deal with the inter-relationship between, and different combinations of, "excess", "rateable proportion", "escape" provisions. In the circumstances of this case which, in the context of a property transaction, depends on the construction and application of the particular wordings of two domestic insurance policies covering building risks, they have, in my view, only tangential relevance.

Conclusions

54. It is clear, in my judgment, that, on the proper construction of the two policies with which I am concerned and in the circumstances of this case, the NFU policy covered the Buyers without qualification in respect of the risk of loss or damage to the buildings of The Old Hall by fire; with the result that no buildings insurance covering the same risk was extended to the same Buyers by the HSBC policy. Therefore, there was no double insurance in relation to the Buyers in this case, and no basis on which the NFU may seek or be awarded a contribution from HSBC towards the indemnity payment it made to its insured, the Buyers, under its own policy.
55. Accordingly, the answers to the three Preliminary Issues are as follows:

(1) Whether on a true construction of the entirety of the HSBC policy it did not provide cover to [the Buyers] for damage due to the fire, because on a true construction of the entirety of the NFU Mutual policy it provided cover and there is no conflicting clause in that policy which cancels it;

Yes, the HSBC policy did not cover the Buyers.

(2) Whether on a true construction of the entirety of the NFU Mutual policy that policy, under General Conditions, only contains a general pro rata clause where there is other insurance covering the same damage;

Yes

(3) Whether the extended cover for buyers in the HSBC policy is limited to assisting its insured in the event that a buyer does not complete the purchase.

In view of the answers to the first two Preliminary Issues above, this Issue does not arise.