Scottish Court of Session Decisions

John Buchanan & Brothers, wholesale confectioners in Glasgow, proprietors of 49–53 Buchanan Street, and 44 to 46 Mitchell Street, obtained on 9th November 1877 from the Liverpool & London & Globe Insurance Company a policy of insurance against loss by fire over these premises to the extent of £8000 on the buildings and £500 on twelve months' rent thereof. The total year's rent of the buildings amounted to £2345. They also, on the 20th of the same month, obtained another fire policy over the same subjects from the Royal Insurance Company for £11,000 over the building and £500 on twelve months' rent thereof. In the policy of the Liverpool & London & Globe Company there was this clause—“The insurance on rent is recoverable only in the event of the above building being so damaged or destroyed by fire as to become untenantable; the said insurance to cover the rent of said building from the time of such accident until the period of reinstatement or of perfect repair, and in the proportion which the period of untenantableness bears to the term of rent which is insured, not exceeding twelve months' rent.”

On 3d November 1883 (both policies being still

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in force), a fire occurred on the premises, causing damage to the buildings, which was admitted by both companies to amount in all to £5727, 13s. 2d., payable according to allocation in respect of the proportional liabilities—£4592, 0s. 7d. by the Royal, and £1135, 12s. 7d. by the Liverpool & London & Globe Company. The amount of loss of rent was admitted by both companies to amount to £856, 2s. 2d. The half of the amount of the loss of rent, viz., £428, 1s. 1d., was paid by the Royal Insurance Company as their proportion of the loss. The Liverpool & London & Globe Company refused to pay the remaining sum of £428, 1s. 1d., and tendered payment of £190, 7s. 11d. as the amount of their liability, on the ground that they were only liable to pay the loss sustained on rent in the proportion which the sum insured bore to the total yearly rental and the period of untenantableness.

This sum of £190, 7s. 11d. was correctly calculated, assuming the company's construction of the policy to be correct.

The period during which part of the building was untenantable was six months, another eight, and another three months.

John Buchanan & Brothers then raised this action in the Sheriff Court at Glasgow against the Company for payment of £428, 1s. 1d., which they averred was the sum due to them in respect of loss of rents from the fire under their policy with the company.

They pleaded—“(1) The defenders having [along], with the Royal Insurance Company, insured one year's rents of the pursuers' buildings for £500 each, are liable under their said policy for the sum sued for, being one-half of the said loss. (3) The pursuers are entitled, under the policy before set forth, to decree against the defenders as craved.”

The defenders judicially tendered and consigned £190, 7s. 11d. conform to their former offer, and pleaded—“(3) The defenders are only liable to pay the pursuers the loss sustained on rents in the proportion which the sum insured on rents bears to the total yearly rental and the period of untenantableness, and having offered payment of and consigned the sum due by them on this principle, they are entitled to absolvitor, with costs. (4) The pursuers having only insured £500 on a year's rents, although the actual yearly rental of the property was very much greater, must be held to have agreed to hold, as between them and the defenders, £500 as the year's rents, and the defenders are only liable to pay the proportion of this sum applicable to the period of untenantableness, and having tendered payment of and consigned such proportion, they are entitled to absolvitor, with costs.”

The Sheriff-Substitute ( Guthrie) decerned against the defenders for the admitted sum of £190, 7s. 11d., finding no expenses due.

“ Note.—… The question relates to the construction of a memorandum affixed to the policy, bearing, ‘The insurance on rent is recoverable only in the event of the above building being so damaged or destroyed by fire as to become untenantable; the said insurance to cover the rent of said building from the time of such accident until the period of reinstatement or of perfect repair, and in the proportion which the period of untenantableness bears to the term of rent which is insured, not exceeding twelve months’ rent. ‘I am not surprised that the insured should have been misled by this clause. When it comes to be examined with care, it proves to be simply’ a way of applying the ordinary average clause to the insurance of rent. The insurance is to ‘cover the rent of said building … in the proportion which the period of untenantableness bears to the term of rent insured,’ or more correctly, in the proportions which the rents lost bear to the amount insured. Ex figura verborum it almost seems as if the rent of the building is covered in the proportion which the period of untenantableness bears to the term of the rent insured, i. e., in the proportion which one period of time bears to another period of time. But if we scan the exceedingly ill-chosen words more closely, it is obvious that the proportion sought is not between two periods of time, but between the rents lost and the total sum insured on rent. This appears from the words at the end, not exceeding twelve months’ rent,’ so that to complete the clause it should be read thus: ‘In the proportion which (the rents of) the period of untenantableness bear to the term of rent (or rather the amount of rent) which is insured, not exceeding,’ &c.

In working out the arithmetical problem there is a little complication arising from the fact that in the premises insured in this case there are different periods of untenantableness in different parts of the buildings yielding different rents; but the assessors in their report, which both parties accept (except in regard to this question of construction), have arrived at an entirely correct result according to the meaning which I put upon the memorandum on the policy. I have only to add, that I do not think the clause can really bear any other construction when duly considered, and that the pursuers' plea of personal bar is not supported by any sufficient averments. I cannot see why this average clause should not have been framed in the ordinary and recognised forms of such clauses; and as the litigation seems to me to have been due to the manner in which the defenders prepared their policy, I think it would be hard to find the pursuers liable in expenses.”

The pursuers appealed to the Court of Session, and argued—An average or valued policy, for which the defenders contended, was unusual in fire insurance, and not to be presumed. The rent-clause could not bear the construction which the defenders put upon it. It meant that the pursuers were entitled to the whole £500 if the half of the loss of rents amounted to that sum, for any period, however short, and then the policy was exhausted.

The defenders replied—The pursuers' contention might be the result aimed at in some fire policies, but it was inconsistent with and excluded here by the terms of the rent-clause, which would bear no other construction than that which the Sheriff-Substitute had put upon it.

At advising—