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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Howie v. CGU Insurance Plc [2005] ScotCS CSOH_110 (17 August 2005)
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Cite as: [2005] CSOH 110, [2005] ScotCS CSOH_110
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Howie v. CGU Insurance Plc [2005] ScotCS CSOH_110 (17 August 2005)
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OUTER HOUSE, COURT OF SESSION [2005] CSOH 110 |
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CA179/04 |
OPINION OF LORD CLARKE in the cause EWEN MOIR HOWIE Pursuer; against CGU INSURANCE PLC Defenders:
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Pursuer: Beynon; Beveridge & Kellas
Defenders: Brodie; HBM Sayers
17 August 2005
Introduction
[1] In this commercial action, the pursuer sues the defenders for payment of certain sums he claims are due to him under a buildings insurance policy effected by him with the defenders, in relation to certain heritable subjects, including a detached farmhouse, of which the pursuer was the heritable proprietor. The farmhouse and its entire contents were destroyed in a fire which took place on 16 February 2001. [2] In Article 3 of Condescendence, the pursuer avers:"On or about 16 February 2001 the Pursuer developed a mental illness to the extent that he suffered an alienation of reason amounting to insanity. Prior to that time, the Pursuer had no history of mental illness or mental abnormality. During the morning of 16 February 2001, the Pursuer was taken by his late mother to his General Practitioner, Dr McLuckie, in Turriff. The Pursuer had become agitated. The GP prescribed, cholorpromazine and arranged for the Pursuer to be taken home and looked after by his mother. Thereafter and whilst insane, on or about the evening of 16 February 2001, the Pursuer assaulted his late mother within the said farmhouse. As a result of that assault, the Pursuer's late mother, Eileen Florence Ewen or Howie died. The Pursuer, again, while suffering from the said mental illness during the evening of 16 February 2001, set fire to the said farmhouse which resulted in its destruction and the loss of both the dwelling house and its contents. The Pursuer was served with an Indictment at the instance of the Crown in which he was charged with the murder of his late mother and a second charge of an attempt to pervert the course of justice. The Pursuer lodged a special defence of insanity relative to both charges. At the High Court sitting at Forfar on 18 June 2001, and after evidence, a jury returned a unanimous verdict of not guilty to both charges on the basis of the Pursuer's insanity at the material time. As a result of that verdict, the Pursuer was made subject to an Order for his compulsory detention at the State Hospital in Carstairs."
"Esto the Pursuer was insane at the time he set fire to the property (which is not known and not admitted) the Pursuer's insanity supervened during the course of the contract and rendered him incapable of performing his obligations under the Contract of Insurance. The said Contract of Insurance included a General Condition 3 which required the Pursuer to maintain his property in a good state of repair and 'take all reasonable steps to prevent injury, loss or damage'. The Pursuer was incapable of performing this obligation and meeting this contractual condition. The Defenders were, accordingly, relieved from their obligation to indemnify as a matter of mutuality."
The defenders also seek to avoid payment under the policy on the ground of public policy.
The Defenders' Submissions
[4] The matter came before me for debate on both parties' pleas to the relevancy. In opening his submissions, junior counsel for the defenders informed me that his submissions would proceed on the hypothesis, for the purposes of the debate only, that the pursuer was indeed insane at the time he set fire to the property. He sought to attack the relevancy of the pursuer's pleadings on that hypothesis under reference to the provisions of Condition 3 of the relevant policy. The relevant policy is 6/3 of process. It bears to be a contract of indemnity insurance. Condition 3, relied upon by the defenders is headed "Your Duty of Care" and is in the following terms:"You and your household must undertake to maintain your property in a good state of repair and take all reasonable steps to prevent injury, loss or damage."
Section 1 of the policy provides for insurance in respect of loss or damage caused to the insured subjects by fire. There are no special exclusions under this heading.
[5] Junior counsel for the defenders informed the Court that his submissions relied entirely upon the terms of Condition 3 and no other terms of the policy. The defenders' principal submission was short and, at first sight, subtle. It was to the effect that Condition 3 assumed that the insured would have the mental capacity to form intentions during the currency of the policy. If the insured lost that capacity, something that was essential to the policy fell. The submission was founded either on the requirements of mutuality of obligations in contract, or alternatively, some form of frustration. [I should add, at this stage, that counsel for the defenders did not develop any submission based on the law of frustration]. Putting matters another way, the contract assumed the continuing sanity of the insured. From the instant that the insured became insane he was unable to perform his part of the contract. Counsel accepted that it was, at the very least, arguable that Condition 3, in fact, added nothing more than would be implied into a contract of insurance of this kind. [6] I was referred to the case of Beresford v Royal Insurance Company Limited (1938) AC 586. In that case it was held that the estate of a deceased who had committed suicide, when sane, could not recover on a life assurance policy taken out on his own life. At the date of death, suicide was a crime in England. The policy in question was construed as binding the insurance company to pay in the event of the assured's suicide while sane, after the expiry of a year from the commencement of the insurance. The House of Lords, nevertheless, held that it made no difference that the terms of the policy were to that effect because the courts would not enforce a provision which is illegal or contrary to public policy. It seems reasonably clear from what was said in the case, in particular in the speech of Lord Atkin at pages 594-595, that their Lordships would not have reached the same conclusion had the deceased been insane at the time he committed suicide. The public policy considerations were aimed only at intentional and deliberate suicide. Notwithstanding that apparent recognition by the House of Lords that the actings of an insane insured in bringing about the event against which he is insured might not debar him or his estate from recovering under the policy, junior counsel for the defenders maintained that, in the circumstances of the present case, the principle of the Scots law of contract, of mutuality of obligations, had a role to play. Counsel referred me to the case of Eadie v MacBean's curator bonis (1885) 12 R 660. That case related to a partnership in which certain of the partners sought to have a judicial factor appointed to the partnership to wind up its affairs because of the physical and mental incapacity of the senior partner. The petition was, in the event, refused on the ground that it was not a condition of the partnership contract, in question, that the senior partner should give his personal services and that, therefore, the other partners were not entitled to bring their co-partnery to an end. Lord President Inglis, however, at page 665 said this:"There can be no doubt that under ordinary circumstances where two or more persons are engaged in business together as partners, and all of them are expected or by contract of co-partnery bound to take an active management of the business, the permanent insanity or incapacity of one of the partners necessarily operates a dissolution of the partnership. The ground in law upon which that result is reached is a very obvious one, that the insane partner is no longer able to perform his part of the contract, and where one party to a contract becomes disabled from performing his part of the contract, of course the other parties to the contract are liberated from their obligation. That is a rule of very general application, and not confined to contracts of partnership by any means."
Junior counsel for the defenders referred me next to the case of Plews v Plaistead (No. 2) (1997) SLT 1371. It was accepted, in the first place, that this case, following previous authorities, had held that in indemnity property an exclusion in relation to damage to the property by reason of failure of the insured to take all necessary precautions for the safety of the property insured was to be held as applying an exception only where the insured's actions causing damage were at least reckless. The Lord Ordinary in Plews (page 1374I) relied specifically on a dictum of Lord Diplock in the case of Fraser v B N Furman (Productions) Ltd (1967) 1 WLR 898 at page 906 where his Lordship:
"What, in my judgement is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognise a danger, should not deliberately court it by taking measures which he himself knows are inadequate to avert it. In other words, it is not enough that the employer's omission to take any particular precautions to avoid accidents should be negligent; it must be at least reckless, i.e., made with actual recognition by the insured himself that a danger exists, not caring whether or not it is averted. The purpose of the condition is to ensure that the insured will not refrain from taking precautions which he knows ought to be taken because he is covered against loss by the policy."
Counsel for the defenders submitted that, once insanity supervened, the insured was no longer able to perform the obligations just referred to in that dictum and therefore was incapable of performing his obligations under the contract. In relation to mutuality of obligations in the Law of Contract in Scotland, I was referred to the discussion of the topic in the speech of Lord Jauncey in the case of Bank of East Asia Ltd v Scottish Enterprise 1997 SLT 1213 particularly at 1216D to 1217C and to the decision of the First Division in the case of Macari v Celtic Football & Athletic Co Ltd 1999) SC 628, with particular reference, in that last case, to what Lord President Rodger had to say on the topic at page 640. It has to be noted, however, that in both of those two last mentioned cases, it was expressly recognised that in certain circumstances, a party is not entitled to withhold performance of an obligation under a contract when the other party has failed to perform his obligations, and it was also recognised that the law does not regard each and every obligation upon one party as necessarily and invariably the counterpart of every obligation by the other. One has to have regard to the circumstances.
[7] Counsel, in the course of his submission, very properly, drew my attention to certain authorities which, while not directly against the actual submission he was making, in the form, at least, in which it was made, certainly did not support the position being adopted by the defenders in the circumstances of the case. I was referred, in particular, to MacGillivray on Insurance Law (10th edition) at para. 26-29, where it is stated, in a chapter dealing with fire insurance, as follows:"If the assured is so insane as not to be legally responsible for his acts, an act of incendiarism will not prevent him from recovering under the policy".
That proposition is supported by reference to an American case D'Autremont et al v Fire Association of Philadelphia 65 Hun. 475 (1892). In the last mentioned case, the question for the Supreme Court of New York was whether or not personal representatives of an insured could recover, under an indemnity policy, for damage to property, caused by the insured setting fire to it, while he was under the influence of some "insane impulse". The Court remarked as follows:
"It is well understood that a lunatic is not liable criminally for his unlawful acts, for the reason that he is incapable of forming a purpose, or having an intent, which is an essential element in the commission of crime under our laws."
The Court continued in the judgment of Macomber J., as follows.:
"In actions upon policies to recover damages occasioned by loss through fire, it is not a defense which the insurance company may avail itself of to show that the loss was caused by the carelessness, negligence, or want of care of the insured, or any of his agents or servants. The insurance company, in order to establish such a defense, must go further, and show that the act was so grossly negligent as to indicate an intention to commit a fraud upon the rights of the insurer. The simple fact of the existence of negligence in either the insured or his agents, however great the degree, provided it does not reach the point of a wrongful or fraudulent purpose, or a wanton disregard of others, is not a defense to a policy of fire insurance."
That passage, it appears, was recognising the same sort of considerations that were discussed in the cases of Plews and Fraser cited supra.
[8] In the course of discussion with the Bench, junior counsel for the defenders accepted that the logic of the position he was advancing would be that, if the pursuer had become insane, and while continuing to be in that condition, lived away from the insured subjects, perhaps while in hospital, it could be argued that he was incapable of performing his obligations under Condition 3 and that, accordingly, if the insured subjects were destroyed by fire, in his absence, he could not recover under the policy. It did appear that counsel for the defenders had some difficulty in justifying such an apparent logical extension of the argument he was advancing.The Pursuer's Reply
[9] In reply, counsel for the pursuer commenced by submitting that the relevancy of the pursuer's case was supported by high authority. MacGillivray on Insurance Law (10th edition) in the chapter dealing with fire insurance at para. 26-27 states:"If the proximate cause of the loss is fire, it is immaterial in the absence of relevant warranties that the fire has been caused by the negligence of the assured or his servants. Thus, where the assured hid her jewellery in a grate and later forgot that she had done so and lit a fire there, it was held that she was entitled to recover under a fire policy for the resulting damage (Harris v Poland (1941) 1 KB 462). Even gross negligence will not debar the assured from recovering under the policy unless his conduct was so reckless and careless of consequences that amounts in law to a wilful act."
That passage fell to be read along with the passage referred to by counsel for the defenders at para. 26-29 of MacGillivray to the effect that if an insured is so insane as not to be legally responsible for his acts, an act of fire raising will not prevent him from recovering under the policy. Counsel also referred to the American case of D'Autremont cited above. Reference was also made to the passage quoted above from the speech of Lord Atkin in Beresford which counsel submitted could, and should, be read as an acknowledgement that an insane person may be entitled to recover under a policy even though it was his own act that caused the insured risk to materialise. The insured obligations, in the present case, were (a), to pay the appropriate premium, (b) to disclose all material facts and (c) to avoid reckless conduct which might give rise to the risk. There was no suggestion that the pursuer had failed in relation to (a) and (b). If it be the case, as the pursuer offered to prove, that he was insane at the time of the fire, it followed that he could not be said to have been reckless in the legal sense. The defenders have not averred that prior to the actual incident, and prior to the onset of his insanity, the pursuer had been acting recklessly in terms of Condition 3. Their submissions in relation to mutuality of contract were, in that situation, wholly without merit. The averments of the defenders in Answer 4, which sought to defend the action, on that basis, should not be admitted to probation and the defenders' fourth plea in relation thereto should be repelled. For the rest, a proof before answer should be allowed on the parties' averments and the remaining pleas-in-law.
[10] In reply, counsel for the defenders conceded that he was not in a position to make any further averment in support of the defenders' arguments on mutuality of obligation.Decision
[11] I am entirely satisfied that the defenders' submissions made before me are without merit. As has been seen, they revolve round the provisions of Condition 3 of the policy. As was accepted by counsel for the defenders, it is probably the case that provisions of Condition 3 are what the law would imply, in any event, into a policy of this kind. But it has also been seen, and was conceded by counsel for the defenders, that such a condition will only result in the insurer being entitled to resist payment under the policy if the losses, which have occurred, and in respect of which recovery is being sought, were caused by reckless conduct on the part of the insured. The defenders in this case do not plead that the losses in respect of which the pursuer seeks recovery resulted from his reckless conduct, prior to his becoming allegedly insane on the day of the fire. In that situation, I do not consider that any breach of the mutuality principle in our law of contract, as properly understood, and as it falls to be applied in the field of insurance, has been relevantly averred to entitle the defenders to refuse to indemnify. It is, to my mind, inconceivable that an argument of that sort would not have been previously taken and succeeded, in a case of this sort, if it was, indeed, sound. There is not a hint of any such argument being advanced, far less succeeding, in the relevant passages from MacGillivray and the passage at para. 26-29, indeed, supports the pursuer's position that the defenders' pleadings in this respect are not soundly based. The American case of D'Autremont is, in my opinion, formidable support also for the pursuer's position in a field of law where international authority is frequently followed and applied. The defenders' submission, if correct, and driven to its logical conclusion would, as noted above, have certain strange and unsatisfactory results. Another example of such a result would be as follows,. If the owner of insured valuable paintings which had been kept under secure and appropriate conditions, as required by the insurer, in a fit of madness, destroyed them, he would be prevented from recovery under the relevant policy because of his failure to keep the insured paintings secure and under appropriate conditions. As previously seen, the authorities recognise that an act of destruction, whether of life, or property, carried out by an insured person, while insane, does not necessarily prevent him, or his representatives, recovering under the relevant policy in respect of the loss arising therefrom on the basis that he is in breach of his obligations under the contract and is himself the cause of the risk, which has been insured against, materialising. The approach of the law is that such an event is, in effect, "an accident" for the purposes of its insurance. [12] For the foregoing reasons I shall accede to the motion of the pursuer and exclude from probation the averments of the defenders in Answer 4 beginning with the words "Esto the Pursuer was insane" until and including the words "as a matter of mutuality". I shall also repel the defenders' fourth plea-in-law. Quoad ultra I shall allow a proof before answer.