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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 48
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A187/05
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OPINION OF LADY
DORRIAN
in the cause
SUPERSAVE MINI
MARKET AND OTHERS
Pursuers;
against
WALTERS HOLLAND
(LIFE AND PENSIONS) LIMITED AND ANOTHER
Defenders:
________________
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Pursuers: Collins;
Simpson & Marwick
Defenders: Logan;
Campbell Smith W.S.
26 March 2008
[1] This
case, in which the record extends to almost 80 pages, came before me on
the Procedure Roll on the defenders' preliminary pleas. The pursuers are property investors. The first defenders are insurance brokers and
the second defender is a director and employee of the first defenders. The pursuers owned a block of property at the
corner of Main Street and Dryburgh
Road, Wishaw, known as the "Stag Hotel". Insurance of said property was arranged
through the defenders with Allianz Cornhill with effect from 8 December 2000. That policy was renewed in or about May 2001
with a renewal date of 16 May
2002. The original insurance
cover was for £700,000 with £30,000 cover for loss of rental income. The former figure was changed to £837,000
(with a noted value of £728,00) in May 2001.
[2] The
"Stag Hotel" consisted essentially of three components, namely a disco; a restaurant/bar; and two residential flats. The restaurant and disco were both tenanted. Prior to the insurance renewal date
subdivision of the subjects had taken place with the result that the flats were
assigned postal addresses of, and entered from, 2 and 4
Dryburgh Road.
The pursuers aver that the defenders were well aware that the flats at 2
and 4 Dryburgh Road
were the same flats which had formed part of the Stag Hotel premises. The defenders deny this.
[3] The
pursuers aver that in about April 2002 they instructed the defenders to
renew the insurance. At page 15, in
article 3, they aver that discussions took place with regard to the Stag
Hotel premises under reference to a combined value of £700,000, that they
instructed that the flats be insured separately and that cover was not required
for the restaurant since this had been arranged by the tenant. They aver that "the previous cover was to be
apportioned £250,000 to the disco, £250,000 to the restaurant and £200,000
for the flats." On that basis the buildings cover was to be reduced to £250,000
for the disco, with the flats to be insured separately with contents cover of £10,000
for each flat.
[4]
By letter dated 12 April the defenders wrote to the insurers seeking
renewal of the policy subject to certain changes. The insurers had extended the renewal date to
23 May, and by letter of 16 May indicated that they would require
further information before they would provide renewal terms. On 22 May the defenders wrote to the
pursuers advising that the policy had been renewed with the addition of the
property at Dryburgh Road. The pursuers aver that this was untrue. On the same date the defenders in fact wrote
to the insurers seeking to add the Dryburgh Road
flats and providing additional information about the restaurant and disco. By letter of 30 May the insurers replied
that they would not insure the disco and asked the defenders "to place this
location, the Stag Hotel, elsewhere". The
defenders did not communicate this information to the pursuers. However, the pursuers received a schedule
dated 27 June which did not include either the flats or any part of the
Stag Hotel and contacted the defenders to query these omissions. (A conflict in relation to the contents of
the schedule of 27 June is not relevant for present purposes). In response they were advised that the
insurers would not insure the disco alone for £250,000 and the pursuers
agreed to extend the cover to the whole of the commercial premises for cover of £500,000. The pursuers aver that these instructions
were included in a fax indicating that the commercial premises were to have
combined cover of £500,000 and that the Dryburgh
Road flats were to have cover of £200,000.
[5] On
16 July 2002 the
defenders wrote to the pursuers confirming
"... having
arranged cover ... including the restaurant and Disco as previously insured with
Cornhill insurance for a sum insured of £500,000. Additionally the properties at Dryburgh
Road ... have been noted and endorsements will
follow in due course."
In fact this was inaccurate and the
defenders wrote on the same day to the insurers asking for cover for the
commercial premises, "together with the previously noted loss of rent cover."
In that letter the second defender informed the insurers that he had "confirmed
to my client that everything should be in order relating to adding the property
in to the portfolio ..." and referred to the Dryburgh
Road flats as additional property which the
pursuers had purchased. The pursuers
aver that the defenders "did not advise the insurers, as they should have done,
that the flats were formerly part of the Stag Hotel." The insurers issued a
schedule dated 9 September showing cover for the flats, retrospective to
22 May, but declining to cover "the Stag Hotel premises" stating that
"this location was deleted on 16 May
2002" and that "No cover therefore is in place in respect of this
location." The second defender did not inform the pursuers of the content of
this letter, writing instead on 15 October
2002 that the Dryburgh Road
premises were covered but "we are still awaiting confirmation of the insurance
for the stag hotel." On the same day, he
wrote to the insurers asking them to reconsider and saying that they had
"indicated to our clients that the premises were insured ...." The insurers responded on 16 November
that the premises were uninsurable and that "cover at this location cannot be
granted."
[6] The
premises were affected by three successive fires, on 11 September , 28 November
and 10 December all 2002. The
pursuers aver that the on 11 September the first fire was intimated to the
defenders by phone and by fax but that no claim was to be made as they
understood the damage would be made good under insurance arranged by the
tenants. They aver that the second fire
was intimated on 28 or 29 November by phone. The defenders deny receiving intimation of
either of these fires.
[7] The
first fire caused damage to the disco; the
second and third was in the vicinity of the flats and also caused damage to the
restaurant and bar. It is averred that
there was some overlap of the damage caused in the second and third fires, the
third fire being of more significance than the second. It is averred that the entire property was
badly damaged in the fires. The pursuers
have been unable to recover from Allianz Cornhill ("The Insurers") for the
damage caused in the fires. The Insurers
had refused cover for the restaurant, bar and disco area, as forming part of
the Stag Hotel. They have also
repudiated the apparent cover which had been offered for the flats on the basis
of material non-disclosure, namely the fact that they had not been made aware
that the flats in fact formed part of the same premises as the Stag Hotel.
[8] There
are averments that the tenants of the disco had arranged cover themselves with
other insurers (no real arguments were advanced regarding this insurance). It is also averred that the tenants of the
restaurant had arranged insurance with First Light Insurance and that that
payment under that insurance policy had been paid to the tenants, who in turn
had remitted the payment to the pursuers.
[9] The
pursuers seek to recover from the defenders the losses they suffered by reason
of the fact that the building was uninsured.
They make a case in fault and breach of contract against the first
defender on the basis that no reasonably competent insurance broker would have
failed to disclose to the pursuers all information they received pertinent to
the insurance; that no such broker would
have failed to obtain insurance for the property; nor would they have failed to advise the
pursuers as soon as reasonably practicable that the property was uninsured. Finally they aver that any such broker would
have been aware that the fact that the flats formed part of a property in
respect of which insurers had already declined cover would be a material fact
to the pursuers and no such broker would have failed to disclose that fact to
the insurers.
[10] The case against the second defender is based on fraud on the
basis essentially that he falsely and misleadingly advised them that the whole
property was insured when he knew this not to be the case, and he persisted in
that falsehood, even asserting on 10 December 2002 that cover for the Stag
Hotel had been withdrawn from that date, which was untrue. The pursuers aver that his fraud led them to
believe that the whole property was insured when it was not.
Defenders' submissions
[11] For the first defenders it was maintained that the averments
were insufficient to set up a case against him of non disclosure regarding the
flats. The averments are not sufficient
to enable the pursuers to prove that the first defender knew the flats were the
same as those which had previously formed part of the Stag Hotel.
[12] It was further maintained that the averment that any reasonably
competent broker would know that it would be important to insurers to know that
the flats were part of property in respect of which insurance had been
declined, were irrelevant. The insurance
schedule which was issued for the flats in September was backdated to May but
at that date (May) the defender did not know that the insurance on the rest of
the property had been declined.
[13] In any event there was insufficient specification of loss
arising from the alleged non-disclosure because there is no apportionment or
breakdown of the loss as between one fire and the other.
[14] For the second defender, it was conceded that there were
sufficient averments of fraud in relation to failure to disclose the insurance
position regarding the restaurant and disco.
However, it was averred that there were insufficient averments of fraud in relation to the flats
which "were after all insured". It was
submitted that it could not be said that the flats were not on cover as at 16 July
because the insurance which was issued in September was backdated to May. (This argument is distinct from another issue
in the case relating to the status of the flats under a schedule apparently
issued in two different forms in June).
[15] There is no averment that the defenders were instructed to
insure fixtures and fittings, so any claim regarding their loss is not relevant. The same applies to the claimed loss of
rental income.
[16] Whilst accepting that there was an onus on the defenders to
raise and prove that the loss claimed was not reasonable because of failure to
mitigate, counsel submitted that the facts averred about the existence of other
insurance which appeared to have been paid out (First Light Insurance) raised
an onus on the pursuers to aver and prove why the payments under that insurance
had been restricted.
[17] Reference was made to McGillivray
on Insurance Law, paragraph 23.1; Barras v Hamilton 1994
SLT 949; McGregor on Damages, paragraphs 7-14
to 7-16; McBryde on Contract, paragraphs 22-3,
22-457 and 14-02; Standard and Chartered Bank v Pakistan National Shipping 2003 1
AC 949;
Pursuers' submissions
[18] Counsel accepted that there was an issue to be addressed
relating to fixtures and fittings. In
the event that the pursuers were otherwise successful, he sought leave to amend
on this point. So far as rental
agreement is concerned, this was not raised in the Note of Argument. However, counsel submitted that there were
adequate averments on this point. At pp15
and 16 it is averred that the defenders sought insurance "subject to
certain changes". The changes are
identified in the pleadings and relate substantially to the split of the flats. The terms of the original insurance are set
out at pp7 to 8 and include twelve months rental income in the sum of £30,000. There is no averment that this had changed
and whilst counsel conceded that it might have been set out more clearly, he
submitted that there was enough to justify the claim.
[19] The loss from the first fire, relating to the disco, is clearly
set out. Otherwise, so far as
specification of loss was concerned, the averments were adequate. The claim related to the whole building,
which the defenders were asked to inure;
the losses related to the whole building and whilst there was inevitably
some degree of overlap this did not render the claim irrelevant for lack of specification. there was such a degree of overlap that to
attempt a breakdown would be unrealistic.
[20] In relation to mitigation of loss, counsel pointed out that the
defenders' pleadings do not put mitigation in issue, even although they accept
an onus in this regard. There is no
averment that any more money might have been available from one of the other
insurers. The pursuers had not arranged
the insurance. In the pleadings they
give credit to the defenders for sums which had been remitted to them by the
tenants. There was simply no basis for
asserting that the pursuers were under an onus to make any further averments.
[21] Counsel submitted that there were ample averments providing a
factual basis for non-disclosure, by reference in particular to the averments
at pp8 and 15. On the issue of
fraud, he submitted that the pursuers had instructed the defenders to obtain
insurance for all the component parts of the property. The essence of their complaint is that they
were deliberately led to believe that all parts of the property were covered
when the defenders knew that this was not the case. In May and again in July the defenders
knowingly misrepresented the extent of the cover. The defenders were seeking to pray in aid a
legal fiction, namely the backdating of insurance from September to May, to
justify statements made in May and July in the full knowledge that they were
false. The fact that at a later stage
one of the components was on cover which was backdated does not alter the
falsity of the representations at an earlier date.
Decision
[22] I rejected the submissions for the defenders in their entirety. It appears to me to be a very clear inference
from the averments at page 15 about the nature and terms of the
discussions between the parties anent renewal of the insurance, and the context
of those discussions, that the pursuers are averring that the defender knew the
status of the flats during that discussion.
The parties were discussing the insurance of the Stag Hotel property and
it is clear that the insurance of that property was being looked at in the
context of its three constituent parts and that included the flats which were
now to be given separate cover. The argument
that backdating of cover somehow affected the issue of disclosure is
disingenuous. The defender knew by 30 May
that insurance was not being offered for the rest of the property and that the
insurers had requested them to place the hotel elsewhere. In any event it was September before the
letter confirming cover and backdating it was issued.
[23] For the reasons advanced on behalf of the pursuers I am
satisfied that the averments of fraud are quite sufficient. The averments of fraud are that the defender
misled the pursuers into believing that the whole property was insured in all
its component parts. It is averred that
had they known that any part of the property was uninsured they would have been
able to obtain insurance elsewhere. The
second defender made and persisted in statements which were quite untrue and
there are sufficient averments that this
led the pursuers wrongly to believe that the whole property was insured. It is quite absurd to try to rely on the
backdating of the insurance in September as affecting in any way the truth or
falsity of earlier representations made by the defenders.
[24] I do not consider that the averments of loss are so lacking in
specification as to be irrelevant. A
distinction is made between the first fire on the one hand and the second and
third fires on the other. It is averred
that there was a degree of overlap between the second fire, which was relatively
minor, and the third fire which was more major.
An attempt is made to attribute by estimation that part of the costs
which can be attributed to the second fire and those which should be attributed
to the third. Allowance is then made for
overlap. It is clear that the pursuers
aver that the defenders were to arrange insurance for the whole building, i.e. for
all its component parts. It is averred
that the property was so badly damaged that it required to be demolished. In my view the averments are sufficiently
specific to entitle the pursuer to proof.
[25] The submission regarding mitigation of loss was in my view
misconceived. Any insurance with First
Light had been arranged not by the pursuers but by the tenants. The fact that this money has been paid over
to the pursuers is a fact of which the defenders get the benefit but it does
not in any way raise an issue suggestive of failure to mitigate loss.
[26] I will accordingly repel the first and second pleas in law for
the first defender and the first, second and third pleas for the second
defender. I will allow the pursuers to
amend regarding the issue of fixtures and fittings and, pending that amendment,
I will not repel the third plea for the first defender or the fourth plea for
the second defender. I will put the case
out by order for discussion on the issue of amendment.
