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OUTER HOUSE, COURT OF SESSION
[2016] CSOH 87
CA195/15
OPINION OF LORD DOHERTY
In the cause
COMLEX LIMITED (IN LIQUIDATION)
Pursuers;
against
ALLIANZ INSURANCE PLC
Defenders:
Pursuers: McBrearty QC; BBM Solicitors
Defenders: Ellis QC; BLM Solicitors
28 June 2016
Introduction
[1] In this commercial action the pursuers are assignees of Laura Ann Britton’s rights, benefits, interests, titles, claims and demands arising from a policy of insurance with the defenders. The pursuers claim indemnity under the Buildings Section (Section 7) of that policy following the destruction by fire of a public house at 50 Causeyside Street, Paisley (“the public house”). The defenders have declined to indemnify the pursuers. They maintain that Ms Britton had no insurable interest in the property destroyed. They also say that the claim she had was not covered by Section 7 of the policy.
Background
[2] Comlex Limited (“Comlex”) owned and operated the public house. Comlex was controlled by Ms Britton’s parents. Ms Britton had been named as the Premises Manager since 1 September 2009. In about March 2011 Comlex ceased trading due to financial difficulties. Ms Britton proposed to raise finance to purchase the public house with a view to a new public house business being operated from it. LCSC Enterprises Limited (“LCSC”) was formed to be the trading entity for the new business. Some refurbishment was carried out. Ms Britton planned to purchase the public house using finance to be provided to her by the Lancashire Mortgage Company, and to grant a lease or a licence to LCSC. At the Lancashire’s insistence Ms Britton obtained buildings insurance for the public house. She took out a Complete Retailer Policy with the defenders which commenced on 5 April 2011. She was the Insured. The cover provided was described in Sections 1 to 9 of the policy. Section 7 set out the cover for Buildings. One of the perils insured against was fire. The risk address was the public house. Section 6 set out cover for Liabilities, including Public Liability. No indication was given to the defenders that the policy was being taken out for the benefit of anyone other than Ms Britton or that any other party had an interest in the policy.
[3] On 16 May 2011 Derek Simpson was appointed as interim liquidator of Comlex. Mr Simpson met with Ms Britton on 23 May 2011. The precise terms of the discussions and any agreement between the parties are contentious: but there was some discussion of Ms Britton insuring the property; of Ms Britton purchasing the property; and that meantime trading would continue.
[4] On 18 May 2011 Mr Simpson arranged insurance cover for the property. On 8 June 2011 he instructed that that cover be cancelled on the basis that Ms Britton had insured the property.
[5] The liquor licence was held by Comlex from 1 September 2011until 6 June 2011. Mr Simpson was the licence holder from 6 June 2011 until 28 June 2011. LCSC was the licence holder from 28 June 2011 until the public house was destroyed by fire on the night of 23 and 24 February 2013. LCSC traded from and had physical occupation of the premises from April 2011 until the fire.
[6] On 5 April 2012 Ms Britton renewed the contract of insurance with the defenders. No change of circumstance was brought to the defenders’ attention.
[7] For a variety of reasons, principally difficulty on Ms Britton’s part in obtaining loan funding, missives for the sale to her of the public house had not been concluded before the fire.
The policy
[8] On renewal on 5 April 2012 the policy was in the following terms:
“Introduction
Your Complete Retailer Policy is made up of several parts which together form your contract of insurance … The parts of the Policy are:
- The Statement of Facts …
- This Introduction; the Insuring Clause, the Policy Conditions and Policy Exclusions, which apply to all Sections of the Policy
- The Sections of cover provided including the Conditions and Exclusions
- The Schedule …
…
Any word or expression in the Policy which is given a specific meaning under the Section Definitions has the same meaning wherever it appears in the Policy
…
Insuring Clause
The Statement of Fact … together with any information supplied by or on behalf of the Insured forms the basis of the contract of insurance between the Insured and the Insurer.
In consideration of payment of the premium the Insurer will indemnify or otherwise compensate the Insured against loss, destruction, damage, injury, or liability (as described in and subject to the conditions and exclusions of this Policy or any Section of it) occurring or arising in connection with the Business during the period of Insurance or any subsequent period for which the Insurer agrees to accept a renewal premium.
…
Policy Definitions
…
Insured
The Insured named and shown in the Schedule
…
Business
The business description stated in the Schedule
…
Property/Property Insured
Buildings, contents, stock and other items shown and/or described in the Schedule
…
Damage/Damaged
Loss or destruction of or damage
Premises
Address as stated in the Schedule
Building/Buildings
The buildings at the Premises …
…
Section 1 – Trade Contents
…
Events
1. Fire …
…
Section 6 - Liabilities
Definitions
…
Business
The business specified in the Schedule … which includes
a the ownership, maintenance and repair of Premises used for the business
…
Cover
Event 1 – Employers Liability
…
Event 2 – Public and Products Liability
Allianz will indemnify the Insured against legal liability to pay compensation and claimants costs and expenses in respect of accidental
…
b loss of or Damage to material property
…
Occurring … in connection with the Business
…
Exclusions
…
In respect of Event 2 – Public and Products Liability …
This Section does not cover
…
2. liability in respect of Damage to any property belonging to or in the charge of or the control of the Insured
…
Section 7 – Buildings
Definitions
Property Insured
The Building and outbuildings situate at the Premises …
All Risks Cover
Events 1-10 described under Section 1 Trade Contents of this Policy, incorporating the relevant exclusions and in addition the following Event 11
Event 11
Accidental Damage of a sudden and unforeseen nature excluding Damage to the Property Insured caused by collapse, cracking, frost, landslip, subsidence, ground heave or settlement and the first £250 of each claim
Cover
Allianz will indemnify the Insured in respect of Damage of or to the Property insured occurring … by any of the Events shown.
The amount payable in the event of Damage of or to the Property Insured subject to the terms of this Section and the Policy Exclusions and Policy Conditions shall be the cost of repair or replacement of the Damaged property without deduction for wear and tear.
…
Complete Retailer Renewal Schedule
…
The Insured Miss Laura Britton t/a Webster’s Pub
…
Business Description Public House
The Premises Address Premises 1: 50 Causeyside Street Paisley …
….
Section 7 Buildings
Property at Premises 1: 50 Causeyside Street Paisley …
The Buildings at the above Premises £472,500
Subsidence Cover Yes
…”
The proof
[9] The case came before me for proof. The only witnesses were Mr Simpson and Ms Britton. Witness statements and affidavits from each of them were lodged and adopted as their evidence‑in‑chief and that evidence was supplemented by oral evidence. A joint minute (27 of process) set out several agreed matters, much of which (together with other matters which it is clear were not contentious) has been incorporated in the background set out above.
[10] Mr Simpson was 52 years of age at the proof. He is a licensed insolvency practitioner. He became interim liquidator of Comlex on 16 May 2011and was appointed as liquidator on 27 June 2011. He remained in office until 12 May 2015. He met Ms Britton on 23 May 2011. She was proposing to buy Comlex’s assets (principally the public house). Mr Simpson and the creditors were content with that proposal. He had agreed with her that she could occupy the public house pending completion of the sale on condition that all trading expenditure was to be her responsibility and that she insure the property on his behalf. He granted her a licence to occupy the property on condition that she accepted responsibility in relation to buildings insurance and trade expenditure. She was obliged to insure the premises. Ms Britton had agreed to proceed on that basis and she had confirmed that the premises were sufficiently insured. Mr Simpson was aware that “Ms Britton’s company” LCSC was trading from the premises but the licence to occupy was granted to her personally and the agreement was with her personally. How she chose to trade from the premises was not his concern. The proposed purchase was to be by her personally. He could not recall if there was any more detailed discussion about the insurer or the cover. He had some recollection of having a telephone call with Ms Britton not long after the meeting and that after that call he had instructed his colleague that the insurance cover he had put in place on appointment was no longer required. He had not taken any steps to record in writing the terms of the licence or the discussion. It was possible that that had been because of pressure of other work at the time, or because there was no money in the liquidation. The only asset was the public house.
[11] Ms Britton (also known as Mrs Crolla) was aged 43 at the proof. She qualified as an accountant in 2001 and has worked in that profession since qualification. The controlling shareholders in Comlex had been her parents. When the business had encountered financial difficulties she had decided to purchase the assets. She had proposed that the public house be held in her name but that the trading vehicle should be LCSC. The plan had been that once she had purchased the premises she would grant a lease or licence of them to LCSC. She had been negotiating loan facilities with Lancashire Mortgage Company and it had insisted that buildings insurance be obtained. To that end she had taken out a Combined Retailer Policy with the defenders. Cover had commenced on 5 April 2011. Her recollection was that she had notified the defender of the Lancashire Mortgage Company’s interest in the policy. At the time of the meeting with Mr Simpson she had been aware of his responsibilities to safeguard Comlex’s assets for creditors. In her affidavit the material part of her account of the meeting was:
“The liquidator authorised me to continue trading from the premises but did enquire as to whether I had insurance in place. I understood him to mean contents and buildings insurance. As I had arranged the policy with Allianz I confirmed I did have such insurance in place.”
In her witness statement she added:
“Given that I already had insurance in place because I had been required to do this by Lancashire Mortgage Company, Derek was not asking me to do anything new. I would have felt that I had to insure the property regardless of whether the conversation with Derek took place.”
In oral evidence‑in‑chief she indicated that she did not have a great recollection of the detail of the entire conversation with Mr Simpson. She did recall there being discussion about her being allowed to continue to trade and about insurance. It was put to her that Mr Simpson had said that she would have to insure the property and pay the premium. She replied, “Quite possibly.” In cross‑examination she was asked whether to the best of her recollection Mr Simpson had said he would expect her to insure the property on his behalf. She replied, “I don’t recall.” In re‑examination she accepted that it was possible that Mr Simpson’s recollection of the discussion was correct.
Submissions for the pursuers
[12] Mr McBrearty submitted that the classic definitions of insurable interest had been set out in Lucena v Craufurd (1806) 2 Bos & Pul (NR) 269 by Lawrence J (one of the consulted judges); and by Lord Eldon, who delivered the leading speech in the House of Lords. Lawrence J had opined (at p. 302):
“To be interested in the preservation of a thing is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction.”
However, Lord Eldon had taken a narrower view of the requirements for an insurable interest in property (p. 321), viz:
“…a right in the property, or a right derivable out of some contract about the property, which in either case may be lost on some contingency affecting the possession or enjoyment of the party.”
Notwithstanding that narrower view, recent cases in England had favoured Lawrence J’s wider approach. That approach had also been reflected in the statement of the law in Bell, Principles (10th ed.), s. 461:
“Interest is not limited to property but extends to every real and actual advantage and benefit arising out of or depending on the thing to which it refers.”
[13] There was authority that the courts should normally take a broad approach to insurable interest and should lean towards finding that one existed: Stock v Inglis (1884) 12 QBD 564, per Brett MR at p. 571; Feasey v Sun Life Assurance Company of Canada [2004] 1 CLC 237, per Waller LJ at para 7 and Dyson LJ at paras 121-122.
[14] Turning to the evidence, where there were differences between Mr Simpson and Ms Britton the court should find Mr Simpson’s evidence to be more reliable. His recollection was clear. The same could not be said for Ms Britton’s recollection. Ms Britton accepted that it was possible that Mr Simpson’s account represented what had taken place. He was the liquidator, with the responsibility to safeguard Comlex’s assets. It was intrinsically unlikely that he would have granted Ms Britton a right to use the property rent-free without the quid pro quo of Ms Britton obliging herself to insure it.
[15] Ms Britton entered into a binding obligation to insure the property on the liquidator’s behalf in return for being granted a licence to use it pending her purchase of it. When on renewal of the policy (with effect from 5 April 2012) the relevant contract of insurance had been concluded (Colvinaux, The Law of Insurance (10th ed.), paras 1-077 - 1-078; Law Accident Insurance Society Ltd v Boyd 1942 SC 384), Ms Britton had had a licence to use and enjoy the property, and in terms of that licence she had been under an obligation to the liquidator to insure it.
[16] At both the time of renewal and the time of the fire Ms Britton had an insurable interest in the property. She was obliged to insure it, and had she failed to do so she would have been liable in damages to the liquidator for breach of that obligation. She had an insurable interest in the full value of the property. That was a perfectly conventional view requiring no development of the law. Reference was made to Maurice v Goldsbrough Mort and Company Ltd [1939] AC 452, per Lord Wright at pp. 460, 462; Lonsdale & Thompson Ltd v Black Arrow Group plc [1993] Ch. 361, per Jonathan Sumption QC sitting as a Deputy Judge of the High Court at pp. 368-9; Fehilly v General Accident Fire and Life Assurance Corporation Ltd 1982 SC 163, per Lord Cowie at p. 170; Stair Memorial Encyclopedia of the Laws of Scotland, vol. 12, “Insurance” (by A.D.M Forte), para 852. The case of Prudential Staff Union v Hall [1947] 1 KB 685 was clearly distinguishable.
[17] If on the other hand the court concluded that Ms Britton had no obligation to insure, she nonetheless had an insurable interest in the property because of the licence. Reliance was placed on Feasey v Sun Life Assurance Company of Canada, supra, in particular the judgments of Waller LJ and Dyson LJ; Sharp v Sphere Drake Insurance plc (“The Moonacre”) [1992] 2 Lloyd’s Rep. 501, per A D Colman QC sitting as a Deputy Judge of the High Court at p. 512; Petrofina (UK) Ltd v Magnaload Ltd 1984] 1 QB 127, per Lloyd J at pp. 135C - 139C; National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582, per Colman J at p. 611; Hepburn v A Tomlinson (Hauliers) Ltd [1966] AC 451, per Lord Pearce at p. 481; Stair Memorial Encyclopedia of the Laws of Scotland, vol. 12, Insurance, para 849. While in Deepak Fertilisers & Petrochemicals Corporation v ICI Chemicals & Polymers Ltd[1999] 1 Lloyd’s Rep. 387 the Court of Appeal had taken a narrower view of the circumstances in which subcontractors on a construction site had an insurable interest in the whole site, the court had not disapproved Petrofina or National Oilwell. The decision in Deepak had been criticised in Feasey by Dyson LJ at paras 115-122. Ms Britton’s interest in the property extended beyond the value of the licence to her. At common law she would have owed the liquidator a duty to take reasonable care that the property was not damaged or destroyed. She was entitled to protect herself against that risk and that gave her an insurable interest in the full value of the property.
[18] Alternatively, on any view Ms Britton had obliged herself to be accountable to the liquidator for the proceeds of any policy which she had effected in relation to the property. That was sufficient to give her an insurable interest in the full value of the property. In this respect reliance was placed upon obiter observations of Jonathan Sumption QC in Lonsdale & Thompson Ltd v Black Arrow Group plc, supra, at p. 368A-C.
[19] The decision in Cowan v Jeffrey Associates 1998 SC 496 was no impediment to finding that Ms Britton had an insurable interest. In that case Lord Hamilton had considered that on the facts averred the decision in Macaura v Northern Assurance Company Limited [1925] AC 619 was indistinguishable and that it should be followed. The facts here were very different from those in Cowan and Macaura. Here Ms Britton had been granted a right to use the property and she had an obligation to insure it. That was a sufficient basis for distinguishing the present case from Cowan and Macaura. In any case Cowan was an Outer House decision and it did not bind another Outer House judge. The direction of travel since 1998 (exemplified by the judgments of the majority in Feasey) had been towards widening the criteria which could give rise to an insurable interest.
[20] Ms Britton’s loss fell within the terms of Section 7 of the policy. The insured property was the public house.
Submissions for the defenders
[21] Mr Ellis submitted that in so far as there were differences between the evidence of Mr Simpson and Ms Britton, Ms Britton’s evidence should be preferred. She had fairly accepted that her evidence had some gaps, but on the critical matters her evidence had been clear. By contrast Mr Simpson had not been as clear a witness as one might have expected. If the parties had indeed agreed that Ms Britton was bound to insure one would have expected him to have confirmed that in writing and to have obtained details of the cover. That had not been done. If Ms Britton’s account was accepted it was clear that she had not undertaken an obligation to insure. Even if Mr Simpson’s account was correct she had not done that; she had merely confirmed that she had insurance. It was far from clear that by entering into the “licence” relationship the parties had intended to enter into binding contractual relations. The “right” to occupy was at the will of Mr Simpson. If it was a right it had been an almost nugatory one. It would have been LCSC, as the person in actual occupation, who would have owed duties at common law not to damage the property. Even if Ms Britton had owed those duties that would not have been sufficient to give her an insurable interest in property insurance as opposed to liability insurance.
[22] The ratio of Lucena v Craufurd was not in doubt. Lawrence J’s dictum had not met with favour in the House of Lords when the case had been decided. Lord Eldon’s speech was authoritative, Lawence J’s dictum was not. Macaura v Northern Assurance Company Limited remained authoritative. Just as in Anderson v Morice the buyer of rice had had no insurable interest in it because it did not own it and it was not at its risk, Ms Britton had had no relevant legal interest in the property. Even if she had contracted to insure the property her obligation arose not from a relevant legal relationship with the property but from a collateral agreement, cf. Maurice v Goldsbrough Mort and Company Limited, supra, and Prudential Staff Union v Hall, supra.
[23] The modern Scottish cases had followed the approach in Lucena v Craufurd and Macaura. The only insurable interest which the lessee in Fehilly had had was in respect of the value of the lease. He had not had an insurable interest in the full value of the property. The English decisions concerning bailees (eg Maurice v Goldsbrough Mort and Company Limited, supra, and (Mr Ellis submitted) The Moonacre) were special to that legal relationship. The rules applicable to bailees had been extended by analogy in cases involving subcontractors on construction sites (eg Petrofina, National Oilwell, Deepak), but that was of no assistance to the pursuer here. Standing Lucena and Macaura it was not for this court to apply a broader test of insurable interest than those decisions permitted. That was so notwithstanding the observations of Waller LJ and Dyson LJ in Feasey. In Cowan v Jeffreys Associates Lord Hamilton had correctly recognised the continuing authority of Lucena and Macaura. So had the dissenting judge in Feasey, Ward LJ.
[24] The sort of temporary licence that Ms Britton possessed, even if it was a condition of the licence that she insure the property, did not satisfy the requirement for an insurable interest. There was no qualifying legal or equitable interest in the property. Such an interest would have to be a substantial right of the sort discussed. On its own, unlinked to any such interest, an obligation to insure did not give rise to an insurable interest in the full value of the property.
[25] The evidence did not support the pursuer’s alternative contention that Ms Britton had obliged herself to be accountable to the liquidator for the proceeds of any policy which she had effected in relation to the property. Even if it did, such a liability to account did not give rise to an insurable interest in the property. No authority supporting the proposition had been cited. The observations of the Deputy Judge in Lonsdale & Thompson Ltd v Black Arrow Group plc were tentative and obiter, and had been dealing with a scenario where the insurance had been taken out by landlords who undoubtedly had an insurable interest in the premises.
[26] In any case, Ms Britton had not suffered any loss which fell within Section 7 of the policy, viz. valuable rights in the property of the public house or valuable rights deriving from some contract relating to the property. Even if the liquidator had granted Ms Britton a licence and she had a duty to take reasonable care to safeguard the property, a claim for damages for breach of that duty was outwith the scope of Section 7. On a proper construction of the policy it would be a matter for liability insurance (Section 6) not Buildings insurance. No claim had been made under Section 6 of the policy.
Decision
The evidence
[27] I am satisfied that both Mr Simpson and Ms Britton were doing their best to assist the court. However, where their accounts differ I find Mr Simpson’s recollection of the discussion on 23 May 2011 to be more reliable than Ms Britton’s recollection.
[28] Mr Simpson gave his evidence in a straightforward way. He impressed me as being clear on all material matters. Insurance of the subjects was a significant matter having regard to his duties as interim liquidator. It was important to him, given his duty to preserve the property, that Ms Britton should undertake the obligation to insure it while it was being used pending the sale to her. It is inherently unlikely that he would have granted Ms Britton a right to use the property rent-free without the quid pro quo of Ms Britton obliging herself to insure it. His cancellation of the existing insurance shortly after the meeting, and the fact that Ms Britton was able to continue with LCSC trading from the public house, are consistent with his account of the agreement reached. It is surprising that no written record of the agreement was made, but in the whole circumstances that does not cause me to doubt the reliability of Mr Simpson’s account. At the time the agreement was reached both parties anticipated that the Ms Britton’s purchase of the property would proceed in fairly early course. On the other hand, Ms Britton conceded that her recollection was not good, and she accepted that it was possible that Mr Simpson’s account of events was indeed correct. Part of the evidence which she gave was clearly and demonstrably wrong. Her recollection was that she had notified the defenders of the Lancashire Mortgage Company’s interest in the policy. It was a matter of agreement (para. 2 of the Joint Minute) that that had not happened.
[29] On the basis of the account of events which I accept, and looking at those facts objectively, I am satisfied that Ms Britton and the liquidator entered into a binding agreement which was contractual in nature. In terms of that agreement Ms Britton was granted a licence to use the property pending the purchase, on condition that she insured the property on the liquidator’s behalf. Notional reasonable persons in the position of the parties at the time of contracting would have understood that the requirement was to have insurance against the usual perils (such as fire) for property of the type involved and that the insurance should provide for the property’s reinstatement in the event of its damage or destruction by one of the usual perils.
Insurable interest
[30] In Macaura v Northern Assurance Co. the owner of a timber estate in Northern Ireland sold the whole of the timber on it, felled and standing, to a company in return for shares in the company. Mr Macaura became the sole shareholder in, and a substantial creditor of, the company. Subsequently he insured the timber against fire. After the timber was felled and sawed it remained lying on his land. The greater part of the timber was then destroyed by fire. Mr Macaura sued the insurers in the High Court of Northern Ireland to recover the loss. An arbitration clause in the policy was invoked and the dispute was referred to arbitration before James Pringle KC. The arbitrator held, inter alia, that Mr Macaura had no insurable interest in the timber. The arbitrator’s award was stated in the form of a special case. A divisional court of the King’s Bench Division (chaired by the Lord Chief Justice of Northern Ireland) affirmed the correctness of the award. On appeal the Court of Appeal of Northern Ireland was of the same view (Macaura v The Northern Assurance Company Limited [1925] NI 141). Andrews LJ observed (at p. 157) that the “classic” definition of insurable interest given by Lawrence J in Lucena v Craufurd required to be read in light of the facts of that case, and had to be interpreted more particularly having regard to Lord Eldon’s speech “where he expressly refused to subscribe to the whole of Lawrence J’s definition”. At p. 158 Andrews LJ went on to cite passages from Lord Eldon’s speech discussing the notion of moral certainty, italicising part of it for emphasis:
“…I have in vain endeavoured however, to find a fit definition of that which is between a certainty and an expectation, nor am I able to point out what is an interest unless it be a right in the property or a right derivable out of some contract about the property [the italics are my own] which in either case may be lost upon some contingency affecting the possession or enjoyment of the party.” (Lord Eldon at p. 321)
Andrews LJ went on to say (at pp. 158-159):
“Later in his speech he [Lord Eldon] adds the significant words:- ‘If moral certainty be a ground of insurable interest there are hundreds, perhaps thousands, who would be entitled to insure.’
These words, and others could be found in support of them, are in my opinion the answer to [counsel for Mr Macaura] Serjeant Sullivan’s challenge. I accept them in so far as they conflict with the definition given by Lawrence J., both because of their higher authority and also because they correspond with my own view of the principles upon which this law of insurable interest is based. I can well understand the meaning of the expression ‘legal certainty’ … but I confess that I have difficulty in finding place for the expression ‘moral certainty’ in a legal proposition. It is at best but a highly probable expectation, and that is something essentially different from an interest legal or equitable.
…
The question then to be determined, in my opinion, is whether Macaura … had such a direct interest in or connection with the timber insured as constituted an insurable interest? He was clearly not the legal or equitable owner of the property …Was there then any contract between Macaura and the Company which created in him the necessary direct interest in the property insured? There is none.”
Andrews LJ also records (at p. 159) that an argument that an implied contract of bailment existed was abandoned because property held as a bailee was excepted from the subject-matter of the policy.
[31] On appeal to the House of Lords Mr Macaura’s counsel renewed the argument that he had an insurable interest in the timber because his interest in it satisfied Lawrence J’s definition. Mr Macaura was interested in its preservation because he was so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction. He was bound to benefit by the preservation of the subject‑matter of the insurance and bound to suffer loss by its destruction. That sufficed for him to have an insurable interest. The appeal was refused. Mr Macaura’s interests as creditor and shareholder did not give him an insurable interest. At p. 626 Lord Buckmaster, approved as “an accurate statement of the law” dicta in Moran, Galloway & Co. v Uzielli [1905] 2 K B 555, at 562 that ordinary unsecured creditors of ship‑owners did not have an insurable interest in the ship because they did not have “any interest, legal or equitable” which was dependent upon the safe arrival of the ship. As to the reliance placed by counsel for Mr Macaura on the definition of insurable interest given by Lawrence J in Lucena v Craufurd, Lord Buckmaster observed (p. 627):
“I agree with the comment of Andrews L.J. upon this case. I find equally with him a difficulty in understanding how a moral certainty can be so defined as to render it an essential part of a definite legal proposition.”
It seems possible that the argument that there was an implied contract of bailment may have been resurrected, because Lord Buckmaster went on to note (p. 628):
“Nor can his claim to insure be supported on the ground that he was a bailee of the timber, for in fact he owed no duty whatever to the company in respect of the safe custody of the goods; he had merely permitted their remaining upon his land.”
Lord Sumner opined (p. 630):
“My Lords, this appeal relates to an insurance on goods against loss by fire. It is clear that the appellant had no insurable interest in the timber described. It was not his. It belonged to the Irish Canadian Sawmills, Ltd., of Skibbereen, co. Cork. He had no lien or security over it and, though it lay on his land by his permission, he had no responsibility to its owner for its safety, nor was it there under any contract that enabled him to hold it for his debt. He owned almost all the shares in the company, and the company owed him a good deal of money, but, neither as creditor nor as shareholder, could he insure the company's assets. The debt was not exposed to fire nor were the shares, and the fact that he was virtually the company's only creditor, while the timber was its only asset, seems to me to make no difference. He stood in no "legal or equitable relation to" the timber at all. He had no "concern in" the subject insured. His relation was to the company, not to its goods, and after the fire he was directly prejudiced by the paucity of the company's assets, not by the fire.”
Lord Wrenbury added (p. 633):
“My Lords, this appeal may be disposed of by saying that the corporator even if he holds all the shares is not the corporation, and that neither he nor any creditor of the company has any property legal or equitable in the assets of the corporation.”
[32] In Cowan v Jeffrey Associates, supra a director and sole shareholder of a company took out insurance against damage by fire to heritable property owned by the company. Mr Cowan was also a creditor of the company and had granted a personal guarantee to a bank for liabilities of the company. He decided to purchase the property from the company. He was offered loan facilities from a bank for that purpose. It was a condition of the grant of loan facilities that he insure the property for its reinstatement value and that the bank be granted a first standard security over the property. Before missives of sale were concluded and before the grant of loan facilities was taken up the property was destroyed by fire. The insurers repudiated liability on the ground of non‑disclosure, but intimated that they were, in any event, not satisfied that Mr Cowan had an insurable interest. While the pursuer had made a bald averment that he “made use of the property in the running of his businesses” (p. 498E), that averment was not founded on as itself conferring an insurable interest (p. 500A). The submissions for Mr Cowan suggest that such use by him as there was related to only part of the property ‑ for storage in outbuildings (p. 500A). The pursuer sought damages from the insurance brokers who had completed the proposal form. It was accepted that in order to succeed against them he had to demonstrate that he had had an insurable interest such that, had there been appropriate disclosure, he would have been entitled to recover against the insurers under the policy. Lord Hamilton decided that the pursuer did not have a relevant case that he had an insurable interest in the property. The action was dismissed at debate. Lord Hamilton compared the opinion of Lawrence J in Lucena v Craufurd with the speeches delivered in the House of Lords in that case. He continued (at pp. 502A ‑ 503C):
“In the Court of Appeal in England excerpts from Lawrence, J's opinion have been described as ‘the classic definition of insurable interest’ (Mark Rowlands Limited v Berni Inns Limited, per Kerr, LJ, at p 228; Glengate v Norwich Union, per Neill LJ, at p 621 and per Sir Iain Glidewell, at p 626). It is to be noted, however, that in neither case did those learned judges refer to the observations in Lucena v Crawford (sic) in the House of Lords where, as noted in MacGillivray on Insurance Law at para 1–116, the House of Lords did not agree with some at least of Lawrence J's views. In Glengate v Norwich Union Auld, LJ at p 623–4 observed: ‘In the case of insurance against cost of repair or reinstatement of damaged property, the insured's relationship to the property, to qualify as an insurable interest, must normally be of a proprietary or contractual nature. Mark Rowlands Limited v Berni Inns Limited is an example of both a proprietary and contractual relationship, and Lord Justice Kerr's reliance on the broad proposition of Mr Justice Lawrence in Lucena v Crauford was unnecessary on the facts of the case….’
The reasoning of the House of Lords in Macaura v Northern Assurance Co is, in my view, hardly consistent with the broad approach to insurable interest favoured by Lawrence, J. Lord Buckmaster at p 627, agreeing with a comment in that case made by Andrews, LJ in the Court of Appeal in Northern Ireland, said: ‘I find equally with him a difficulty in understanding how a moral certainty can be so defined as to render it an essential part of a definite legal proposition.’ The approach of the House of Lords in Macaura v Northern Assurance Co appears to be that to instruct an insurable interest in an item of property a person must have ‘a legal or equitable interest therein’ (per Lord Buckmaster at p 626) or stand in a ‘legal or equitable relation’ to it (per Lord Sumner at p 630) or have ‘property, legal or equitable’, in it (per Lord Wrenbury at p 633).
Under Scots law the concept of equitable property or an equitable interest in property is unknown. However, a person having a real right in property short of ownership (such as the holder of a real security) has an insurable interest in that property, as does a purchaser with a complete right under missives to whom, by a rule imported from Roman law, the risk of accidental damage to the property has passed (Sloans Dairies Limited v Glasgow Corporation). A tenant also has an insurable interest. Those examples are not intended to be exhaustive. They are, however, illustrative of the requirement for a close legal relationship between the person insuring and the property insured.
So far as appears from the authorities cited to me, there has been no recent discussion judicially of the fundamental basis in Scots law of an insurable interest. English authority has been cited and applied without question (see, for example, Arf (sic) v Excess Insurance Group Limited; Mitchell v Scottish Eagle Insurance Co Limited). On the other hand the Supreme Court of Canada (in Constitution Insurance Co of Canada v Kosmopoulos) has recently taken a substantially broader approach to insurable interest adopting a ‘factual expectancy test’, more in keeping with the approach of Lawrence, J in Lucena v Crauford than with that of the judges of the House of Lords in that case. In doing so, it declined to follow Macaura v Northern Assurance Co. Wilson, J, in giving the leading judgment, observed that Macaura ‘continues as the law in the United Kingdom’ (p 226).
While a Supreme Court may, by re-assessment of existing authority and on grounds of legal policy, choose to take such a course, it is not one which a judge sitting in the Outer House of the Court of Session can readily take. Albeit English authority, including decisions of the House of Lords sitting on English or (as in Macura (sic) v Northern Assurance Co) Northern Irish appeals, is not technically binding on me, it is in a field such as the law of insurance highly persuasive and ought, in my view, to be followed unless there are principles of Scots law or conditions local to Scotland which dictate an alternative approach. No such different principles or conditions were suggested in argument as arising here. Although it has been said with some force that the thrust of Wilson, J's reasoning in Constitution Insurance Co of Canada v Kosmopoulos is sound (Wolffe - Insurable Interest - Time for a Change ), a change of the kind there advocated is for the legislature or, if judicially, for a higher court to effect.
In Macaura what was in substance a factual expectancy test was firmly negatived by the House of Lords…”
[33] A similar analysis of Lucena and Macaura appears in MacGillivray on
Insurance Law (13th ed.), para. 1-118. After citing Lawrence J’s “classic
description” of an insurable interest the authors note:
“When, however, the passage cited above is placed in the overall context of his entire judgment, it appears more probable that he did not intend it to be a complete definition in itself. It lacked the criterion of “moral certainty”, something supplied by the remainder of his judgment. From this it seems that the criterion of “moral certainty” in his view was the insured’s possession of a legal right to, or legal responsibility for, the insured property, and there is authority for this interpretation also. At all events there is no doubt that the House of Lords did not regard factual expectancy, or moral certainty, of benefit from the preservation of property as a sufficient basis of insurable interest in it, and added the second requirement of a legal relationship between the insured and the subject-matter of the insurance.”
[34] In Cowan Lord Hamilton concluded (p. 503D ‑ G):
“In the present case the pursuer was, at the time of the placing of the insurance and at the time of the fire, prospectively a purchaser of the subjects but had neither acquired them nor entered into an enforceable contract to acquire them. As a prospective proprietor of the subjects he had entered into borrowing arrangements with the bank which anticipated the grant by him to it of security over the subjects but, he never having become proprietor, no such security was in fact granted. The circumstance that the pursuer undertook to the bank a personal obligation to insure the subjects does not advance matters; nor does the circumstance that he borrowed from the bank in anticipation of being in a position to grant to it a real security over the subjects. His characters as creditor of Premier and as its sole shareholder do not, on present authority, instruct an insurable interest (Macaura); nor does his character as guarantor of its debts; nor does any use of the subjects unsupported by a right to use. In so far as those characters or relationships are contractual in character, the relative contract does not relate to the property in a qualifying sense.
Macaura is not, in my view, distinguishable…”
[35] I agree with Lord Hamilton’s analysis of the law. I am not persuaded that any of the decisions since Cowan upon which the pursuers rely undermine that analysis. The Moonacre pre-dates Cowan but Lord Hamilton does not appear to have been referred to it. In that case the primary basis for holding that the plaintiff had an insurable interest (p. 512) was that his powers of attorney in relation to the vessel provided the requisite legal relationship with it. As Ward LJ concluded in Feasey (at para 184):
“That seems to me to be a case of Macaura applied because the judge was requiring and found a legal relationship between the insured and the subject-matter of the insurance.”
It is clear to me, as it was to Lord Hamilton (and to Ward LJ in Feasey (paras 175 ‑ 181)), that the most authoritative statement of the law relating to insurable interest remains that set out in the speeches in the House of Lords in Lucena and Macaura. The passage in Bell’s Principles (10th ed.), s. 461 which repeats the language of Lawrence J’s definition was not included in any of the editions of the title published by Professor Bell. It was added to later editions by a subsequent editor, Sheriff W. Guthrie. The passage does not have the authority of an Institutional writing. In any case it is clear from footnote (d) that Sheriff Guthrie’s source was Lawrence J’s definition.
[36] I agree with Lord Hamilton that in Scotland a person may have an insurable interest in a property if there is a close legal relationship between him and the property insured (cf. Lord Eldon’s reference in Lucena to “a right derivable out of some contract about the property”, emphasised by Andrews LJ in Macaura). The examples Lord Hamilton provided of qualifying relationships were not exhaustive. In my opinion obvious additions are persons who are under an obligation to the proprietor to reinstate the property following its damage or destruction (see eg MacGillivray on Insurance Law (13th ed.), para. 1-118, 1-119; Aberdeen Harbour Board v Heating Enterprises (Aberdeen) Ltd 1990 SLT 416, per Lord Kincraig at p. 425L ‑ 426A); or to insure the property against its damage or destruction (MacGillivray, supra, para. 1-118, 1-119; Fehilly v General Accident Assurance Co, supra, per Lord Cowie at p. 170). (See also Stair Memorial Encyclopedia of the Laws of Scotland, vol. 12, supra, para 852; Gloag and Henderson, The Law of Scotland (13th ed.), para. 20.04). A person in breach of such an obligation to insure has an insurable interest in the full value of the property because if he failed to effect insurance he would be liable to the owner in damages for breach of contract.
[37] I share Lord Hamilton’s view that standing the clear and highly persuasive authority of Lucena and Macaura a first instance judge in Scotland cannot readily depart from them. Ward LJ reached a like conclusion as regards England and Wales (albeit in a dissenting judgment) in Feasey at para 181. The authors of MacGillivray, supra, after noting other common law jurisdictions have dispensed with the requirement of a legal or equitable interest, and summarising the way matters have developed in several of those jurisdictions, opine (at para. 1-120):
“These developments notwithstanding, it is submitted that the English law requirement of a legal interest or obligation regarding the property cannot be dispensed with except by a reforming statute or restatement of the law by the Supreme Court…”
[38] In my opinion the present case is clearly distinguishable from Cowan and Macaura. Ms Britton’s assertion of an insurable interest is not founded upon interest as a shareholder or creditor of Comlex, or interest as prospective purchaser of the property. It is not periled upon the existence of a factual expectancy. She had a contract with the owner relating to the property in terms of which she had both the right to use and enjoy the property and the obligation to insure it. There was no such contract in Cowan or Macaura. In Cowan the bald averment that the pursuer “made use of the property in the running of his businesses” fell far short of an offer to prove that he had any legal right to the use and enjoyment of the property (p. 498H). There was no averment that Mr Cowan had undertaken an obligation to the owner of the property to insure it. He had agreed with lenders that if and when he purchased the property he would grant them a standard security over it and would insure it. All this was contingent on the property being purchased. At the time of the fire he had no obligation to the bank to insure the property (p. 498I) and the bank had no legal interest in the property.
[39] The present case is also plainly distinguishable from Prudential Staff Union v Hall, supra. In that case the union’s obligation (to insure monies which union members held at their homes as agents and collectors) arose from the union’s contracts with its members to effect such insurance. The union had no legal right to or legal interest in the monies which were the insured property. The relative obligation did not relate to the insured property in a qualifying sense.
[40] I am content that Ms Britton had an insurable interest in the full value of the public house both at the time the policy was renewed and at the time of the fire. At the material times she had been granted a licence to use and enjoy the property; and in terms of that licence she was obliged to insure the property on behalf of the liquidator. In those circumstances the requirement for a close legal relationship between her and the property insured was satisfied. Her obligation to insure arose from a relevant legal relationship with the property, not from a collateral agreement.
[41] In light of my findings it is unnecessary to say what the position would have been had there been a licence but no obligation to insure; or a licence coupled with a common law obligation to take reasonable care to prevent the property being damaged or destroyed. Neither of these cases was foreshadowed in the pursuers’ pleadings. If the only relevant right or obligation had been the right to use and enjoy the property under licence it is hard to see how that could have given Ms Britton an insurable interest in the full reinstatement value of the property (as opposed to an insurable interest up to the value of her licence) (Fehilly, supra, per Lord Cowie at p. 170). I do not think it is appropriate in the circumstances of this case to express any view in relation to the scenario of a licence coupled with a common law obligation. First, had the matter been raised in the pleadings I would have expected factors bearing upon the issue of legal occupation and control of the property to have been explored in greater depth during the evidence. Second, the submissions concerning this matter were sketched rather than fully developed, and there was little or no reference to authority.
[42] The final alternative scenario put forward by the pursuers (viz. that if there was no licence and no obligation to insure Ms Britton nonetheless obliged herself to be accountable to the liquidator for the proceeds of any policy which she had effected) does not arise on the facts found. This too was not a case which the pursuers had pled. In any case, I have difficulty understanding how a mere obligation to account to the liquidator for the proceeds of a policy could be a contract which related to the insured property in a qualifying sense, so as to give rise to an insurable interest in the property. The obiter and tentative observations in Lonsdale & Thompson Ltd v Black Arrow Group plc do not address that problem.
The policy
[43] Ms Britton had an insurable interest in the property. I am also satisfied that the claim made falls within the scope of Section 7 of the policy. The property insured by the Section was the public house building. The public house was the Business in terms of the policy. The claim is for “loss, destruction, damage, injury, or liability… occurring or arising in connection with the Business”. One of the insured perils was loss or destruction by fire. The claim seeks indemnification under the Section 7 in respect of the destruction of the public house by fire.
Conclusions
[44] Ms Britton had an insurable interest, and the pursuers as her assignees now possess that interest. The claim falls within the scope of Section 7 of the policy.
Disposal
[45] Mr McBrearty suggested (and Mr Ellis did not demur) that if I found in the pursuers’ favour the case should be put out by order to enable counsel to address me on the terms of an appropriate interlocutor to give effect to my decision, and to discuss further procedure. I shall put the case by order to that end. I shall reserve meantime all questions of expenses.