Scottish High Court of Justiciary Decisons

STUART WILKIE (AP) v. DIRECT LINE INSURANCE PLC [2001] ScotHC 103 (19th September, 2001)

[1] In late 1992 the pursuer resided at Achanellan, Glen Loy, Fort William. He owned the property. On or about 6 December 1992 the property and all contents in it were destroyed in a fire. In two separate actions (which were conjoined before me) the pursuer claims to be indemnified under a single policy of insurance effected with the defenders. In one action he claims to be indemnified in respect of the value (assessed on a reinstatement basis) of the heritable property. In the other action he seeks to be indemnified in respect of the value of the contents destroyed (cover for which was added at a date after the inception of the policy but before the fire).

[2] The actions are defended on the basis that the defenders were entitled to and did avoid the policy by reason of alleged material misrepresentation or non-disclosure (relative to the condition of the property at the time of the inception of the policy), as communicated by letter written to the pursuer on or about 27 May 1993. In addition the defenders also plead that the pursuer's claims have prescribed in terms of section 6 of the Prescription and Limitation (Scotland) Act 1973 ("the Act").

[3] The actions came before me for preliminary proof in respect of prescription. Counsel before me were agreed that the starting date for the running of the five year prescriptive period provided for by section 6 of the Act was the date of the fire itself, that is to say 6 December 1992. It was also accepted that no "relevant claim" within the meaning of section 9 of the Act had been made prior to the commencement of the present proceedings. In addition it was accepted that the date upon which both of the present actions were commenced was 22 May 1998. It was further agreed that any obligation which the defenders had to indemnify the pursuer in respect of his losses had prescribed unless, on or after 22 May 1993, the subsistence of the obligation had been "relevantly acknowledged" by or on behalf of the defenders within the meaning of section 10(1) of the Act. The onus of establishing such an acknowledgement rested, it was accepted, on the pursuer.

Section 10(1) of the Act provides:

[4] In each of the cases the pursuer seeks to rely only on head (a). The relevant averments made on his behalf were amended in the course of the proof. In their amended form they read (in both actions) as follows:

[5] The defenders' averments, so far as relevant, are in the following terms:

[6] In the course of the proof evidence was led from three witnesses. The pursuer gave evidence on his own behalf. The defenders led Mr Alastair Robin who, in 1992, was the defenders' Regional Claims Manager and Mr Ian Todd, then Division Manager for the Highlands and Islands of Robins McTear Limited, the loss adjusters instructed in respect of the matter on behalf of the defenders. In addition the parties entered into a joint minute, in terms of which the policy terms and conditions were agreed and it was further agreed that three productions were, respectively, the defenders' claims file and the first and second files of Robins McTear Limited all "in respect of the claim made by the pursuer which is the subject matter of the present action".

[7] There was no obvious dispute in respect of many of the underlying facts. In relation to a number of matters, however - particularly the degree to which the pursuer was alerted to the concerns of the defenders - there was plain disagreement. Where there was such disagreement I preferred the evidence given by the defenders' witnesses. Both gave their evidence in a restrained, reasonable and clear manner and their evidence was broadly supported by contemporary records of meetings etc., the authenticity of which I had no reason to doubt. Making due allowance for the obvious distress and difficulties which the fire has caused for him, I regret that, by contrast, I did not find the pursuer to be a satisfactory witness. Too often in the course of his evidence he had difficulty answering relatively simple questions or sought to make fine distinctions in response rather than give an obvious answer, and often, when in apparent difficulty, he claimed a lack of recall which was at variance with the rest of his evidence. His evidence about a meeting held on 13 May 1993 in his caravan was in particular unimpressive, not being supported by the contemporary records of the defenders' witnesses. In general it seemed to me that he deliberately sought to underplay the degree to which he was aware of the defenders' increasing concerns prior to their letter of repudiation dated 27 May 1993. Against that background I proceed to record the findings which I have made.

[8] After the fire the pursuer, who at the time was in England, was left without any accommodation and many of his possessions were destroyed. Naturally he sought early interim indemnity under the policy. For their part, the scale of the loss was such that the defenders' thought it appropriate immediately to appoint Robins McTear Limited, Loss Adjusters. They had early information from the police to suggest that the fire had been deliberately set and the indications were that all aspects of the matter should be looked at, including the potential involvement of the insured (albeit it was now accepted that there was no evidence to that effect). In addition to the loss adjusters' investigations and continuing police enquiries, specialists were instructed to assess the cause of the fire.

[9] It was Mr Robin's intention at the outset that any payments made to meet the pursuer's emergency needs be made without admission of liability to indemnify under the policy pending the investigations which were being carried out. Although not going quite so far, it was further his evidence and understanding that early on the defenders wrote a letter to the pursuer saying that all payments would be without prejudice. Despite this being his understanding, I do not find that such a letter was written. It is true that on the defenders' file there is a copy letter dated 23 December 1992 apparently written by Mr G. Doherty, a Senior Claims Supervisor, in which it was said, inter alia,

Mr Robin, however, frankly admitted that he had no involvement in the drafting or sending of this letter and there was no direct evidence that it was indeed sent. Equally there was no clear evidence that it was received by the pursuer, which he denied. It was addressed to him "c/o Austin, Poild Horan, Fort William", an address where, according to his evidence, he stayed until 23 December 1992. Thereafter until 30 December 1992 or thereabouts the pursuer stayed in a bed-sit at Upper Achintore. While there is no doubt that he did receive payment of £100 - apparently in respect of contents about this time - a further letter on 23 December on the defenders' file suggests that the pursuer had received cash from the bank in the sum of £100 prior to that date. Mrs Austin did not give evidence. In the result the position about whether the letter was sent or received is so uncertain that I am unable to find that it was. Further, although the pursuer arranged with Mr Todd that he would recommend payment of a further £2,000 - mainly in respect of loss of contents - and although ultimately the pursuer received such a sum, there was insufficient evidence to enable me to find that a copy letter on the loss adjusters' file dated 29 December 1992 apparently directed to the pursuer, again care of Austin at the same address, (and which indicated inter alia "We have since spoken with your insurers who are prepared to make a further interim payment of £2,000 to you at this time entirely without prejudice to the question of policy liability") was ever sent or received by the pursuer, which again he denied. Mr Todd did not speak to this matter.

[10] It became apparent relatively early on that at least part of the property required to be demolished in the interests of safety, a chimney breast giving particular cause for concern. The pursuer was invited to obtain an estimate in respect of demolition work and by letter dated 3 February 1993 Mr Todd, inter alia, indicated to him that "he awaited advice as to the prices for demolition work which depended upon the manner in which the work is to be carried out". The pursuer, who wished in due course to reinstate, obtained a price for demolition of the whole property and by letter dated 12 March 1993 Mr Todd confirmed that he had no objection to the pursuer instructing a contractor to proceed with the demolition and that "we await sight of the account in due course". At a meeting with the pursuer and Mr Lindsay of West Highland Estates Office on 30 March 1993, Mr Todd - on being told that demolition work had begun - told the pursuer that he would be free to submit the accounts to the adjusters and that it would be considered depending on the stage of the enquiry at that time. Despite the pursuer's denials, Mr Todd explained that police, and their own, enquiries were continuing. At all times indeed the pursuer was aware that the defenders were conducting enquiries relevant to the question of their liability under the policy. At or about the end of March an invoice in the sum of £693.25 in respect of demolition was passed on by the adjusters to the insurers and duly paid at or about the beginning of April 1993.

[11] As indicated above, the pursuer wished to proceed to reinstatement. By letter dated 10 March 1993 Mr Todd wrote to him intimating:

It is not clear that the pursuer entirely understood the import of this letter but in due course a surveyor's report was obtained dated 13 April 1993 relative to the probable cost of reinstatement. In February 1993 the pursuer had obtained an estimate of fees from architects. By letter dated 20 April 1993 Mr Todd wrote to the pursuer intimating that they were unable to reconcile some of the figures in the surveyor's report and that it might be necessary for a bill of quantities to be compiled and priced.

[12] Meantime certain payments continued to be made by the insurers. The pursuer received a letter dated 3 February 1993 addressed to him at care of Laragain Cottages, Upper Banavie, Fort William, where he was then staying, intimating that the insurers had been asked to make a further payment of £2,874 (£2,000 in respect of contents and £874 apparently in respect of accommodation) and telling him that "the Direct Line payment will be made directly to your bank account". By letter dated 12 March 1993 the adjusters asked inter alia for presentation of receipts in respect of alternative accommodation costs. By letter dated 1 April 1993 the loss adjusters wrote to the pursuer confirming that the defenders were issuing a cheque to the value of £540 to his bank account in accordance with previous payments and further that they were in discussion with the defenders regarding the possible purchase of a caravan for his accommodation. They indicated that in the meantime their own enquires into all aspects of the matter were continuing. By letter dated 5 April 1993 the defenders wrote to the pursuer's father - who had apparently written expressing concern about delays in meeting his son's claim - referring inter alia to the need for loss adjusters to carry out full enquiries, but reporting also that:

[13] At or about the beginning of April 1993 Mr Todd spoke to Mr George Brown, a contractor who had been instructed by the pursuer at some stage prior to the fire to do works on the property. The defenders had learned from the pursuer himself that he had raised sheriff court proceedings against the contractor claiming damages in respect of the alleged inadequacy of the work. At a meeting on or about 6 April 1993 Mr Todd received information from Mr Brown which gave him (and subsequently the defenders) certain concerns as to the condition of the property at the time of the insurance proposal and at the time of the fire. In their letter of 20 April 1993 to the pursuer (by which time a caravan had been provided for the pursuer) the loss adjusters said inter alia:

Notwithstanding this letter the report obtained in connection with the action was not produced by the pursuer.

[14] The pursuer experienced difficulties with the connection of services for the caravan and by letter dated 7 May 1993 the defenders wrote to him saying:

Following this the pursuer, with the agreement of Mr Todd, arranged to stay at the Glen Loy Hotel where he stayed until 28 May 1993, his accommodation costs being met by the defenders until that date. At all times as payments were made they were deducted by the loss adjusters (in regular "interim payment reports") from the defenders' reserve.

[15] Mr Robin, accompanied by Mr Todd, met with the pursuer in his caravan on 13 May 1993. At that meeting the defenders made it known to the pursuer their concerns about the state of the property at the time of the inception of the policy. It was explained to the pursuer that the defenders wished to see a report which had been submitted to the court in support of his legal action against Mr Brown. Despite the pursuer's evidence to the contrary, I am satisfied that, for whatever reason, the pursuer denied the existence of such a report. Further I accept the evidence given in particular by Mr Robin that the pursuer was told that the reason for the defenders' concerns, and for the request for the report, was that if the property had serious defects at the time the policy was incepted it was considered that there would have been a clear non-disclosure of material fact which could result in the underwriters voiding the policy from inception.

[16] Following this meeting the defenders obtained certain further information which caused them to decide not to proceed with the installation of the septic tank in the caravan - a decision taken by them on 16 May. On 17 May 1993 Mr Robin on behalf of the defenders wrote to the pursuer saying inter alia:

On 20 May 1993 the pursuer telephoned Mr Robin demanding to know why instructions to carry out the installation of the septic tank to the caravan had been cancelled. Mr Robin explained that they had been forced to cancel the instructions in light of certain information which they just had obtained from solicitors representing Mr Brown and that this information led them to believe that he had lied to the insurers at the time of the discussion when he denied the existence of an architect's report on the property.

[17] On the following day the pursuer, who clearly feared that the defenders might possibly be moving towards a decision to repudiate liability, wrote to the "Judge" of the Daily Mail complaining of the response of the insurers and the loss adjusters to his claim complaining inter alia that the defenders were "refusing to proceed with the claim". He also indicated, "I have been staying in B & B for the last week, on the directions of Mr Todd, but as he does not seem to be authorising payment for this, I have no idea where I will be staying from now on ...". The defenders' file contains a note that Mr Norman Paterson, Royal Bank of Scotland, Fort William, telephoned the defenders' Mr Doherty on 24 May and indicated that the pursuer had been upset when he visited the Bank on 21 May and further that he had claimed that the defenders were "voiding his policy". Although Mr Robin, who compiled the note, recollected in evidence that it was broadly an accurate record of what he had been told by Mr Doherty at the time. I have some doubt as to whether the note (recording as it did a conversation second hand) would have recorded with absolute precision what the pursuer, who by this stage feared only that the defenders might be moving to a decision to repudiate liability, said. The pursuer himself had no recollection of the conversation.

[18] In the meantime the papers were referred to the defenders' headquarters in London for a decision on liability under the policy. Pending a decision Mr Robin wrote a letter on 27 May 1993 to the insured confirming that their enquiries were continuing. On the same date a letter was written by the defenders' chief underwriter Mr McKee (a Director of the defenders) to the pursuer intimating that in the light of information received the defenders considered that the pursuer had been responsible for misrepresentation of a material fact "which regrettably leaves us no option but to avoid you insurance from inception. Naturally we are unable to assist you further with your current claim. Payments for alternative accommodation will cease from 28 May 1993." The defender have not since sought repayment of sums previously expended.

[19] It was the pursuer's evidence in examination-in-chief not merely that he been shocked to receive that letter but that he had had no notice or hint prior to it that the defenders were contemplating avoiding the policy on this basis. In the light of the findings I have made I am quite unable to accept this assertion. When he was cross-examined counsel for the pursuer objected to any questions being put to the pursuer relative to the meeting of 13 May 1993 and in particular in relation to the concerns or warnings then expressed by the defenders. This objection, repeated when the defenders led evidence themselves, was taken on the basis that there was no record for such evidence. The objection was maintained in the course of submissions at the end of the proof, but I am satisfied that, in the light of the evidence given by the pursuer himself in examination-in-chief, not only that it was competent to cross-examine him in relation thereto but, in the face of his denials or claimed lack of recall, to lead the relevant evidence, which evidence (at the time allowed subject to all questions of relevance and competence) was in my view properly before the court.

[20] The primary adopted position on behalf of the pursuer was that there had been clear indemnification under the policy in respect of buildings, contents and accommodation and that in respect of accommodation in particular this had continued up until 28 May 1993. It was accepted, as I understood it, that this last matter was critical, albeit that its significance should be judged in the light of the whole preceding context, including the indemnification in respect of buildings and contents. Reference was made to Robertson v Quercus Limited 1999 S.L.T. 596. It was, however, also submitted that a relevant acknowledgement could be found in indications from the defenders that the pursuer should proceed as though the claim would be met, reference in particular being made to the defenders' communings in respect of demolition, to the pursuer's engagement of demolition contractors and of the architects and quantity surveyors, and to letters up to and including that of 17 May 1993 in which the pursuer was asked for a detailed list of contents.

[21] These actions however all preceded 22 May 1993, and while no doubt they could be regarded as part of the relevant context for what the defenders did or did not do after that date, they could not, in my view, of themselves amount to a relevant acknowledgement. As was indicated in Richardson v Quercus Limited it is necessary to bear in mind, in any case, that earlier positions may have been departed from (see page 287). Further, and in any event, I do not find that anything the defenders did caused the pursuer to instruct the architect. Further as already indicated, it seems to me that the pursuer misunderstood why the defenders asked for a surveyor's assessment of the probable reinstatement costs. He, it seems, thought that this would be a recoverable cost and part of any claim, whereas the defenders tried to make it plain to him that such a report would be needed for the presentation of any claim and that the costs thereof would not be recoverable.

[22] At a later point in his submissions counsel for the pursuer also invited me to have regard, in file notes of telephone conversations which the defenders had with the pursuer on 20 and 21 May 1993, to intimations that the defenders' investigations were continuing, but it is not possible in my view to characterise any such representations as "performance towards implement" within the meaning of section 10(1)(a).

[23] On the other hand I am equally not persuaded by the defenders' first argument. This argument, which depended upon close analysis of the terms of the insurance policy, was to the effect that in separate actions the pursuer was seeking to enforce separate obligations, albeit arising under the same policy - that is an obligation to indemnify in respect of damage to the property in one action and an obligation to indemnify in respect of damage to contents in the other action. The only obligation which it could possibly be said was performed on or after 22 May 1993 was a different obligation to provide for alternative accommodation. Performance of or towards one obligation under the policy could not amount to a relevant acknowledgement of another obligation for the purposes of prescription. The position was, it was argued at least, generally supported by authorities. Reference was made to Gibson v Carson 1980 S.C. 357, a case in which Lord Allanbridge found that the defender's obligation, under a contract of sale, to provide clear title had not been relevantly acknowledged within the meaning of section 10 of the Act notwithstanding that possession had been granted. The Lord Ordinary emphasised the Act directed attention to whether a specific separate obligation which a pursuer sought to enforce had been relevantly acknowledged. Reference was also made to G A Estates Limited v Caviapen Trustees Limited 1993 S.L.T. 1051, in which inter alia purchasers sought damages based on breach of two warranties in a contract, and in particular to indications given, albeit obiter, by Lords McCluskey and Penrose that the warranties fell to be construed as being separate and independent and that a claim in respect of one could not be regarded as a claim to enforce the other for purposes of prescription. Further reference was made to Cole v Lonie 2001 S.L.T. 608. In that case an Extra Division held, in circumstances where damage had occurred at different times as a result of breaches of what the court construed as separate and distinct obligations under the contract, that the sheriff principal had wrongly decided that prescription began to run in respect of both obligations when the first damage occurred.

[24] In the policy of insurance in this case, in section 1(A) headed "Loss or Damage", the insurers undertook to pay for loss of or damage to the building caused by inter alia fire. In section 1(B) headed "Additional Cover" it was provided inter alia that they would pay, in addition to any other amount recoverable under the section, inter alia the cost of reasonable alternative accommodation in the event of the insured occupying his home. Similar provisions were made for payment for damage and alternative accommodation in section 2 headed "Contents", in parts (A) and (B) of that section.

[25] Plainly, as Lord McCluskey indicated in G A Estates Limited v Caviapen Trustees Limited, in applying the words of the Act to a particular situation it is necessary to identify the obligation which it is sought to enforce. This, in appropriate circumstances, may involve construction of obligations said to arise under a contract. In the present case the fundamental issue (apart from the question of prescription) is whether the defenders have any liability to pay under the policy at all or whether they were entitled, as they have claimed at all times since 27 May 1993, to treat the policy as void from inception on the basis of misrepresentation or material non-disclosure. Although the pursuer makes two separate claims in separate actions, counsel for the pursuer (who was not earlier involved in the case) was not able to explain why two separate actions had been raised - although indicating that this had been done without legal advice - (and he did not accept that that course had been necessary) and counsel for the defenders appeared to me readily to accept that the claims could have been made in one action. The defenders have never at any stage attempted to distinguish, so far as their fundamental position is concerned, between any obligation to indemnify in respect of damage to the property or the contents. In these circumstances, it seems to me to be reasonable to conclude that the obligation which the pursuer seeks to enforce (albeit by separate conclusions directed to separate losses) is the defenders' obligation to indemnify under the policy following upon the fire. If the specific claims had been preceded by a general declaratory conclusion seeking to establish the defenders' general obligation to honour the policy following the fire (as might well have been done) this conclusion would be difficult to resist. It is to be noted that the Joint Minute speaks of "the claim made by the pursuer which is the subject matter of the present action". It is to be noted also that this argument of the defenders was not taken at Procedure Roll although the relevance of the pursuer's pleadings on prescription was then attacked. Even if that is wrong, it would, I think, be right to treat the obligation to provide for alternative accommodation as ancillary to the obligations to indemnify in respect of loss or damage to property and contents and thus to treat any performance in respect of provision of accommodation as capable of being "performance towards implement" of the primary underlying obligations.

[26] The fundamental question remains whether payment in respect of the pursuer's accommodation between 22 May and 28 May 1993, as seen in the whole context of what transpired after the fire (which, subject to the defenders' primary argument, could, it appeared to be accepted, be regarded - even if only broadly - as performance towards implement of their obligation) could be said, in the light of the findings I have made, to be such performance by or on behalf of the defenders towards implement of their obligation as clearly to indicate that the obligation still subsisted.

[27] It is perhaps convenient to look initially at what the defenders themselves understood that they were doing. As previously indicated, I accept that Mr Robin and the defenders at least at the outset intended, in giving early assistance to the pursuer, to do no more than make certain goodwill, ex gratia payments without any admission of liability pending their further enquiries. Despite these early intentions the evidence appears to me, however, to suggest that from relatively early on the defenders themselves did not clearly distinguish in their own minds this approach from one which treated the payments made as being interim payments under and in terms of the policy, albeit under reservation of the right, in light of their investigations, to repudiate liability at a later date if so advised. If anything the balance of the evidence suggests the latter approach was adopted. The copy letter in the file, which bore to be from Mr Todd, dated 29 December 1992 speaks of the defenders being prepared to make certain further "interim payments" albeit "without prejudice to the question of policy liability." The defenders' loss adjusters made regular reports on "interim payments". On 5 April 1993 the defenders themselves wrote to the pursuer's father advising inter alia that "further interim payments have been made in respect of all accommodation charges which have been incurred". By letter dated 8 April 1993 Mr Robin wrote to Mr Todd saying inter alia "At the present time we have no reason to delay payments", albeit also expressing the hope that the insured understood that payments were being made without prejudice to liability under the policy. More significantly Mr Robin, in evidence, clearly agreed, in cross-examination, that the defenders initially had no reason not to pay in terms of the policy, that they made the payments they did "under the policy" and that the pursuer was "indemnified up to the point when liability was repudiated". At other times, however, illustrative of a somewhat equivocal position, the tenor of his evidence appeared to be that the payments were simply goodwill payments made in an emergency situation. I regard the fact that changes were made from time to time to the defenders' reserve and the fact that repayment has not since been sought (in the absence of any evidence that it was ever considered) as neutral in this context.

[28] Even if, contrary to the above, it was clear that the defenders did not at any stage acknowledge to themselves any present liability under the policy that cannot, on the face of it, be decisive for the purposes of section 10(1)(a) - and I did not understand counsel for the defenders to argue that it was. Section 10 is concerned to define what, for the purposes of prescription, will be regarded as a relevant "acknowledgement" - language which, on the face of it, suggests some kind of indication by one party to another. Unless constrained otherwise by the language, it would be reasonable to envisage, in my view, that Parliament had in contemplation indication by the debtor in an obligation to the creditor, the Act being concerned with the period within which the creditor must bring an action or lose his claim. That is expressly provided for in section 10(1)(b) (which provides for unequivocal written admission by or on behalf of the debtor to the creditor) and, though unspoken, is in my view reasonably to be inferred in section 10(1)(b). That is not to say that the test may not be objective, but I was not persuaded by the submission made on behalf of the defenders that the subsection contemplated such performance etc. as clearly indicated generally and not just to the creditor (that is, as I understood it, to all or any who might be interested) that the obligation still subsisted.

[29] Be that as it may, the contention on behalf of the pursuer was that the payments which were made, in particular the payment for his accommodation until 28 May, indicated to him and, judged objectively would have indicated to anyone in his position, that the defenders accepted a present liability under the policy even if they reserved the right to withdraw such acceptance at some stage in the future. I have come to the view that that contention is sound. Notwithstanding the unsatisfactory nature of much of his testimony I have no reason not to accept his evidence that he understood that all payments were to be regarded as interim payments under the policy or not to treat that understanding as anything other than reasonably based. At least after the end of December 1992 all payments were apparently made or provided without express reservations. As indicated above, the defenders themselves habitually referred to the payments as interim payments. While the pursuer must have been much more clearly aware of the defenders' concerns, and of the prospect that they might repudiate liability, than he indicated, I have no reason, further, to doubt his apparent understanding that until the policy was actually voided (which was not done until 23 May 1993) it subsisted - an understanding consistent with the legal position, notwithstanding that thereafter it would, it seems, fall to be regarded, in accordance with the weight of authority, as having been void from inception. In all the circumstances therefore I have come to the view that the continuing payment for accommodation did constitute such performance by or on behalf of the defenders towards implement of their obligation as clearly to indicate that the obligation still subsisted.

[30] In these circumstances I shall repel the first plea-in-law for the defenders in both actions.