Aviva Insurance must pay out on an insurance claim made by a Newcastle hotel that suffered extensive water damage during the Covid-19 pandemic.
The insurer had refused to pay Malhotra Leisure Ltd, the owner of the New Northumbria Hotel, alleging the claim was fraudulent and the owners had likely caused the damage themselves.
The case went to trial at the High Court in London late last year and lasted more than a week. In a judgment handed down earlier this week, trial judge Nigel Cooper KC ruled that “although nobody is able to say for certain how the overspill… occurred,” it was most likely accidental.
The case relates to a property damage and business interruption policy taken out by Malhotra in August 2019.
Malhotra is a family owned business in the North East that focuses on care home operation and construction, hospitality and leisure, and property.
The hotel, which is in the Jesmond area of Newcastle, is made up of six three-storey terraces. During the night of 11 July 2020, water escaped from the cold water tank in the loft of one of the buildings, soaking three floors and damaging some recently refurbished bedrooms. The hotel was closed at the time because of pandemic restrictions.
During its investigation, Aviva became suspicious about the claim. One reason was because an overflow could only be caused by three different failures: a faulty float valve in the water tank, a blocked overflow, and another blockage in a separate tank.
At trial, lawyers for Aviva argued these three separate failures occurring at once would be “highly unlikely”.
In his ruling, the judge said it wasn’t necessary for “all three elements to have failed coincidentally at precisely the same moment”.
He also said there wasn’t a strong financial motive for making a fraudulent claim. Although the business was suffering because of the pandemic, it was well capitalised and causing property damage to make a fraudulent claim wouldn’t have significantly improved its financial situation. And it would have left it open to a great deal of risk.
He also said there wasn’t any physical evidence the tank had been sabotaged, and it was one of the hardest tanks in the complex to access.
“Accordingly, and looking at the evidence overall, I find that the defendant’s allegation of fraud fails and I find that on the balance of probabilities, the [escape of water] was a fortuitous event,” the judge said.
He said the hotel’s owners should be indemnified for the event.
Malhotra Leisure Ltd v Aviva Insurance Ltd
Business and Property Courts (Nigel Cooper KC) 7 May 2025
