Endurance Corporate Capital Ltd v Sartex Quilts & Textiles Ltd

Insurance – Reinstatement – Market value – Respondent’s premises insured against property loss or damage under policy underwritten by appellant insurer – Respondent claiming for cost of reinstatement following fire – Judge holding respondent entitled to recover sums on reinstatement basis – Appellant appealing – Whether respondent must show genuine, fixed and settled intention to reinstate property – Appeal dismissed In May 2011, there was a serious fire at industrial premises in Rochdale known as Crossfield Works occupied by the respondent insured. The fire destroyed most of the buildings on the site and all of the machinery. The respondent was preparing to use the premises as a factory to manufacture “shoddy hard pads” for use mainly in mattresses and for general insulation. The buildings and machinery and plant were insured against property loss or damage under an insurance policy underwritten by the appellant insurer. The terms of the policy covered the buildings and machinery and plant at the site against loss, destruction or damage arising from risks, including fire, and provided that, in the event of loss, the basis upon which the amount payable was to be calculated was on a reinstatement basis. Following the fire, the respondent considered alternative arrangements in regard to its business, including the reinstatement of the manufacturing facility at the site and various alternative sites. Although no attempts were made to reinstate the site, the respondent made a claim under the policy for the cost of reinstatement. The appellant resisted the claim, contending that, where the insured had no intention to reinstate, the assessment of recoverable loss under the policy was the diminution in the market value of the property caused by the fire. The judge held that the respondent was entitled to recover the sums claimed on the reinstatement basis: [2019] EWHC 1103 (Comm). The appellant appealed, contending that the judge was wrong in law to assess the sum payable under the policy as the cost of reinstatement when, on the facts, the respondent did not have a genuine, fixed and settled intention to reinstate the property on the site with buildings in the same style and general shape as they were before the fire. Held: The appeal was dismissed. (1) In general, what an insured did or did not intend to do if awarded damages, or if damages were calculated on a particular basis, was irrelevant to the question of what amount the insured was entitled to receive in order to put it in a materially equivalent position, so far as money could do, as it would have been if the insured peril had not occurred. As a general principle, where a claimant took action to remedy or otherwise mitigate the adverse consequences to it of the defendant’s breach of contract, it was entitled to recover the costs of that action unless it was shown that there was another, cheaper option available which it was reasonable to expect the claimant to adopt, in which case the damages were assessed as if the claimant had adopted that option: Reynolds v Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep 440, Pleasurama Ltd v Sun Alliance and London Insurance Ltd [1979] 1 Lloyd’s Rep 389, Keystone Properties Ltd v Sun Alliance and London Insurance plc 1993 SC 494, Great Lakes Reinsurance (UK) SE v Western Trading Ltd [2016] EWCA Civ 1003; [2016] EGLR 61 and Manchikalapati v Zurich Insurance plc [2019] EWCA Civ 2163 considered. (2) The question of the relevance of intention potentially arose where, at the time when damages were assessed, the claimant had taken no action to remedy or mitigate the effect of the breach. What remedial action, if any, the claimant intended to take was only relevant if there was a dispute about what action it would be reasonable to expect the claimant to take in order to put the claimant in the same position (or a materially equivalent position) as if the breach of contract had not occurred. The basic compensatory principle entitled the claimant to recover the cost of taking such action. How the claimant chose to spend the damages and whether it actually attempted to put itself in the same position as if the breach had not occurred, or whether the claimant did something else with the money, was irrelevant to the measure of compensation. (3) In the present case, no issue arose to which the intentions formed by the respondent after the loss were potentially relevant. It was found as a fact that the respondent was intending to use the premises as a facility for manufacturing shoddy hard pads. To put the respondent in a position materially equivalent to the position in which it would have been if the fire had not occurred, it was therefore necessary to award the cost of re-establishing such a facility, either by rebuilding the one that was severely damaged or by establishing a similar facility elsewhere. The respondent claimed the cost of reinstating the facility on the site, but had not alleged that there was any feature of the original buildings which had any special subjective value which it wanted to restore at additional cost. The sum claimed and awarded by the judge was the cost of constructing a modern facility on the site which was substantially similar in shape and general style to the one which was there before the fire, but using cheaper modern materials. The appellant had not suggested that there were suitable alternative premises at which the respondent could have established an equivalent manufacturing facility to the one damaged by the fire at a lower cost; nor that the value of the property was increased as a result of the fire. In those circumstances, the question whether the insured intended to reinstate the buildings on the site and use them to manufacture shoddy hard pads was not relevant to the measure of indemnity. The only case put forward by the appellant was that the appropriate measure of the respondent’s loss was the reduction in the market value of the premises. However, in circumstances where the respondent was not intending to sell the premises (and had no right to do so as it was only a licensee), that was not in principle a proper basis of assessment. The judge had been correct to hold that the amount which would have been payable under the policy was the same as the cost of reinstatement. Jason Evans-Tovey (instructed by DAC Beachcroft LLP) appeared for the appellant; Ben Elkington QC (instructed by Edwin Coe LLP) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Endurance Corporate Capital Ltd v Sartex Quilts & Textiles Ltd