Preliminary issue — Plaintiffs claiming damages against valuers — Plaintiffs alleging over valuation — Mortgage indemnity guarantee — Defendants denying negligent over valuation — Defendants also seeking credit for value of any sums received under guarantee if found liable — Plaintiffs seeking striking out of pleadings in relation to mortgage indemnity guarantee — Judgment for plaintiffs
The plaintiffs claimed damages for alleged negligence by the defendant valuers on a mortgage transaction. They alleged an over valuation of a property at Welford Grange, Sulby, Northamptonshire, which the defendants had valued at £500,000 and on which the plaintiffs lent money as their security. They asserted that the open market value was £350,000. The defendants denied negligence and submitted that the valuation was accurate or within a reasonable range of the true open market value. The plaintiffs sought to strike out a paragraph of the amended defence whereby the defendants sought credit on a quantification of damages if they were held liable.
Under para 12(b) of the amended defence, they sought “the value of any sums received by the plaintiff under a mortgage indemnity guarantee policy of insurance taken out in relation to the alleged advance”. It was accepted that lenders habitually took as security a charge over the mortgaged property and a personal covenant from the borrower. They might also sometimes effect mortgage indemnity guarantee insurance (“MIG”) against the risk that the borrower defaulted and the value realised on sale of the property was too small to repay the full sum advanced. It appeared that there was such a policy in the present case although evidence to that effect had not been admitted upon the present application. The defendants submitted that if negligence were established, the plaintiffs would have to give credit for what they had recovered, viz for the net proceeds of sale of the mortgaged property and that that credit should include proceeds of any MIG policy.
The plaintiffs submitted that proceeds of insurance policies were an established exception to the normal rule that where a plaintiff had recovered part of his loss from a third party, he ought to give credit for what he had already received. They were a benefit which had been paid for by the plaintiffs and insurance proceeds should not become a benefit to the defendants. Further, the proceeds were not payable because of the defendants’ breaches of duty but because the plaintiffs insured against the peril which had in fact occurred: see inter alia, Bank Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] 1 EGLR 129.
Held Judgment for the plaintiffs.
1. The nature of the transaction was one of insurance and one of the critical questions was whether the insurance or guarantee were effected for the benefit of the defendants.
2. If the insurance or guarantee was not effected for the benefit of the defendants, then it was obvious commonsense that they should not receive the benefit of it.
3. There was no basis for contending in the present case that any insurance or guarantee of the kind which the defendants asserted in their para 12(b) was effected for their benefit. They did not pay or contribute to the premium and although the plaintiffs had claimed the premium as part of their loss against the defendants, it did not follow that the claim would succeed.
4. Even if they did succeed in claiming the premium that would not entitle the defendants to the benefit of the proceeds as they would be paying it, not as a premium to insurers, but as an expense incurred by the plaintiffs.
William Bojczuk (instructed by LLewelyn Zietman) appeared for the plaintiffs; Jason Evans-Tovey (instructed by Fishburn Boxer) appeared for the defendants.
