Leppard v Excess Insurance Co Ltd

Claim on insurance policy following destruction of cottage by fire–Question as to amount which the claimant could recover–Insurance a contract of indemnity–Rule in Castellain v Preston applied–Submission by claimant that parties had agreed that basis of computation was to be replacement value even if actual loss was less–Submission rejected by Court of Appeal–Not a ‘valued policy’–Claimant entitled only to recover his actual loss to an amount not exceeding cost of reinstatement–Loss equal to difference between value of cottage immediately before fire and the site value (£3,000, being £4,500 less £1,500) This was an appeal from a judgment of Mars-Jones J holding in favour of the plaintiff that he was entitled under a fire insurance policy to the full reinstatement cost following the total destruction by fire of a cottage called ‘Janor’ at Higher Pennance, Lanner, Redruth, Cornwall. The plaintiff, the respondent to the present appeal, was Anthony Charles Leppard and the defendants, the present appellants, were Excess Insurance Co Ltd. E A Machin QC and Timothy Preston (instructed by Barlow, Lyde & Gilbert) appeared on behalf of the appellants; P J Millett QC and C Gosland (instructed by Fulwell & Partners, of Bristol) represented the respondent. Giving judgment, MEGAW LJ said: This is an appeal from the judgment of Mars-Jones J delivered on August 19 1977. The claim of the plaintiff, Anthony Charles Leppard, is on a policy of insurance against fire and other risks, issued to the plaintiff by the defendants, Excess Insurance Co Ltd. The property insured was a cottage known as ‘Janor’, at Higher Pennance, Lanner, Redruth, owned by the plaintiff. The cottage was destroyed by fire on October 25 1975. The defendants denied liability, on the basis of an alleged non-disclosure and an alleged breach of conditions of the policy. The learned judge, on the evidence, accepting the evidence of the plaintiff, rejected those defences and held that the defendants are liable on the policy. From that part of the judgment there is no appeal. The appeal is only as to the amount which the plaintiff is entitled to recover. The judge describes in his judgment how the plaintiff came to own the cottage. He says: ‘It was the home of his father-and mother-in-law until 1972, when they left to move into a council house. Father-in-law had had a leg amputated and could no longer get up and down the hill to the cottage. When the cottage was put up for sale a neighbouring farmer by the name of Bernard Maitland offered £1,500 for it. The plaintiff rightly thought it was worth much more than that; and, as I find, decided to buy it himself for that sum in order to ensure that his in-laws should have the capital to make the move and furnish their new home, and thereafter to share with them any profit made on a subsequent sale. The plaintiff had to borrow the money from the bank, and they insisted upon the deeds being in his name. They also insisted quite naturally that the premises should be insured in the meantime.’ The first insurance of the cottage was with other insurers, not the defendants. In September 1974, however, the plaintiff changed his insurers and took out a policy of insurance with the defendants. This he did through a firm of brokers whose representative in this transaction was a Mr Excell. The learned judge’s account of the plaintiff’s evidence as to the discussion with Mr Excell leading up to the issue of the policy is as follows: ‘The plaintiff gave details of that discussion so far as it affected the cottage in Cornwall. He told me that he informed Mr Excell that he had a cottage in Cornwall which he wanted to sell. He told him that he wanted it insured. It was in fact already insured with the Co-operative Insurance Society. He told Mr Excell it was an empty cottage that he had for the purpose of sale. Mr Excell said he would take it on when the current policy lapsed.’ The judge accepted that evidence in its entirety. He said: ‘I was impressed by the plaintiff’s evidence. Despite strenuous but quite proper cross-examination by Mr Preston, he emerged with his credit unscathed. He was a patently honest man who, in my judgment, was trying to tell me the truth to the best of his recollection. What he told me about this initial conversation is what I would expect to happen between an assured and a broker in these circumstances. I believe that the plaintiff has told me accurately the substance of that conversation.’ I come to the documents. At a meeting with Mr Excell, the plaintiff filled in a proposal form. Against ‘Sum insured’ the figure filled in was £10,000. The declaration signed by the plaintiff on the proposal form, contained these words: ‘Declaration. I declare that: (1) the sums to be insured represent not less than the full value (the full value is the amount which it would cost to replace the property in its existing form should it be totally destroyed).’  It is unnecessary for me to read declarations (2) and (3). The evidence which the judge accepted, given by the plaintiff, as to the completion of the proposal form was summarised by the judge as follows: ‘He’–that is Mr Excell–‘already knew the cottage was in Cornwall. I gave him particulars. I told him that it was insured for £10,000, but I was not asking that for it as the selling price. Mr Excell explained that it was not the selling price that the plaintiff should insure for but the cost of reinstatement of the premises in the event of total destruction.’ There is nothing in the pleadings or in the submissions before Mars-Jones J or before us to suggest, assuming that Mr Excell was acting at this point as agent for the defendants, that there was any oral collateral contract as a result of this conversation, or that what was then said can properly be used to determine the true construction of the policy of insurance which followed on that proposal by the plaintiff. I therefore say no more on that matter. That is not to say that the contents of the proposal form itself are irrelevant. They are incorporated into the contract–the policy of insurance–by express reference. I come to that policy, on the construction of which the first question in this appeal depends. I set out those parts51 of the words of the policy which are or may be said to be relevant. The first three paragraphs of the text of the policy contain the following: The Insured by the proposal which shall be the basis of and incorporated in this contract has applied to the Company for the insurance contained herein and has paid or agreed to pay the premium. Subject to the terms and conditions contained herein or attached hereon the Company agrees to provide insurance and indemnity as hereinafter set out in respect of events occurring during any period of insurance. The liability of the Company shall not exceed the sum insured on any one item in any one section nor in respect of any one section the total sum insured. Then comes ‘Section 1. BUILDINGS.’  The first paragraph reads: The sum insured is declared by the Insured to represent and will at all times be maintained at not less than the full value of the buildings (including architects and surveyors fees and an amount in respect of debris removal). Then there are two paragraphs in italic print under the heading ‘The Property Insured.’  The first of those paragraphs shows that the policy is intended to relate to ‘the Insured’s private dwelling(s).’  I need not read that paragraph. The second paragraph in italics reads: The Company will at its option by payment reinstatement or repair indemnify the Insured in respect of . . . and then the print changes into block capitals and reads: (A)  LOSS OR DAMAGE CAUSED BY ANY OF THE UNDER-MENTIONED PERILS: (1)  Fire. . . . The other so-called ‘peril’ to which I ought to refer is paragraph 10, under the main head ‘(A).’  It reads: 10 (a)  Architect’s or surveyor’s legal and other fees for estimates plans and specifications necessarily incurred in the reinstatement of the buildings following damage by an insured peril. . . . I need not read any more of it. For the plaintiff reliance is placed on that paragraph because it is said to show that the parties were contemplating, in the event of a loss under the policy, that there should be reinstatement of the building. The schedule to the policy as originally issued in 1974 showed the sum insured as £10,000. When arrangements were made for the renewal of the policy in September 1975 the sum insured, apparently as a result of Mr Excell’s suggestion to the plaintiff, was increased to £14,000. In fact that renewed policy, which is the relevant policy for present purposes, has, as ‘Date of issue,’ the date October 28 1975. That is three days after the fire. But that was merely an administrative time-lag. The renewal of the policy had been agreed before the fire. The effect of the fire, counsel agreed before us, was to cause a total loss of the building, not a partial loss. The fact that some part of the walls remained does not affect the position. The building was destroyed. It was so pleaded in the statement of claim, and it was so admitted in the defence. The learned judge was, I fear, in error when he said in his judgment ‘We are not dealing with a total loss here.’ The judge in his judgment then described what had happened regarding the cottage between the time of its purchase by the plaintiff from his parents-in-law and the time of the fire. I shall read the relevant passage, for these are relevant findings of fact. This brings me to the question of damages and the basis upon which those should be calculated. By way of introduction I must set out in summary form what happened to the property after it had been put on the market. At first the plaintiff was asking £12,500 for it. That was within months of his purchasing the property from his parents-in-law for £1,500. However as the months went by the asking price was reduced until by July 1975 it was down to £4,250. Indeed the plaintiff frankly admitted that he would have sold the cottage for £4,000 just before the fire. What appears to have happened is that the neighbouring farmer Bernard Maitland, who gave evidence before me, did everything in his power to dissuade prospective purchasers from going through with their deals. Having failed to get it himself for a bargain price, he put every obstacle in the way of others who were minded to buy it at a higher price. His land surrounded that owned by the plaintiff. Mr Maitland challenged the plaintiff’s right to run a water main through his land and his right of way over the lane leading to the property. He went as far as to ask for the sum of £3,000 for granting such rights to the plaintiff or a prospective purchaser. So, although there were literally hundreds of inquiries from prospective purchasers, nothing came of them. It is only right to add that there were other reasons given for breaking off negotiations, but I am satisfied that Mr Maitland’s intransigence was undoubtedly the primary caused for the estate agents’ failure to sell this cottage at a reasonable price. Now it would seem that those differences which had arisen between the plaintiff and Mr Maitland have been resolved, but I am concerned for the purposes of this judgment with the value of the property at the date of the loss. I agree with the learned judge that the relevant date for the ascertainment of the amount of the loss is the date of the loss–October 25 1975. Mars-Jones J then records the facts of the helpful agreement made between the parties as to certain figures. I had better read it as the judge set it out: ‘The parties are happily agreed about figures. If the plaintiff is entitled to the cost of reinstatement, the correct sum after taking betterment into account is £8,694. Mr Gosland’ (who was appearing as counsel for the plaintiff) ‘contended that he was so entitled. Mr Preston’ (who was appearing as counsel for the defendants) ‘on the other hand argued that the plaintiff was only entitled to recover the value of the loss which he put at the agreed figure of £3,000 being the difference between the realistic value of the property in October 1975 put at £4,500 by Mr Weller minus the site value which is agreed at the figure of £1,500.’ The learned judge quoted at length from a text-book on the law of insurance, and he cited passages from cases decided as to the measure of damages in the particular circumstances of those cases, being actions for tort or breach of contract. However, as I understand his judgment, the judge then accepted the submission of counsel for the plaintiff that those cases ‘dealt with an entirely different situation from that which arises here. They were concerned with the measure of damages in tort and for breach of contract.’  I agree with the learned judge that those cases, which were cited to us again on this appeal, are not helpful on the issue before us, even though a claim on a policy of insurance is a claim for damages for breach of contract. The learned judge then went on: Basically this is an action for specific performance for a declaration that the plaintiff is entitled to the full reinstatement cost of actual reinstatement. It is not an action for breach of contract as such. The contract here was that in return for the payment of a premium the defendants would indemnify the plaintiff against loss sustained from a peril covered by the policy. The plaintiff is to be put in the position that he was in just before the damage occurred, and this result could only be achieved by paying him the cost of reinstatement minus ‘betterment.’  I have come to the conclusion that those submissions are well-founded and that the plaintiff in this case is entitled to a declaration in the terms sought. I respectfully disagree with the learned judge’s analysis. This is a claim for damages for breach of a contract of insurance. It is not an action for specific performance. The first question which arises is whether, on the true construction of the insurance policy, the plaintiff is entitled to require the defendants to pay him the cost of reinstatement of the cottage, even assuming–and, to answer the first question, one makes this assumption–that the loss actually suffered by the plaintiff was less than the cost of reinstatement. If the answer to that be ‘No,’ then the second question falls to be answered: on the facts of this case, was the amount of the loss actually suffered by the plaintiff the cost of reinstatement52 (agreed at £8,694) or was it the figure of £3,000 for which the defendants contend? The argument put before us by Mr Millett, who appeared for the plaintiff in this court with Mr Gosland, in support of the answer which the plaintiff seeks on the first question is not, I think, the same argument as was submitted to the learned judge on that question. But there can be no objection to the point being taken in this court as counsel wishes to put it; and no such objection was taken on behalf of the defendants. Ever since the decision of this court in Castellain v Preston (1883) 11 QBD 380 the general principle has been beyond dispute. Indeed I think it was beyond dispute long before Castellain v Preston. The insured may recover his actual loss, subject, of course, to any provision in the policy as to the maximum amount recoverable. The insured may not recover more than his actual loss. As it was put by Brett LJ in Castellain v Preston at p 386. In order to give my opinion upon this case, I feel obliged to revert to the very foundation of every rule which has been promulgated and acted on by the courts with regard to insurance law. The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, because of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified. That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity, or which will give to the assured more than a full indemnity, that proposition must certainly be wrong. Mr Millett submits that when one looks at the declaration in the proposal form in this case, it shows that the parties define ‘the full value’ as being the reinstatement cost. The first paragraph of section 1 of the policy, which I have read, with its parenthetical reference to ‘(including architects and surveyors fees and an amount in respect of debris removal),’ shows, Mr Millett submits, that ‘the full value’ is to be deemed to be the reinstatement cost. When there has been, as here, as the parties agreed before us, a total loss, that necessarily involves a loss of ‘the full value.’  Therefore, the policy provides that the plaintiff, on a total loss, shall be entitled to the cost of reinstatement, irrespective of whether or not it is the actual loss. The parties have, it is argued, by the words used in the declaration and the policy, agreed that this contract, though it is not a valued policy–no specific amount of money representing the value of the thing insured has been agreed–nevertheless shall have the same effect as a valued policy, though with the substitution for a specific agreed figure of an agreed basis of assessment of the loss, namely, whatever may prove to be the cost of reinstatement as at the date of the loss. It remains, counsel agrees, a contract of indemnity, with the insured entitled to recover no more than the amount of his loss: but on the words of this policy the parties, as they are entitled to do, have agreed, not what the loss is, but on what basis it is to be computed. That agreement, it is submitted, is overriding. The parties are free to agree how the loss shall be computed, even though the computation may produce a figure different from the actual loss. If they so agree, then their agreement prevails, even though it gives what in fact is more than a full indemnity. I disagree. What the insurers have agreed to do is to indemnify the insured in respect of loss or damage caused by fire. The ‘full loss’ is the cost of replacement. That defines the maximum amount recoverable under the policy. The amount recoverable cannot exceed the cost of replacement. But it does not say that that maximum is recoverable if it exceeds the actual loss. There is nothing in the wording of the policy, including the declaration which is incorporated therein, which expressly or by any legitimate inference provides that the loss which is to be indemnified is agreed to be, or is to be deemed to be, the cost of reinstatement, ‘the full loss,’ even though the cost of reinstatement is greater than the actual loss. The plaintiff is entitled to recover his real loss, his actual loss, not exceeding the cost of replacement. There remains the second question. Was the plaintiff’s actual loss the cost of the reinstatement of the cottage?  Or was it, as the defendants contend, the market value of the property as it was at the time of the fire?  The defendants do not rely upon any general principle in support of their submission. They say, rightly in my judgment, that this is a question of fact and that one must look at all the relevant facts of the particular case to ascertain the actual value of the loss at the relevant date. Of course, one is entitled to look to the future so as to bring in relevant factors which would have been foreseen at the relevant date as being likely to affect the value of the thing insured in one way or the other, if the loss of it had not occurred on that date. But on the evidence in this case, and the learned judge’s statement of the relevant facts in the passages from his judgment which I have read earlier, it is beyond dispute that the plaintiff himself, at the relevant date, wished to sell the house, and was ready and willing to sell it for £4,500–indeed, on his own evidence, for less. Mr Millett submits that he was not bound to sell it. Of course not. He might thereafter, if the loss had not occurred, have changed his mind. The value of the property might have increased or it might have decreased. But there is no getting away from the reality of the case: ‘It was’ (I am quoting again from the judgment) ‘an empty cottage that he had for the purpose of sale.’  The learned judge says: ‘I do not think that this man, the plaintiff, would be put in the same position as he was before this fire merely by being paid the sum of £3,000, the difference between the price that he was prepared to accept for the property at the time of its loss and its site value.’  With very great respect, I am unable to see why not. If the plaintiff himself was ready and willing, as he plainly was, to sell the property for £4,500, or less, on October 25 1978, just before the fire, how can it be said that that was not its actual value at that time: unless, indeed, some reason could be shown why the plaintiff himself should have made a mistake about, or underestimated, its real value. No basis is shown for any such suggestion. The amount of the loss here, in my judgment, is shown by the facts to have been the figure agreed, hypothetically, on this basis, as £3,000. I would allow the appeal and vary the learned judge’s judgment so as to provide that judgment be entered for the plaintiff for £3,000. Agreeing, GEOFFREY LANE LJ said: Mr Millett, on behalf of the plaintiff in this court, has posed two questions. The first question was this: Were the defendants entitled to contend that the full value of the building was less than the cost of reinstatement?  No doubt they were not, in the light of the definition of ‘full value’ which is contained in the proposal form as follows: ‘. . . (the full value is the amount which it would cost to replace the property in its existing form should it be totally destroyed).’  But the difficulty facing Mr Millett is this: that is not the problem which is at the root of this case. The question really is: What did the plaintiff lose as a result of the fire?  Was it the market value of the cottage at that time, or was it the reinstatement cost? Mr Millett sought to argue, as indeed he had to if he was going to succeed on this point, that this was in the nature of a valued policy, the defendants undertaking, so he suggested, in the case of total destruction to pay the reinstatement cost, whatever that might be, up to the limit of £14,000 contained in the schedule. But the wording of the contractual document does not admit of such a construction. It is to be observed that that construction was never alleged in the statement of claim; nor was the case before the learned judge argued upon that basis at all. This was an ordinary indemnity-only contract. The plaintiff was entitled to be paid his actual loss and no more. The citation which Mr Machin gave to us from the Australian case of British Traders’ Insurance Co Ltd v Monson53 (1964) 111 CLR 86 was directly in point. The material passage is at p 92. It is in the joint judgment of Kitto, Taylor and Owen JJs; and it reads as follows: On appeal to the Full Court of the Supreme Court the respondents’ contention was upheld by a majority of the judges. One line of reasoning which was sustained commenced by construing the policy as containing an unqualified promise by the company to pay the respondents in the event that happened the full amount of the sum insured; and on this basis it was said, in answer to the appellant’s insistence that a policy of fire insurance is only a contract of indemnity against loss, that according to undoubted authorities on the subject a party insured may in some circumstances recover more than the value of his insurable interest and that the most cogent of all categories of such circumstances must be that in which the parties have by express words so contracted. It is convenient to deal first with this way of putting the case for the respondents. Its fault lies, we think, not in the fact that it begins with the policy, but in the fact that it gives the policy a meaning which neither general understanding nor the law of insurance will support. It concentrates attention upon the words of obligation: ‘if the property insured . . . be destroyed . . . by fire . . . the Company will pay to the Insured the value of the property. . . .’  If those words be read in isolation from their context, no doubt the obligation is to pay the full value of the property, regardless of the quantum of loss sustained by the respondents by reason of the destruction by fire. But the all-important fact is that they are words in a document possessing unmistakably and on its face a character which flatly contradicts the notion that the obligation of the Company is to pay more than the amount of the respondents’ loss. It is issued by an insurance company. It is headed ‘Fire Insurance Policy.’  All its provisions, even the very words that are relied upon for their literal meaning, are characteristic of fire insurance policies. It is far too late to doubt that by the common understanding of business men and lawyers alike the nature of such a policy controls its obligation, implying conclusively that its statement of the amount which the insurer promises to pay merely fixes the maximum amount which in any event he may have to pay, and having as its sole purpose, and therefore imposing as its only obligation, the indemnification of the insured, up to the amount of the insurance, against loss from the accepted risk. Then their Lordships cite a portion of the judgment of Brett LJ in Castellain v Preston, to which reference has already been made. It is plain that the first question posed by Mr Millett must be answered against him. The second point was this: Was the judge correct in holding that the plaintiff would not be completely indemnified unless the building was in fact reinstated?  It seems to me, in agreement with Megaw LJ, that as to that the evidence was all one way. The plaintiff had, from the very moment when he bought this cottage from his father-in-law, wanted to sell it, and it is quite plain (he said so himself) that at the time of or immediately before the fire he would have snapped up the very first offer for this cottage of £4,000. One need only refer to one short passage in the judgment of the learned judge to illustrate that fact. It reads as follows: This brings me to the question of damages and the basis upon which those should be calculated. By way of introduction I must set out in summary form what happened to the property after it had been put on the market. At first the plaintiff was asking £12,500 for it. That was within months of his purchasing the property from his parents-in-law for £1,500. However as the months went by the asking price was reduced until by July 1975 it was down to £4,250. Indeed the plaintiff frankly admitted that he would have sold the cottage for £4,000 just before the fire. The learned judge does not make it altogether clear as to the basis of his conclusion on this aspect. He sets out his reasons in the passage which my Lord has already cited and there is no need for me to cite it again. That is the passage dealing with the question of specific performance. But it is clear, with great respect to the learned judge, that by awarding the sum that he did to the plaintiff, the plaintiff is undoubtedly £5,000 or so better off than if he had succeeded in achieving his ambition of selling this cottage for £4,500 or £4,000. That means, in short, that he has received more than an indemnity against his loss. He has had a bonus; and this policy does not provide for him to have such a bonus. This is an indemnity policy: it entitles him to the amount of his loss, and no more. Accordingly, it seems to me that the amount to which he is entitled in respect of this fire is the £3,000 which is the agreed value of the cottage as it was immediately before the fire. That is all he is entitled to recover. I agree with the proposed order. DUNN J also agreed. The appeal was allowed with costs and the judgment below varied by substituting as the amount of the plaintiff’s loss the figure of £3,000 for £8,694, with consequential adjustment of interest. Special directions were given as to the costs below.