The Facts

This insurance claim relates to a property which was destroyed by fire. The property was owned by Mr Singh (“S”). The claimant, Western Trading Ltd (“Western”), is a company owned by S and its purpose is to manage and hold S’ property portfolio. Western’s insurance company and the defendant in this claim, Great Lakes Reinsurance (UK) plc (“Great Lakes”), sought to avoid the claim under the policy on the grounds that Western had no insurable interest and that there had been misrepresentation and non-disclosure.

In particular, Great Lakes argued that:

  1. Insurable Interest – as Western did not own or have a tenancy over the property, had not been contractually liable for its preservation nor did it have any interest in the loss in the event of damage to the property, it did not have an insurable interest and there was therefore no valid insurance contract;
  2. Misrepresentation –Western misrepresented in the proposal forms that the property was used for commercial purposes and the insurance had therefore not been properly placed; and
  3. Non-disclosure –there was non-disclosure by Western in not volunteering the truth about the alleged misrepresentations and in relation to the rental arrangements of the property and Western’s supposed plans to develop the property.

Western sought a declaration from the Court that it was entitled to be indemnified by Great Lakes in the terms of the policy. In relation to this, the question arose as to whether or not reinstatement of the property was an available remedy and whether Western should be indemnified for reinstatement of the property under the insurance contract. Great Lakes opposed this and contended that, should the Court find that Western did in fact have a valid claim; it should not have a declaration that it was entitled to be indemnified for the costs of reinstatement of the property as Western had not yet taken definite steps to reinstate the property.

The Decision

The Court found in favour of Western. In making its decision, the Court considered the following in relation to each argument raised by Great Lakes:

  1. Insurable Interest – the Court found that the business structure between S and Western was lawful and not unusual in relation to similar businesses. Additionally, it was clear from the evidence that Western paid rent to S and managed the property, as evidenced by the fact that Western was dealing with the insurance and the granting of sub-leases to tenants. The Court was satisfied that Western had an insurable interest in the property;
  2. Misrepresentation – the Court held that the extent to which any misrepresentations had been made was not material and that any alleged misrepresentations had not in fact been relied on by Great Lakes at the time of the inception of the policy. Great Lakes’ defence of misrepresentation therefore failed;
  3. Non-disclosure – Great Lakes accepted at the beginning of the trial that the non-disclosure allegations would be dependent on any finding in relation to misrepresentation. The Court did not consider non-disclosure in any further detail in its judgment, as this argument fell away due to the failure of the misrepresentation defence.

The Court further held that, upon consideration of relevant case law on this point, the question of reinstatement of the property could not arise until Great Lakes had confirmed that it would indemnify Western. The Court therefore found that the declaration sought by Western should be made.

Commentary

This decision provides useful insight into the factors the Court will consider when determining the defence of insurable interests in relation to insurance contracts. This case further reaffirms the law in relation to misrepresentation and the requirement that there must be reliance on the misrepresentations at the time the contract was entered into.