Privy Council rules that a CAR policy was not a valued policy

Under a valued policy, an insured will recover the agreed value, irrespective of its actual loss. However, if the policy is unvalued, then the insured must prove its loss in accordance with the usual indemnity principle (and the sum insured will be the maximum sum recoverable). In issue in this case was whether the policy issued to the insured was a valued policy.

When the insurer refused to provide property insurance for a property which was being renovated (because the building was unoccupied), the insured was instead issued with a Contractors' All Risks ("CAR") policy, which expressed that the "sum insured" for the "Contract Works" (ie renovation works) was B$700,000. At first instance (in the Bahamas), it was held that the building (as opposed to the works) was not insured. That was because the policy covered the "Contract Works", but at the time of the fire at the property, almost no works had been carried out and the damage related entirely to the pre-existing building, which was not part of the insured property (see Rowlinson Construction Ltd v Insurance Co of North America, where it was held that a retaining wall was not part of the “permanent works” at the site because the contractor had no intention of rebuilding it). The judge further held that the policy was not a valued policy and so the insured had to prove its actual loss (which it had failed to do).

The Court of Appeal of the Bahamas allowed the appeal from that decision, finding that the "Contract Works" were not limited to the renovations because the sum insured of B$700,000 was too large and the premium the following year would have remained the same, when the works would have been completed. The Privy Council has now allowed the appeal from that finding.

The Privy Council held that where the express language of the policy is clear, it has the "strongest reservations" that the matters taken into account by the Court of Appeal were admissible. In any event, they were irrelevant, because "if material of this kind is to be admitted, it must be admitted in its entirety". Accordingly, the building itself was not insured under the policy.

Although the Privy Council did not therefore need to consider whether the policy was a valued policy, it chose to do so "in order to avoid misconceptions on the point in future cases". The Privy Council went on to state that "an agreed value is unlikely to be a practical proposition in a CAR policy, where the property is contract works whose value will necessarily increase over time, and where the values at risk will depend on how far the works have advanced when the casualty occurs". In any event, it was said to be clear that the figure of B$700,000 here was not an agreed value, but merely the maximum sum insured: "This is confirmed, so far as confirmation is required, by clause 5 of the general conditions, which requires the insured to specify the amount of loss attributable to each item damaged or loss".

COMMENT: In its judgment, the Privy Council gave support to the decision in Rowlinson Construction Ltd v Insurance Co of North America, in which the court adopted a literal interpretation of a policy even though that interpretation was "harsh and technical" and "rendered the policy of little use to the assured".