What’s in a name? Insurance policy construction, rectification and estoppel

Edwin Coe LLP recently acted for the successful Claimants in the Circuit Commercial Court case of George on High Ltd & Anor v Alan Boswell Insurance Brokers Ltd and New India Assurance Company Ltd Anor [2023] EWHC 1963 (Comm), in which the Claimants were awarded significant damages against both their insurer and their insurance broker in a claim arising out of a devastating fire at a boutique hotel in Rye, Sussex, “The George in Rye”. It subsequently transpired that the operating company, George on Rye Ltd (“GOR”), was not named as an insured on the relevant policy, leading to the insurer declining to cover GOR’s business interruption and material damage losses. The court ruled against the insurer, finding that as a matter of construction, GOR should be treated as an insured under the policy. In the alternative, the court held that the insurance contract should be rectified to reflect the parties’ common intention to insure GOR’s business. Finally, and in the further alternative, the court held that the insurer should be estopped from denying cover to GOR under the policy due to the operation of the doctrine of estoppel by convention. The insurance broker was found liable in negligence for failing to arrange adequate cover for loss of rent.

What are the practical implications of this case?

The decision serves as a useful summary of the law on the construction and rectification of insurance contracts and the doctrine of estoppel and is a salutory reminder for insurers that the knowledge of third party claims handlers acting as their agents may well be imputed to insurers for the purposes of the construction and/or rectification of the policy. Furthermore, the agents’ actions may also form the basis of a finding of estoppel by convention. This is consistent with the decision in the recent authority of World Challenge Expeditions Ltd v Zurich Insurance Company Ltd [2023] EWHC 1696 (Comm).

What was the background?

The First Claimant, George on High Ltd (“GOH”), owns the freehold to a 16^th century boutique hotel called The George in Rye, Sussex. The business of the hotel is operated by the Second Claimant, GOR.

The First Defendant, Alan Boswell Insurance Brokers Ltd (“AB”) were the Claimants’ insurance broker, who arranged an insurance policy on the Claimants’ behalf for the period 18 November 2019 to 17 November 2019 (“the Policy”) with the Second Defendant, New India Assurance Company Ltd (“NIAC”).

The hotel was largely destroyed by a catastrophic fire on 20 July 2019. The Claimants duly made claims on the Policy, only to be told by NIAC that because the named policyholder was described as “George on High Ltd t/a The George in Rye”, only GOH was covered, leaving GOR uninsured for the significant business interruption and material damage losses it had suffered.

The Claimants brought claims against AB alleging negligence in (i) failing to ensure that GOR was a named insured on the Policy; and (ii) failing to ensure that there was adequate loss of rent cover under the Policy. There were several other allegations of negligence against the broker, however these were settled shortly before trial. The broker accepted that it had acted negligently in relation to the arrangement of the Policy, however it claimed that NIAC should have in fact accepted liability and made payment for the claims and that therefore AB was not liable to the Claimants. AB accepted that it was liable to the Claimants to the extent that NIAC was not found to be liable. The remaining dispute that fell to be determined at trial was therefore solely between AB and NIAC as to who was liable to the Claimants for the claims.

AB (and the Claimants) alleged that there were multiple bases upon which NIAC should be liable to indemnify GOR under the Policy, namely:

1. On a correct construction of the meaning of the Policy NIAC was liable to indemnify GOR (“the Construction Argument”)
2. Alternatively, the Policy should be rectified such that NIAC should indemnify GOR under the Policy (“the Rectification Argument”);
3. Alternatively, GOH was acting as agent for GOR in relation to the Policy and therefore NIAC should indemnify GOR under the Policy (“the Agency Argument”); or
4. Alternatively, NIAC should, under the doctrine of estoppel by convention, be prevented from denying liability to GOR under the Policy (“the Estoppel Argument”).

An important element of the factual background to these allegations was that NIAC’s claims handlers (Garwyn) had dealt with a number of liability claims made over the period 2015-2018 which had been brought against GOR. Furthermore, Garwyn were specifically told of the existence of GOR and the fact that it operated the hotel during a meeting with Mr Alexander Clarke, a director of both GOH and GOR. Garwyn dealt with the claims by either denying liability based on the assessment of the underlying merits of the claims or by accepting liability and making payment under the relevant policies. Importantly, neither NIAC nor Garwyn ever purported to deny liability in relation to any of the claims on the basis that GOR was not insured. GOR also paid the premiums for the insurance provided by NIAC under the Policy.

What did the court decide?

The court found against NIAC in relation to each and every argument.

The Construction Argument

Tinkler J stated (at para 42) “In order to ascertain the meaning of the Contract and Policy I need to establish “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract” [my emphasis in bold]. That requires an assessment of the background knowledge of, and available to, the parties.”

Tinkler J found that the knowledge of Garwyn in relation to the historic liability claims could be attributed to NIAC when ascertaining the “background knowledge which would reasonably have been available to the parties” at the time the Policy incepted. He further noted that information may be something an insurer ought to know if it is known to an agent, pursuant to s5(2)(a) of the Insurance Act 2015. The fact that NIAC did not have systems in place for the sharing of information as between the claims handlers and underwriters did not, as a matter of law, mean that NIAC did not know facts that had been told to its staff or agents.

It was therefore held that NIAC knew at the time of inception of the Policy that the hotel was operated by GOR and not GOH and that a reasonable person would look at the description of the insured as “George on High Ltd t/a The George in Rye” and know that those words were plainly wrong. Taking all relevant factors into account, Tinkler J concluded that the reasonable person would conclude that the meaning of the “Insured” under the Policy was “George on High Limited and the business operated by GOR t/a The George in Rye”.

The Rectification Argument

Tinkler J considered that the evidence showed that the clear intention of NIAC was to provide insurance for, amongst other things, the business of the hotel trading as The George in Rye, including insurance for employee liability, public liability and business interruption and it was the common intention of NIAC, GOH and GOR that the hotel would be insured. The Policy did not reflect this common intention to insure the business. Tinkler J applied the test in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71 and considered that all the requirements were met such that, if he were wrong about the construction of the Policy and its actual meaning was that the business operated by GOR was not insured, he would have ordered that the Policy be rectified to say “George on High Limited and the business operated by GOR t/a The George in Rye”.

The Estoppel Argument

In relation to the issue of estoppel, Tinkler J held that “both NIAC and the Claimants proceeded with the common intention to insure the business trading as The George in Rye. NIAC, GOR and GOH conveyed the understanding to each other that the business was insured. GOH and GOR relied on that common intention and subsequently dealt with NIAC on the basis of that reliance.” He therefore found that the five requirements in HMRC v Benchdollar Limited & Ors [2009] EWHC 1310 (Ch); [2010] 1 All ER 174 had been satisfied. NIAC had accepted multiple claims over the years relating to the hotel business, it had been explained to Garwyn that GOR operated the business and NIAC accepted premiums from GOR over a number of years. In the circumstances, Tinkler J held that it was unconscionable for NIAC to assert a purported right not to indemnify GOR such that NIAC should be estopped by convention from denying liability in relation to the claim.

Given that GOR succeeded on all three primary arguments, Tinkler J found that he did not need to consider the alternative agency argument.

If you would like to discuss this decision in more detail, or would like advice regarding any insurance-related matter, please contact Kate Dwyer or a member of our Insurance Litigation team.

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