The correct measure of indemnity

In the August 2021 edition of Claims Focus, the journal of the Chartered Institute of Loss Adjusters, Insurance Litigation Partner, Nicola Maher examines the Court of Appeal’s decision in Endurance Corporate Capital Limited v Sartex Quilts & Textiles Limited [2020] EWCA CIV 308.

The Court of Appeal handed down its Judgment in this matter just prior to the country going into full lockdown. It is an important decision with far-reaching consequences for policyholders and insurers alike and now is probably as good a time as any to take stock and revisit the reasoning behind it. The Court of Appeal unanimously held that, absent a contractual provision to the contrary, an insured is generally entitled to be indemnified in respect of property damage on a reinstatement basis, regardless of what it intends to do with the property following the insured event. It held that it was not necessary for an insured to show that it had a genuine, fixed and settled intention to reinstate in order to recover on the reinstatement basis under a property policy.

Background
Sartex manufactured textiles and shoddy hard pads for use in mattresses and insulation. It took out a Property Loss or Damage Policy (“the Policy”) with Endurance Corporate Capital Limited (“Endurance”) which covered damage to the buildings, plant and machinery at the premises and business interruption.

On 25 May 2011 a fire severely damaged the buildings, destroying the plant and machinery and effectively stopping production. In October 2011 Endurance accepted liability under the Policy but it then took a further 12 months to actually set out in writing its position on the amount recoverable for material damages. During that period Endurance did not make any interim payment to Sartex on the grounds that a settlement on the indemnity basis could be reached, despite the extent of the damage.

In November 2013 Endurance paid Sartex a sum of £2,141,527 based on its assessment of the market value of the buildings, plant and machinery destroyed by the fire which was accepted on an interim basis by Sartex. A claim for business interruption was also settled on the basis that, but for the fire, the profitable manufacture of shoddy hard pads would have continued…

Read the full article (PDF – pages 8 -11) in Claims Focus here.