Insurance Law-Indemnity

12. Indemnity A contract of indemnity Amount indemnified for Can an insured make a profit? -

How about what if you have insured for a higher value?

How about an average/excess clause? How about Latent Damage - If damage or injury sustained by an insured is not manifested immediately, would the insured be able to claim for the damage or injury after policy has expired? Castellian v. Preston (1883) 11 Q.B.D. 380. -

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Per Brett L.J.: 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, in case 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. PCC says, maybe to prevent gaming?

Dalby v. The Indian and London Life-Assurance Co. (1854) 15 C.B. 365. -

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House of Lords: A life assurance policy was not a contract of indemnity. Policyholder was not obliged to show actual loss when making a claim. Anchor Assurance Company granted 4 separate policies to insure the life of the Duke of Cambridge for £3,000.  Company decided to reinsure the Duke’s life with the India London Life-Assurance Co. for £1,000.  Insured surrendered the 4 policies but the company continued the reinsurance until the Duke’s death.  Company had no interest in the Duke’s life at the time. Issue : Whether the company could recover under the reinsurance as it had no interest whatsoever in the Duke’s life at the time of his death. 

Sadlers' Co. v. Badcock (1743) 1 Wils. K.B. 10. -

Lord Hardwicke: A fire insurance policy was an indemnity contract and an insured was obliged to show actual loss before he could recover under the policy.

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A house tenant took a lease for just under 7 years. She insured the premises for 7 years, and at the expiry of the lease, the policy had not run out.  House was destroyed by fire just after the lease ended.  After the fire, she assigned the policy to the landlord. Insurers: At the date of the fire, the insured had no interest in the property so there was nothing she could assign to the landlord.  Landlord does not stand in a better position.

Third parties Also for Third Party policies? -

What if solicitors for other side write in late? When does the obligation to indemnify them arise? Would a third party’s assertion that an insured is liable to him give the insured a cause of action against the insurer?  Is the insurer bound?  There might be a term in the contract saying you may not settle without insurer’s consent. If insurer ignores you, can you? Yes! See Structural Polymer and Hartford

MDIS Ltd. v. Swinbank [1999+ Lloyd’s Rep. I.R. 516. -

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English Court of Appeal: An insurer’s duty to indemnify an insured against a third party liability was dependent on the liability being proximately caused by an insured risk and not by the third party’s assertions. MDIS, a software house, agreed to develop computer software and supply computer hardware to Silkolene, a paint and lubricant manufacturer, for use in its process control system and financial processing.  On June 6, 1995, Silkolene treated MDIS as having repudiated the agreement. Silkolene claimed that MDIS misrepresented that the computer systems were compatible with the software supplied by MDIS.  MDIS settled Silkolene’s claim for £863,178.58. Insurers: Loss was caused by the dishonest, fraudulent, or malicious conduct or omissions of the insured’s employees.  Must at least ensure that the loss was under the policy

Structural Polymer Systems Ltd. v. Brown *2000+ Lloyd’s Rep. I.R. 64. -

Moore-Bick J.: An insured was entitled to settle a third party claim if the insurer took no interest in the claim. Structural Polymer Technologies Ltd. (“Technologies”) provided consultancy services to Search Asia Investment (Holdings) Ltd. (“Search Asia”) for the construction of a yacht in New Zealand to be undertaken by Sea Eagle Ltd., an associated company of Search Asia and Sensation Yacht Ltd. (“Sensation”).  Materials for building the hull was supplied by Structural Polymer Systems Ltd. (“Systems”). Problems with the hull led to various claims being brought against Technologies and Systems.  Technologies and Systems paid Sea Eagle NZ$697,000 and Sensation NZ$453,000.

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The plaintiffs sought to to be indemnified under a professional indemnity policy. 

Hartford Insurance Co. (Singapore) Ltd. v. Chiu Teng Construction Pte. Ltd. [2002] 1 S.L.R. 279. -

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Singapore Court of Appeal: An insurer who chose not take part in proceedings brought by a third party could not question a judgment obtained by the third party against the insured. Chiu Teng Construction were the main contractors for a housing project known as “The Countryside”.  Sheet-pile extraction works were done by Brentford Construction at a site adjacent to The Countryside.  The works caused soil movement damaging some of the houses in the project. Chiu Teng carried out remedial work installing 30 micropiles as foundation supports for the boundary walls and retaining walls. Brentford’s “all risks” policy covered third party liability in respect of the construction or erection works.

Tiong Nam Trading & Transport (M) Sdn. Bhd. v. Commercial Union Assurance (M) Sdn. Bhd. [2008] 6 M.L.J. 342. -

Malaysian Court of Appeal: An insured did not require an insurer’s consent to settle a third party claim if the insurer had denied liability under the policy. In the course of transit, the defendant’s insured lorry carrying the plaintiff’s cables overturned damaging the cables.  Plaintiff was indemnified by its insurers and the plaintiff sued the defendant for the damage claiming a sum of RM480,035.80.  Defendant’s insurers disclaimed liability for the loss.  Defendant informed the insurers that it was negotiating a settlement of the plaintiff ’s claim at RM100,000.

Delay Note also that if insurer delays u might get interest/additional loss compensation. But cannot sue him for late payment. See Sprung -

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If the insurer authorises a repair, and repairer is slow, who is liable for delay?  Depends on policy. Physical loss only, or economic loss also.  See Pilba This has been questioned. Law Commission looking at it

Pilba Trading & Agency v. South East Asia Insurance Bhd. & Anor. [1998] 2 M.L.J. 53 -

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Muhammad Kamil J.: A motor insurer was obliged to indemnify a policyholder for an insured vehicle’s physical damage but not for economic loss. Insurer instructed insured to have his damaged car repaired at Tan Chong Express.  Repairs were carried out to the insured’s satisfaction.  Insured, however, complained that the repairs took too long, namely, 59 days.  Arising from the delay, the insured incurred extra expenses as it had to use taxis. Insured: Extra expenses arose owing to the repairer’s delay in repairing the car. 

Sprung v. Royal Insurance (UK) Ltd. *1999+ Lloyd’s Rep. I.R. 111. -

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English Court of Appeal: When an insured sued an insurer for failing to indemnify him, the action was a claim for damages and in the action it was not possible to add a further claims for damages in respect of the insurer’s delay in settling the claim. Property was covered: “lost, destroyed or damaged by theft or attempted theft”.  Insured inherited a small family business collecting, processing and redistributing of animal waste products.  Premises were invaded by vandals who wrecked the machinery. Insurers made no payment.  Insured experienced severe financial difficulties and the business folded up. Insured: Claimed for consequential damages arising from the insurers’ failure to indemnify him. 

Tonkin v. UK Insurance Ltd. [2006] 2 All E.R. (Comm.) 550. -

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Judge Peter Coulson Q.C.: An insured could not sue an insurer for damages arising from delays in settling a claim. Insured’s home was insured for £504,000. Premises were destroyed by fire on September 29, 2002.Insurers paid several sums for reinstatement costs. Insured claimed £714,645·22 for construction costs, with a deduction of £30,000. After three-and-a-half years the property had not been reinstated owing a dispute between the parties over the actual cost of reinstatement. Insured claimed damages from the insurers for delay in settling the claim.

Distinguishing indemnity principle and insurable interest Indemnity principle Insurable interest -

Weeds out wagering contracts.  PCC says that’s the sole purpose.

Valued/unvalued policy Purely contractual in nature. Have to look at the policy terms. -

Advantage of valued policy is that it’s unaffected by market fluctuations Market Price  If insured property is commercially available, how is its value determined?  No Market Value - If insured property is not commercially available, how is the insured to be indemnified?  New for Old - If an insurer decides to reinstate, would the insured be unjustly enriched by getting new for old

Elcock v. Thomson [1949] 2 K.B. 755.

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Morris J.: When there was a partial loss under a valued policy, the indemnity payable was the property’s agreed value and not its market value. Property Valued at £106,850  Property’s Actual Value: £18,000  Value After Fire £12,600  Depreciation: £5,400 Amount Awarded: £5,400/£18,000 X £106,850 = £32,055

Quorum A/S v. Schramm [2002] 2 All E.R. (Comm.) 147. -

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Thomas J.: A statement of the “sum insured” did not turn a policy into a valued policy. A pastel painted by Degas in 1881, entitled La Danse Grecque, was insured for US$5.3 million. It was purchased for US$4.3million.  Painting was stored in a strongroom together with other valuable works of art. A fire broke out at the premises.  The strongroom was exposed to rapid increases in heat and humidity arising from the water used to extinguish the fire. The sudden changes in temperature and humidity affected the pastel in the painting.  The painting was eventually sold for US$3.05 million. Ask: What is the purpose of stating the insured sum? Just to set a ceiling  For a valued policy, msut state as such.

Allianz General Insurance Malaysia Bhd v. Navis Shim Lee Hiong [2004] 1 M.L.J. 437. -

Clement Skinner J.: A statement of the sum insured did not turn a policy into a valued policy. Policy for a Volvo 850 stated as follows: “Sum Insured (market value) RM120,000”.  Policy was renewed on four occasions and the cover notes contained a similar statement as to the sum insured. Car was stolen and the insured claimed RM120,000 on the basis that the policy was a valued policy.  Insurer offered RM93,000 as representing the car’s market value at the time of the theft.

Aubrey Film Productions Ltd v. Graham [1960] 2 Lloyd's Rep. 101. -

Winn J.: The commercial worth of insured property would be measured by what a willing buyer would pay for the property. A company shooting a film insured the film against loss or damage for £18,000. Shooting of the entire film was almost completed when the caravan containing the films was stolen. Insured: They had spent £20,000 making the film and were entitled to recover the full amount insured under the policy, namely, £18,000.  Court resolved this by reference to experts

Over/underinsurance How does the amount of insurance affect the indemnity payable? Eg a policy limit? -

Excess/average clauses?

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 Average clause: Policy Term - If the interest hereby insured shall at the time of any loss or damage be collectively of greater value than the sum insured by the Policy then the Insured shall be considered as his own insurer for the difference and shall bear a rateable proportion of the loss or damage accordingly. Partial/total loss?  Generally a partial loss will never hit the ceiling, so can!  Law considers every partial loss a separate claim. So you can claim all partial losses!

Acme Wood Flooring Co. Ltd. v. Marten (1904) 9 Com. Cas. 157. -

Bruce J.: An average clause made an insured his own insurer in a partial loss situation for any portion of the risk not insured. Property Insured for: £11,450. Property’s Total Worth: £36,500  Partial Loss Amounting to £12,850 Insured Own Insurer for £25,050 Amount Insured: £11,450 Amount Recoverable from Insurer: £11,450/£36,000 X £12,850 = £4,031

Sillem v. Thornton (1854) 23 L.J.Q.B. 362.

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Lord Campbell C.J.: When there was a partial loss, an insured was entitled to be indemnified for the full extent of the loss provided the loss did not exceed the policy limit.

Amount of indemnity For determination of market vaue, see Aubrey case above For reinstatement, see Reynolds -

Amount insured influences Court  Small amount might mean no intention of reinstatement

Reynolds v. Phoenix Assurance [1978] 2 Lloyd's Rep. 440. -

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Forbes J. ordered reinstatement after considering that the amount of insurance closely represented the cost of reinstatement. Plaintiffs bought some old maltings in Suffolk for £16,000 with a view to converting them into a grain store.  The premises were insured for £18,000 but later increased to £628,000 on the advice of the insurance brokers.  Fire destroyed about seven-tenths of the buildings. A settlement sum of £243,000 was agreed upon. Insurers: First, the indemnity payable ought to be the market value or the modern replacement value of the insured premises.  Secondly, no commercial man would think of spending £¼ million in rebuilding an obsolete building if he could buy a modern one for £30,000. 

Pleasurama Ltd. v. Sun Alliance & London Assurance Ltd. [1979] 1 Lloyd's Rep. 389. -

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Parker J.: When an insured was in actual occupation of insured property he was entitled to the cost of reinstatement A bingo hall was insured for £185,000. The insured premises were destroyed by fire.  Insurers made an initial payment of £117,585 but later a settlement figure of £163,000 was agreed.  Insurers failed to pay the agreed sum. Insurers: First, the amount previously paid was more than enough to satisfy the damage suffered. . Secondly, the correct measure of indemnity was the depreciation of the property. Note there was actually no market for this property. This was not considered.

Leppard v. Excess Insurance Co. Ltd. [1979] 2 Lloyd's Rep. 389. -

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English Court of Appeal: When an insured attempted to sell the insured property, the indemnity payable was its market value. Insured bought cottage from his father-in-law for £1,500.  Premises were Insured for £14,000  Cost of Reinstatement: £ 8,694  Site Value: £ 1,500 Insured was willing to sell the cottage for £4,500 before the fire. Indemnity Awarded: Market Value - Site Value = £3,000

Tonkin v. UK Insurance Ltd. [2006] 2 All E.R. (Comm.) 550.