High Court Awards Indemnity On A Reinstatement Basis For Damaged Property Which Had Not Been Reinstated

In Sartex Quilts & Textiles Limited v Endurance Corporate Capital Limited [2019] EWHC 1103 (Comm), David Railton QC sitting as a Deputy High Court Judge in the Commercial Court decided that the reinstatement basis was the appropriate measure of indemnity for a property severely damaged by fire which had not been reinstated. The Judge found that the question of whether an insured was entitled to be indemnified on the reinstatement basis required consideration of all the circumstances, including the position before the loss and up to and including trial; and that the insured's intentions regarding reinstatement were relevant on a continuing basis.

Background

Sartex Quilts & Textiles Limited (Sartex) occupied premises at Crossfield Works and manufactured home textiles, bed linen and quilts. In 1995, Sartex signed an agreement allowing it to use Crossfield Works rent-free, as long as it insured the buildings and contents and ensured that the premises were kept in a good state of repair (the 1995 Agreement). By 1999, the business was so profitable that Sartex moved its production line to larger premises at Castle Mill in Rochdale, and Crossfield Works were used to store and re-pack imported linens.

By late-2010, Sartex was converting Crossfield Works for use as a manufacturing plant for 'shoddy hard pads', used in mattresses and insulation. At this point, Sartex took out a Property Loss or Damage Policy (the Policy), which provided cover for the buildings, plant and machinery, as well as business interruption. The buildings were insured for £2,020,000 and the plant and machinery for £2,500,000. The insurer, Endurance Corporate Capital (Endurance), was the sole member of the Lloyd's syndicate with which the insurance was placed. The Policy incepted on 11 November 2010.

On 25 May 2011, a serious fire at Crossfield Works severely damaged the buildings. The plant and machinery were a total loss. Sartex and Endurance settled the business interruption claim in May 2013, and in November 2013 Endurance paid Sartex £2,141,527 based on their assessment of the market value of the buildings, plant and machinery. Endurance refused to indemnify Sartex on the reinstatement basis.

This case followed the recent decision of the Court of Appeal in Great Lakes Reinsurance (UK) SE v Western Trading Limited [2016] EWCA Civ 1003 in which a property severely damaged by fire increased in value, as it was de-listed and became suitable for development. The property had not been reinstated. The Court of Appeal held that it had been open to the judge at first instance to award a declaration that, if Western Trading reinstated the property, it was entitled to be indemnified by the insurer on the reinstatement basis. In obiter comments, Christopher Clarke LJ said that it seemed to him that the insured's intention needed to be "not only genuine, but fixed and settled," and there had to be at least a reasonable prospect of the insured...