Lloyd's Maritime and Commercial Law Quarterly
CONSEQUENTIAL LOSS CLAIMS FOR DELAYED INSURANCE SETTLEMENTS: CREATING A FINANCIAL CRISIS FROM AN INSURANCE DRAMA
Sprung v. Royal Insurance Pride
Valley v. Independent Insurance
Imagine the small businessman or woman, heavily reliant on continuous proper functioning of machinery. A broker is consulted who recommends a property insurance policy which covers inter alia theft and unforeseen and sudden damage to the machinery necessitating immediate repair. The policy, as is common, is standard and not specifically tailored to the interests of the particular insured. Subsequent to the insurance cover being obtained, the insured’s premises are broken into by vandals who cause a total loss of the essential plant and machinery. A claim on the insurer is submitted, which is, initially at least, rejected on the basis that there is no evidence that theft was the motive and that the policy does not purport to extend to “pure” vandalism or wilful damage.
The insured’s first thought may be unprintable, his or her second may be to blame the broker because the insurance cover is not what was intended, expected or required. He may consider that, if the insurer be right in his argument, the broker should have recommended a different policy (or insurer), or a second policy, to cover business interruption losses on such damage. United by different personal interests, the broker and insured are likely to pursue the argument that the policy does cover the event.
Time passes while the dispute (or disputes) rage, and the insured’s business, already crippled by the vandalism, now fails because the insured has neither the cash nor the willingness to entertain the repairs and sue the insurer. Indeed, the lack of cash resources or borrowing capacity to effect repairs was the principal motivating factor in seeking insurance cover in the first place. Goodwill of the business dwindles to nothing and the business becomes unsaleable. Only then does the insurer accept that the policy covers the damage and pays out for the repair costs but not for the capital loss of the business.
As is now well known, on the current view of the Court of Appeal the insured appears to have little complaint, at least as against the insurer. The cases of Sprung v. Royal Insurance (UK) Ltd
1 and Pride Valley Foods Ltd v. Independent Insurance Co. Ltd
2 have
1. [1997] C.L.C. 70 (C.A.).
2. Judgment on the issue of consequential losses was given by Parker, J., on 28 October 1996. Leave to appeal to the Court of Appeal has also been given and has been adjourned pending an appeal on liability.
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