Sun Alliance (Bahamas) Limited and another v Scandi Enterprises Limited

In a contractors all risks policy, coverage of “Contract Works” ordinarily extends to the permanent and temporary works described in the building contract, not to a pre-existing structure that is merely being renovated. Clear policy language must be applied according to its terms; extrinsic evidence cannot contradict it, and evidence relied on for interpretation must be considered as a whole. The stated sum insured is not, without more, an agreed value. It is only the maximum liability, and the insured must prove the actual loss. A valued policy is an exception where the parties agree the property’s value in advance.

Scandi Enterprises Limited acquired a dilapidated apartment building and obtained a contractors all risks policy from Sun Alliance (Bahamas) Limited and another. The building was extensively damaged by fire before the proposed renovation works had materially progressed. Evans J held that the pre-existing building was not insured and that the policy was not valued. The Court of Appeal of the Commonwealth of the Bahamas reversed both conclusions. The appeal concerned whether the policy insured the building and whether the stated sum insured constituted an agreed value.

Appeal allowed. Lord Sumption delivered the judgment of the Board, which advised that the order of Evans J be restored.

1. Scope of cover. The policy insured the “Contract Works”, meaning the works described in the building contract, together with specified materials. Permanent works were structures to be created under the contract. Temporary works were works required to carry out the permanent works but not forming part of them. A pre-existing building that was not being rebuilt was the structure upon or in relation to which the works were carried out. It was not itself part of the insured works. The reasoning in Rowlinson Construction Ltd v Insurance Company of North America (UK) Ltd [1981] 1 Lloyd’s Rep 332, at p 336, illustrated the same distinction.
2. Application to the policy. The damage claimed related entirely to the pre-existing building. Only minor renovation work had been carried out, and no claim was made for it. The building was therefore outside the insured property. Clear contractual language had to be applied. The extrinsic evidence relied on by the Court of Appeal could not contradict the insuring clause and was irrelevant even if admissible. If such evidence were admitted, it had to be considered in its entirety, including the insurer’s refusal expressly to insure the buildings.
3. Valued policy. Although the issue did not strictly arise, the Board addressed it to prevent future misconception. Insurance is ordinarily a contract of indemnity, requiring the insured to prove the amount of loss. A valued policy is an exception where the parties agree the value of the insured property in advance. The B$700,000 figure was merely the maximum sum insured, not an agreed value. Clause 5 of the general conditions confirmed that the insured had to state the amount of loss attributable to each damaged or destroyed item.
4. Delay. The Board observed that a thirteen-year interval before trial was inconsistent with the interests of justice and indicated that available active case-management procedures should be used.

• Privy Council: In [2017] UKPC 10, the appeal was allowed and the order of Evans J restored.
• Court of Appeal of the Commonwealth of the Bahamas: Reversed Evans J on both the scope of cover and valued-policy issues.
• First instance: Evans J held that the building was not insured and that the policy was not valued.