Sartex Quilts & Textiles Ltd v Endurance Corporate Capital Ltd

An insured’s recovery is limited to its actual loss, assessed by the value of the property to it at the time of the insured event. The reinstatement cost may be the appropriate measure even where reinstatement has not occurred. The court must focus primarily on the insured’s position at the date of loss, but may consider subsequent events up to trial if they show that reinstatement would over-compensate the insured. A genuine, fixed and settled intention to reinstate at trial is not an inflexible requirement. Betterment remains an inherent aspect of the indemnity principle, but any deduction must be justified by evidence; an arbitrary percentage deduction is insufficient. A policy term varying the cover cannot be imposed unilaterally, although agreement may be express or inferred from the parties’ conduct.

Sartex claimed further indemnity under a property loss or damage policy after a fire destroyed its manufacturing premises, plant and machinery. Insurers had admitted liability and paid sums calculated on a market-value basis, subject to a disputed 20% co-insurance provision.

The principal issues were whether the claim should be assessed on a reinstatement or market-value basis, whether any deduction for betterment was justified, and whether the co-insurance provision had been agreed before the fire. Sartex had not completed reinstatement but maintained that it genuinely intended to rebuild and replace the manufacturing facility.

1. The court held that the governing principle, reflected in Castellain v Preston (1883) 11 QBD 380, was that insurance indemnifies the insured for actual loss, and no more. The relevant loss was assessed by reference to the value of the property to Sartex at the time of the fire.

2. The primary focus was therefore Sartex’s position immediately before and at the fire. Its intention then was to use Crossfield Works for the shoddy hard-pad manufacturing venture. The reinstatement basis was consequently the best measure of the value of the buildings, plant and machinery to Sartex.

3. Following Reynolds v Phoenix Assurance Co Ltd [1978] 2 LLR 440 and explaining Great Lakes Reinsurance (UK) SE v Western Trading Ltd [2016] EWCA Civ 1003, the court held that subsequent events, including events up to trial, may be relevant where they show that reinstatement would over-compensate the insured. It rejected the submission that every insured must prove a genuine, fixed and settled intention to reinstate at trial. On the facts, Sartex had genuinely intended to reinstate, and reinstatement remained the appropriate measure.

   The court added that, if necessary, declaratory relief could have been granted where there was a real possibility that reinstatement would not occur.

4. Exact reconstruction was unnecessary. Under the policy’s definition of reinstatement, Sartex could make significant changes or improvements, provided insurers’ liability was not increased. The principle was applied by reference to Tonkin v UK Insurance Ltd [2006] EWHC 1120 (TCC).

5. Betterment remained an established aspect of the indemnity principle. Although the court recognised the force of arguments based on damages cases, including The Gazelle (1844) 2 W Rob 279, Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 and Lagden v O’Connor [2004] AC 1067, it declined to adopt that approach in insurance law. Endurance had not provided sufficient evidence to justify a deduction.

6. The 20% co-insurance provision could not be imposed unilaterally. It was nevertheless agreed at the meeting of 23 May 2011, expressly or by Sartex’s conduct, and applied as a free-standing provision to the fire risk.

7. Sartex was awarded judgment for £1,386,172, plus interest. The claim was reduced by the agreed salvage value of £17,280, and further submissions on interest were directed.