Palliser Ltd v Fate Ltd & Ors

Insurance wording must be construed objectively and contextually, with the words used remaining primary. Under a policy covering accidental damage to property not belonging to the insured, a landlord’s freehold ownership means that leased upper floors remain property belonging to the landlord. A buildings-insurance arrangement may impliedly exclude negligence liability between landlord and tenant, but where the landlord itself was negligent the exclusion cannot extend to loss caused by underinsurance. For damages depending on what the claimant would hypothetically have done, the claimant must prove the conduct on the balance of probabilities. A claim based on unsupported projections of future property transactions will fail where it remains speculative.

Fate owned a building containing a restaurant and seven upper-floor flats. Palliser held a 999-year lease of the upper floors and let the flats to tenants. A fire caused by Fate’s negligence damaged the building. Fate was insured under a policy containing public-liability cover for accidental damage to property not belonging to the insured and buildings cover.

After Fate became insolvent, Palliser pursued the insurers under the Third Parties (Rights Against Insurers) Act 2010. It claimed refurbishment costs, lost rental income and development profits. The issues were whether the upper floors were property belonging to Fate, whether the lease impliedly excluded Fate’s negligence liability under the Berni Inns principle, and whether the claimed development profits had been proved.

1. Property belonging to the insured. The policy was construed objectively and contextually. The words used were primary, while business common sense and purpose could assist but could not justify rewriting a bad bargain. In context, “property not belonging to” Fate was synonymous with “property not owned by” Fate. Palliser’s long lease and exclusive possession did not displace Fate’s freehold ownership. The buildings section, the insured value and the recording of HSBC’s interest supported that construction. The public-liability cover therefore did not respond to damage to the upper floors.
2. Berni Inns defence. The court did not need finally to decide whether the implied exclusion recognised in Mark Rowlands Ltd v Berni Inns Ltd would apply where the negligent party was the insuring landlord rather than the tenant. Even if it did, it could not extend to loss attributable to the landlord’s underinsurance. Otherwise the tenant’s remedy could be excluded even where the landlord had taken out no adequate insurance. Palliser therefore recovered £8,500 of refurbishment costs not covered by the buildings insurance.
3. Loss of profits. Where uncertainty concerns what the claimant itself would have done, damages cannot be assessed as a proportion of a chance. The claimant must prove, on the balance of probabilities, what it would have done. Palliser’s development-profit schedule depended on unsupported evidence from a non-decision-maker, lacked documentary or independent support, and was undermined by the related companies’ finances and borrowing arrangements. The claim was hopelessly speculative and failed in any event.
4. Judgment was entered for Palliser for £8,500 inclusive of interest. The remaining refurbishment claim and the loss-of-profits claim failed.