First National Commercial Bank Plc v Barnet Devanney (Harrow) Ltd [QBD]
| Jurisdiction | England & Wales |
| Judge | Gage J. |
| Judgment Date | 07 April 1998 |
| Court | Queen's Bench Division |
| Date | 07 April 1998 |
Queen's Bench Division.
Gage J.
J Townend QC and G Clark (instructed by Stewarts) for the plaintiff.
Roger ter Haar QC and A Phillips (instructed by Hextall Erskine) for the defendant.
The following cases were referred to in the judgment:
Banque Bruxelles Lambert v Eagle Star Insurance Co Ltd [1996] CLC 1179; [1997] AC 191.
Bolam v Friern Hospital Management CommitteeWLR [1957] 1 WLR 582.
Bristol & West Building Society v May May & Merrimans (No. 2)WLR [1998] 1 WLR 336.
Caisse Populaire v Société d'Assurances (1984) 19 DLR (4th) 411.
Canadian Imperial Bank v Dominion of Canada General Insurance (1987) 46 DLR (4th) 77.
Craneheath Securities v York Montague LtdUNK [1996] 1 EGLR 130.
Exchange Theatre Ltd v Iron Trades Mutual Insurance CoUNK [1984] 1 Ll Rep 149.
Galoo Ltd v Bright Grahame MurrayWLR [1994] 1 WLR 1360; [1994] BCC 319.
General Accident Fire & Life Assurance Corp Ltd v Midland Bank LtdELR [1940] 2 KB 388.
Hunt v SeversELR [1994] 2 AC 350.
Kausar v Eagle Star [1997] CLC 129.
Mount Banking Corp Ltd v Brian Cooper & CoUNK [1992] 2 EGLR 142.
Napier & Ettrick (Lord) v HunterELR [1993] AC 713.
Netherlands v Youell [1997] CLC 938.
New Hampshire Insurance Co v MGN Ltd [1996] CLC 1692.
Parry v CleaverELR [1970] AC 1.
Samuel (P) & Co Ltd v DumasELR [1924] AC 431.
Woolcott v Sun Alliance & London Insurance LtdWLR [1978] 1 WLR 493.
Insurance — Composite insurance — Mortgage protection clause — Mortgagee sued broker for negligent failure to obtain insurance containing mortgage protection clause — Whether insurance was composite — Whether broker was negligent — Whether any negligence causative of loss.
This was an action by a mortgagee against an insurance broker.
The plaintiff bank was the mortgagee of a country mansion awaiting development. The bank instructed the defendant broker to arrange insurance of the property. The defendant effected insurance in the names of the bank and of the mortgagor. There was a serious fire at the property which was then insured for £23.25m. The insurer repudiated the policy in respect of both insureds for misrepresentation, non-disclosure and breach of condition. The bank and the mortgagor started separate proceedings against the insurer. The bank's proceedings against the insurer were settled for £1.75m, to which insurers under a contingency insurance policy made a contribution.
The plaintiff took proceedings against the broker alleging that it had suffered damage because by reason of the settlement it had failed to recover the full amount of its loan to the mortgagor and that the defendant had been negligent not to obtain a policy which included a mortgage protection clause or non-invalidation clause. Such a clause was inserted into policies involving a mortgagor and mortgagee as a matter of market practice and if it had been included the insurer would not have been able or would not have attempted to repudiate.
Held giving judgment for the defendant:
1. The insurance was composite insurance, containing separate contracts with the mortgagor and mortgagee as co-insureds, and breaches of condition, misrepresentations and non-disclosure by a co-insured did not affect the innocent co-insured's rights under the policy. Accordingly the addition of a mortgage protection clause or non-invalidation clause would not materially have affected the bank's position in relation to non-disclosure, misrepresentation and breach of condition by the mortgagor. (New Hampshire Insurance Co v MGN Ltd[1996] CLC 1692 applied.)
2. On the evidence it had not been established that all reasonably competent brokers would have included a mortgage protection clause in the policy. Evidence of brokers that there was a good reason for including such a clause, because without it insurers would be entitled to avoid against all co-insureds for the misconduct of one, represented an incorrect view of the law. If a composite policy protected a co-insured against non-disclosure, misrepresentation and breach of condition by a co-insured, there was no reason for inclusion of a mortgage protection clause which gave no protection against non-disclosure and misrepresentation. In any event the contingency policy was a perfectly acceptable alternative method of protecting the bank's interest. The policy actually effected was adequate to protect the bank's right to an indemnity notwithstanding any conduct of the mortgagor. The defendant did not fall below the standard of the reasonably competent broker and was not negligent.
3. Even if the defendant had been negligent in failing to include a mortgage protection clause, that was not causative of any loss. It was probable that the bank's action against the insurer would have succeeded. Furthermore the mere presence of a mortgage protection clause in the policy would not have caused the insurer to act any differently and offer the bank a full indemnity or make a better settlement offer. The assertion that there was a chance of a better offer was speculative.
4. The sums received from the contingency insurers should not have been taken into account in assessing any damages to be paid by the defendant. The contingency policy was not effected for the benefit of the defendant. That would not lead to double recovery, for the policy provided for the insured to account for moneys recovered from third parties if the insured had received sums under the contingency policy (Hunt v SeversELR[1994] 2 AC 350 applied; Bristol & West Building Society v May May & Merrimans (No. 2)WLR[1998] 1 WLR 336 followed).
Gage J: The plaintiff is a bank whose principal business at the time with which I am concerned was lending money in the property market. The defendant is a company within the same group of companies as the plaintiff, whose business was that of a non-Lloyd's insurance broker. The plaintiff's claim against the defendant is for damages for negligence and breach of a contractual duty of care in arranging insurance for the plaintiff as mortgagee of a property, Tortworth Court, Leyhill in Gloucestershire. In summary the plaintiff claims for damages which it alleges were caused by the defendant's failure to obtain such a policy of insurance as protected the plaintiff's interests secured on the property owned by the borrower of the money from the plaintiff.
In January 1991 the property was severely damaged by fire and the insurers of the property, General Accident, sought to avoid the policy for non-disclosure by both the owner and the plaintiff, and breach of a condition by the owner. Litigation ensued which ended in June 1995 in a settlement. It is the plaintiff's case that the defendant's negligent failure to obtain a policy of insurance containing a mortgage protection clause caused the plaintiff to sustain loss. It is argued that if the policy had contained such a clause the insurers would not have been able to have raised the defence of non-disclosure and breach of condition by the owner as a defence to the plaintiff's claim for an indemnity under the policy. At the least, the plaintiff claims that it lost the chance of a much more favourable settlement of the action against the insurers.
The case raises a number of issues including difficult issues of law in relation to liability, quantum and damages. The main issues are as follows:
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(1) Was the defendant in breach of its undoubted duty of care owed to the plaintiff by failing to obtain for the plaintiff a policy of insurance containing a mortgage protection clause or non-invalidation clause?
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(2) If it was, what damage flows from that breach?
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(3) What is the correct measure of damages in respect of such damage as flowed from the breach?
Within these broad issues there are a number of subsidiary issues.
The following are the background facts to the action. In December 1998 the plaintiff made an offer of a loan to Quo Vadis Ltd to purchase the property, Tortworth Court. On 9 January 1989 the plaintiff instructed the defendant to arrange insurance cover for Tortworth Court against, inter alia, the peril of damage by fire. On 1 March 1989 the plaintiff informed the defendant that the loan had been completed and the defendant confirmed that insurance cover had been arranged with General Accident. On 2 March 1989 Quo Vadis granted a mortgage over Tortworth Court to the plaintiff. On 1 March 1990 the insurance policy came up for renewal. In July 1990 the sum insured was increased to £23.25m. Between June 1990 and December 1990 negotiations in respect of the rate of premium for the policy took place between the defendant and the insurers, General Accident. On 12 January 1991 a fire severely damaged Tortworth Court. In June 1991 General Accident repudiated the policy of insurance on the grounds of misrepresentation, non-disclosure and breach of a condition.
It is important for the purposes of this case to note that the policy was effected in the names of both the plaintiff and Quo Vadis. General Accident repudiated the policy in respect of both co-insured. Subsequently Quo Vadis and the plaintiff started separate proceedings against General Accident. In April 1993 General Accident offered to settle both actions for the sum of £2.5m, such sum to be apportioned between each of the parties by agreement between them. In December 1994 General Accident increased its offer to £3.5m to settle both actions.
The trial of both actions was scheduled to take place in February 1995. For reasons which are not material, the trial was adjourned to a date later in the year. On 2 June 1995 the plaintiff settled its action against General Accident for £1.75m. At all material times the plaintiff had the benefit of a contingency insurance policy effected with a number of insurers. During the course of the negotiations with General Accident the plaintiff attempted to obtain a contribution from the contingency policy insurers. The attitude of...
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