Kyle Bay Ltd (t/a Astons Nightclub) v Underwriters of Policy No 019057/08/01
| Jurisdiction | England & Wales |
| Judge | Jonathan Hirst QC,Mr Hirst |
| Judgment Date | 29 March 2006 |
| Neutral Citation | [2006] EWHC 607 (Comm) |
| Docket Number | Case No: 2005 Folio 54 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 29 March 2006 |
[2006] EWHC 607 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Jonathan Hirst Qc
Sitting As A Deputy Judge Of The High Court
Case No: 2005 Folio 54
Andrew Butler (instructed by Edwin Coe) for the Claimant
Paul Reed (instructed by Reynolds Porter Chamberlain) for the Defendants
Hearing dates: 28 February, 1 and 2 March 2006
The issue in this case is whether the Claimants are entitled to re-open an insurance claim which they compromised with the Defendant underwriters ("Underwriters").
The facts
The Claimants ("Kyle Bay") operated the Astons nightclub in Bridgend for many years. It was a well run and reputable nightclub. On the night of 14/15 November 2001 there was an arson attack on neighbouring premises. The fire spread and the building in which the club operated was completely gutted. As a result the nightclub was unable to trade for over a year.
Kyle Bay's insurances were arranged through Mr Huw Thomas ACII of Insurance Risk Consultancy Services ("IRCS"), a firm of brokers based in Swansea. In previous years, the insurances had been written by Dale, an underwriting agent based in Nottingham. The cover which had been obtained previously included 12 months business interruption cover written on a "declaration linked" basis. The more common form of business interruption cover is written on a so called "gross profits basis", where the policy states a figure for gross profits. In the event the sum insured is less that the actual gross profit, average is applied and the sum paid will be reduced accordingly. Under a so called "declaration linked" policy the assured gives at the outset an estimate of his gross profits for the period and an interim premium is paid on account. At the end audited accounts are provided on the basis of which the final premium is adjusted. Average is not applied and in the event of a loss, the claim is paid on the basis of the actual gross profit although there is normally a maximum permitted uplift over the estimated gross profit figure provided at the outset. Typically that figure is 133?%.
The previous cover had lapsed in April 2001 apparently because Mr Thomas had failed to pass on the premium despite having been paid it by Kyle Bay. Dale were approached again in September 2001 to reinstate the cover but by then it had ceased to write nightclub business.
So on 10 September 2001, Mr Thomas approached SK Underwriting Limited ("SKU") who held a binding authority from the Defendant Lloyd's underwriters to write, inter alia, nightclub business. The experienced underwriter employed by SKU was Mr John Ing. Mr Thomas faxed quotation papers to SKU seeking various insurances for Kyle Bay including business interruption cover. The relevant page sought the following:
CONSEQUENTIAL LOSS
COVER: Following any physical loss or damage
BASIS: On annual gross profit including 100% payroll of: £350,000
INDEMNITY PERIOD: 12 months
CONDITIONS/INCLUSIONS
Non-average declaration linked
Denial of access
Outbreak of infectious, contagious diseases, suicide, vermin and pests.
Mr Ing considered this proposal. It was not his general practice to write declaration linked cover which he regarded as "gimmicky", although in some situations he might do so if his arm was really twisted. He thought such cover was inherently unsuitable for nightclub business, due to the problems he anticipated of collecting the additional premium at the end of the period. So in giving his quotation, he crossed through the words "non-average declaration linked" and also "infectious, contagious diseases". Unfortunately however, when Ms Beth Hayes of SKU communicated the quotation to IRCS on 11 September 2001, she made it clear that the business interruption cover excluded infectious and contagious diseases but failed to state that the cover would not be on a declaration linked basis. The quote was for a material damage premium of £2,721 plus tax, subject to a number of conditions including a completed proposal form being provided within 30 days.
The quotation incorporated "conditions & terms as per our standard commercial wording". SKU's standard commercial wording, approved by the Underwriters, was designed to be used with a policy schedule specific to the risk. The business interruption wording contemplated three different basis of cover:
- gross profit basis
- provisional premium basis endorsement
- declaration linked basis endorsement
The default was the gross profit basis, but, if there was a declaration linked basis endorsement, the scheme was that the insured would provide an estimate of the gross profit to be earned by the business during the financial year most nearly concurrent with the period of insurance, and premiums would be paid on a provisional basis. The premium would be adjusted on the basis of audited accounts delivered within six months of the expiry of the policy, with a maximum return of premium of 33?%. The limit of liability was 133?% of the original estimated gross profit.
On 13 September 2001, SKU agreed at the request of IRCS to hold Kyle Bay covered for 30 days. The proposal form was not provided within 30 days and SKU carried out a threat to come off risk. In the event, a proposal form was provided on 30 October and SKU agreed to reinstate the held covered insurance. The proposal form stated:
" Sums to be insured
It is important that you ensure the Values given below are adequate as Under-Insurance may reduce the amount of recovery in the event of a claim.
Material Damage Cover
…
10 a. Loss of Gross Profit (Indemnity Period 12 months) £350,000.
The proposal form signed per pro Clayton Williams, a director of the Claimants declared that "to the best of my/our knowledge and belief:
The sums represent the full values.
…
I/we understand that the signing of this Proposal does not bind me/us to complete the insurance but agree that should a contract of insurance be concluded this Proposal and statements herein shall form the basis of such contract."
Some further correspondence ensued and, at IRCS's request, it was agreed that the risk would only run till 22 April 2002 to coincide with the expiry of the liability insurances, and that a premium of £1,694.96 plus tax and survey and policy fees would be paid. Mr Thomas accepted this proposal and on 7 November Mr Ing's deputy gave instructions that policy documents should be issued.
The fire intervened on 14/15 November. The policy schedule was signed on 21 November. There is a dispute as to whether it was sent to Mr Thomas – he said in his statement that he never received a copy. Unfortunately he was too ill to give evidence. Although I am quite satisfied that this was an entirely genuine excuse, I do not regard him as a reliable witness. I think it inconceivable that he was not sent a copy of the schedule given that he had requested one on 19 November and SKU had agreed on 20 November to provide it. If he had not received a copy as requested and promised, I am sure he would have pressed for it, particularly given that he knew there was a large impending claim,. Moreover the brokers' file has on it a copy of the schedule (albeit a poor one).
The policy schedule was in the following terms (insofar as material):
"This Schedule attaches to and forms part of the Policy specified below to which it should be permanently attached.
Material Damage Section
Section B Loss of Profit (12 months indemnity) £350,000 Declaration Linked
Additional Information:-
The Business Interruption section of this policy excludes all cover for infectious & contagious diseases & theft cover"
Within a few days of the fire, underwriters had retained Carr Greenwood Smith ("CGS") as loss adjusters. Mr Robert Stafford ACII FCILA acted in connection with the business interruption claim. Kyle Bay had retained Mr Stewart Dymant, a senior assessor and chartered accountant, of Harris Claims Group PLC ("Harris") as loss assessors. On 19 November Mr Dymant sent Mr Stafford a standard letter seeking certain information. Mr Stafford did not (as was his practice) respond to this letter because he did not regard it as part of his function to provide the information sought, but it is right to observe that relations between them were good and professional.
From an early stage it became apparent that the £350,000 figure in the schedule was too low. Kyle Bay had been warned by Mr Dymant that if the policy was subject to average and the sum insured was inadequate, recovery might only be partial. After considering the figures provided by Kyle Bay, Mr Dymant put in a claim assessing the loss of gross profit as £621,321 and the net profit lost as £394,661. At this stage Mr Dymant had not seen a copy of the policy wording. He appears to have proceeded on the assumption that it was a gross profits based policy and he warned Kyle Bay that, even if the underwriters agreed the claim in full, application of average would reduce payment to some £223,000.
By March 2002, underwriters had admitted liability. At a meeting between Mr Dymant and Mr Stafford in early March 2002, Mr Dymant was provided with a copy of the policy schedule as on CGS's file, and he realised that the schedule had the words "declaration linked" by the sum insured. As a professional loss assessor he was well aware what they meant. On 12 March Mr Lawrence of Harris, who was also working on the case, wrote to Kyle Bay saying:
"I refer to our meeting on Friday 8 th March and would...
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