Quorum as v Schramm
| Jurisdiction | England & Wales |
| Judge | Thomas J |
| Judgment Date | 21 November 2001 |
| Neutral Citation | [2001] EWHC 505 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 21 November 2001 |
Queen's Bench Division (Commercial Court).
Thomas J.
Dominic Kendrick QC and Michael Ashcroft (instructed by Bryan Cave) for Quorum A/S.
Nicholas Davidson QC and Sue Carr (instructed by Pinsent Curtis Biddle) for the underwriters.
The following cases were referred to in the judgment on liability:
Biggin & Co Ltd v Permanite LtdELR [1951] 1 KB 422.
Cote v The Queen (unreported, 20 November 1998, Tax Court of Canada).
Elcock v ThomsonELR [1949] 2 KB 755.
Holden v IR CommrUNK [1974] 2 All ER 819.
Holt v IR CommrsUNK [1947] 1 All ER 148.
Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] CLC 1243; [1998] 1 WLR 896.
Kyzuna Investments Ltd v Ocean Marine Mutual Insurance Association (Europe) [2000] CLC 925.
Luxmoore-May v Messenger May BaverstockWLR [1990] 1 WLR 1009.
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] CLC 1124; [1997] AC 749.
Mouat v Betts Motors LtdELR [1959] AC 71.
Ranicar v Fridge Mobile Pty Ltd [1983] Tasmanian Rep 113.
Voaden v Champion (“The Timbuktu”) (unreported, 28 March 2000, Colman J).
The following cases were referred to in the judgment on interest and costs:
Adcock v Co-operative Insurance Society Ltd [2000] Ll Rep (IR) 657.
Amber v StaceyWLR [2001] 1 WLR 1225.
Athenian Harmony, TheUNK [1998] 2 Ll Rep 425.
Beahan v Stoneham (unreported, 21 January 2001).
BP Exploration Co (Libya) Ltd v Hunt (No. 2)WLR [1979] 1 WLR 783.
Firle Investments v Datapoint International LtdUNK [2001] EWCA Civ 1106.
Insurance Corp of the Channel Islands Ltd v McHugh [1997] LRLR 94.
Johnsey Estates (1990) Ltd v Secretary of State for the EnvironmentUNK [2001] EWCA Civ 535.
Kuwait Airways Corp v Kuwait Insurance Co SAK [2000] Ll Rep (IR) 678.
McLean Enterprises Ltd v Ecclesiastical Insurance Office plcUNK [1986] 2 Ll Rep 216.
Petrotrade Inc v Texaco Ltd [2000] CLC 1341.
Popi M, TheUNK [1983] 2 Ll Rep 235; [1984] 2 Ll Rep 555 (CA).
Spittle v BunneyWLR [1998] 1 WLR 847.
Insurance — Interest — Costs — Valuable painting damaged by fire — Whether insurance policy was valued policy — Whether painting had suffered damage recoverable under policy — Value of painting before and after fire — Date from which interest should run and amount of interest — Whether claimant should have all its costs.
This was a claim against underwriters for damage to a painting caused by fire.
In 1989 Mayfair Fine Art Ltd bought a Degas pastel for about $4.3m with a view to a profitable resale. The purchase of the pastel was financed by Quorum A/S. The picture could not be sold at a profit and Quorum appointed a receiver. Efforts continued to try to sell the pastel. In October 1991 there was a fire at the warehouse where the pastel was stored and the pastel was damaged. The pastel was insured under a policy on the standard Lloyd's J NMA 2402 form and was subject to the AER Fine Art Dealers Wording No. 3. The pastel was specifically referred to in an endorsement to the policy which provided that the policy was “extended to include $5.3m on painting by… Degas… in addition to the policy limits hereon”. After the fire and when it was known that the painting had suffered some damage, the brokers and underwriters agreed a partial loss clause in January 1992. Conservation work to the painting was completed in early 1992. The painting was eventually sold in 1995 for $3.275m. A claim was made on the underwriters and a dispute arose as to the amount, if any, payable under the policy as a result of the fire. There was a further hearing on interest and costs.
Held giving judgment for the claimant:
1. Construing the policy as a whole including the partial loss clause agreed after the loss, the policy was not a valued policy. It was common ground that the form of the policy including the AER wording but without the clause referring to the painting or the partial loss clause was not in the form of a valued policy. The AER wording provided a basis for valuing the stock of the insured but the painting was not part of the stock and there was therefore no applicable formula. The principles applicable to determining whether a policy of marine insurance was a valued or an unvalued policy were generally applicable to non-marine insurance. It was important to bear in mind the distinction between an insured value and the sum insured. The $5.3m referred to in the endorsement was a policy limit and not an agreed value.
2. On the expert evidence the painting had suffered physical damage in the fire and was more vulnerable to future damage than it had been. Depreciation in value because of the suspicion of possible physical damage was not covered; nor was indirect physical damage. However there was evidence which the court accepted that the fire had caused sub-molecular change to the painting. That was physical damage within the policy even though it was not visible and its extent could not be determined without testing which could not be carried out because of its effect on the painting. The sub-molecular change shortened the painting's life and increased the risk of deterioration. That risk had to be assessed when the damaged value was ascertained immediately after the fire. In assessing the diminution in value of the painting the court had to take into account the view which the market would take of the value of the painting with the physical damage which the court had found existed. The court had to ascertain the market value immediately after the fire but on the basis that any restoration had by then been completed.
3. There were two markets for the painting, the private dealers' market and the auction market. The court would have regard to the market on which the higher price was likely to be obtained, namely the dealers' market Furthermore that was the market where the claimant was more likely to have sold the painting and therefore more accurately reflected the loss. Commission was not normally taken into account in valuations and should not be taken into account in this market. Considering all the evidence the value on the dealers' market immediately before the fire was $3.6m. There was no market for the damaged painting. Its value in its damaged state would have been $2.2m. Therefore the claimant was entitled to recover $1.4m under the policy of insurance.
4. In principle interest was awarded from the date of loss and that was when a sum became due under the policy which was as soon as the insured liability occurred. However it was usual for the court to allow insurers some time to consider the claim. The time allowed varied according to the nature of the loss, the way the claim was presented and the circumstances which required investigation. In many cases the time would be quite short. In this case although the fact of the fire was known immediately to underwriters it was not possible immediately after the fire to express a view on the extent of the damage. That was possible only after restoration which was completed by early 1992. Therefore in this unusual case interest should run from the end of March 1992 to allow underwriters a reasonable period to consider the claim and the value after restoration.
5. In considering whether interest should be awarded for the entire period the court could consider the conduct of the claimants. In this case there was no explanation as to why two years had elapsed between the sale of the painting in June 1995 and the issue of proceedings in September 1997. During that period interest rates were high and therefore underwriters derived a substantial benefit. That was a significant factor. In the circumstances it would not be right to deprive the claimant of the whole of the interest during the two year period from September 1995 to September 1997. The court would award interest for that period at half the rate which would otherwise have been payable.
6. The costs order should reflect the fact that underwriters won on the valued policy issue. The claimants made a Pt. 36 offer representing a sum by way of principal of $3.6m. Underwriters made a Pt. 36 payment of which the principal element was $600,000. The important factor was that the claimant had recovered considerably more that the underwriters' Pt. 36 payment of principal. The court should not consider the reasonableness of the Pt. 36 offer or payment in or whether one or other party should have negotiated. A Pt. 36 payment or offer should be regarded as the best to which a party was prepared to go and if the claimant recovered more than the payment he was entitled to his costs and should not be deprived of them by reason of a comparison with his Pt. 36 offer. The costs order should reflect the fact that the claimant had not been frank about its attempts to market the painting before the fire. However the claimant had not exaggerated its claim, nor was it unreasonable or too large. It was put forward in good faith and there were reasonable grounds for advancing it. The court would not reduce the claimant's ordinary entitlement to costs on the basis that it had not been successful. To reflect the two factors of the underwriters' success on the valued policy issue and the claimant's conduct and its effect on the course of the trial, the court would direct that the claimant should recover only 80 per cent of the costs of the action. (Johnsey Estates (1990) Ltd v Secretary of State for the EnvironmentUNK[2001] EWCA Civ 535andFirle Investments Ltd v Datapoint International LtdUNK[2001] EWCA Civ 1106considered.)
Thomas J:
1. On 7 October 1991 there was a fire at the warehouse of James Bourlet & Sons Ltd (“Bourlet”). At the warehouse, but within a strong room, a number of valuable works of art were stored; these included a pastel painted by Degas in 1881 entitled La Danse Grecque. When the pastel was subsequently examined, it was found to have sustained some damage.
2. At the time of the fire the pastel was insured by the...
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