Insurance—Fire—Valued policy—Mansion damaged by fire—Not
reinstated—Measure of indemnity—Principles of marine insurance
law—Applicability—Marine Insurance Act, 1906 (6 Edw. 7, c. 41),
s. 27, sub-s. 3 ; s. 69, sub-s. 3 ; s. 71, sub-s. 3.
Insurance—Fire—Valued policy—Mansion damaged by fire—Not
reinstated—Measure of indemnity—Principles of marine insurance
law—Applicability—Marine Insurance Act, 1906 (6 Edw. 7, c. 41),
s. 27, sub-s. 3 ; s. 69, sub-s. 3 ; s. 71, sub-s. 3.
Insurance—Fire—Valued policy—Mansion damaged by fire—Not
reinstated—Measure of indemnity—Principles of marine insurance
law—Applicability—Marine Insurance Act, 1906 (6 Edw. 7, c. 41),
s. 27, sub-s. 3 ; s. 69, sub-s. 3 ; s. 71, sub-s. 3.
755 two cases. The result is that the defendant, through his act of kindness in allowing this lady to use the coal shed, is probably now a wiser man, and I may perhaps regret that the decision in this case may tend to discourage landlords from acts of kindness to their tenants. But there it is : that is the law. In this particular case we are told that the landlord, since the hearing before the county court judge, has in fact taken down the shed. I do not think it would be right in a case of this kindrather a trivial sort of quarrelto make a manda- tory injunction compelling him to restore this shed. If he had in fact taken down the shed before the hearing in the county court, the position might have been very different; but he succeeded in the county court and he took down the shed. It is quite true that he did it at his peril, but I think that in the circumstances of this case justice will be done by awarding the plaintiffs the sum of 10I. by way of damages. SINGLETON L.J. I agree. Appeal allowed. Solicitor for plaintiffs : H. N. H. Bransom. Solicitors for defendant : Dale & Newbery, Feltham. A. W. G. C. A. 1949 WRIGHT v. MACADAM. Tucker, L.J. ELCOCK AND OTHERS V. THOMSON. InsuranceFireValued policyMansion damaged by fireNot reinstatedMeasure of indemnityPrinciples of marine insurance lawApplicabilityMarine Insurance Act, 1906 (6 Edw. 7, c. 41), s. 27, sub-s. 3 ; s. 69, sub-s. 3 ; s. 71, sub-s. 3. A mansion was insured against fire, and by a schedule to the policy its value was agreed at 100,000/. (or 106,850/., including certain offices and adjoining buildings). The mansion was damaged by fire. Its actual value before the fire was 18,000/., and its actual value after the fire was 12,600/. (the depreciation in value being 5,400/. in 18,000/.). The cost of reinstatement would have been some 40,000/., but the mansion was not in fact reinstated: 1949 May 18, 19, 23. 24 ; July 1. Morris J. 756 KING' S BENCH DIVISION. [1949] 1949 Held, t hat in order to assess the amount to which the assured were entitled under the policy the percentage of actual depreciation ELCOCK resulting from the fire should be applied to the agreed value, and THOMSON t hat the assured were therefore entitled t o 5,400 l 8 o o o X 106,850;., or 32,055?. Quaere (i.) whether, had reinstatement been in fact effected, underwriters would have been liable to pay the cost of i t ; or (ii.) whether, had the cost of reinstatement been less than 32,055/., but it had not in fact been effected, underwriters could limit their liability to the cost of reinstatement. ACTION. By a Lloyd's fire policy dated November 22, 1940, property specified in a schedule attached to the policy was insured against " loss or damage " by fire or lightning. Item (1.) of the schedule was a mansion at Easthampstead Park, Wokingham, and against it, in a column headed " sum insured," was set the figure 100,000/. Items (2.) to (5.) included various offices and adjoining buildings, and against those items (in the columns headed " sum insured ") were set various figures totalling 6,850/. At the end of the schedule it was provided : " The sum set opposite each item in this specification has been " accepted by the underwriters and the assured as being " the true value of the property insured and in the event " of a loss the said property will be assumed to be of such " value and will be assessed accordingly." On May 16, 1947, during the currency of the insurance, the mansion was damaged by fire. The assured claimed against the underwriters in respect of that damage. The underwriters agreed that the assured were entitled to recover, but the amount to which they were entitled was disputed. The mansion was not reinstated. The present action was a representative action brought against one of the underwriters. Scott Cairns K.C. and Mendel for the assured. The principle of indemnity does not apply strictly to valued policies : the agreed valuation must not be ignored : Lewis v. Rucker (1) ; Irving v. Manning (2) ; North of England Iron Steamship Insurance Association v. Armstrong (3); Marine Insurance Act, (1) (1761) 2 Burr. 1167. (3) (1870) L. R. 5 Q. B. 244. (2) (1847) 1 H. L. C. 287. 2K. B. KING S BENCH DIVISION. 757 1906, s. 27, sub-s. 3 (1). City Taylors, Li. v. Evans (2) is the only reported case regarding a valued policy of fire insurance. That decision shows that the agreed valuation must be accepted in fire insurance as well as in marine insurance. The actual value of the mansion in the present case must be taken to be the agreed valuation, viz., ioo.oooZ. The loss to the assured must be taken to be the difference between that amount and the value of the mansion after the fire, and the assured are entitled to recover that difference. There is no analogy to the present case in marine insurance law. In Lewis v. Rucker (3) a verdict of a jury was taken as to the rule which ought to be applied in assessing damage to cargo under a valued policy. The correct approach in the present case is to construe the actual words of the contract of insurance unhampered by any previous decisions. Alternatively the reasoning of Lord Mansfield C.J. in Lewis v. Rucker (3) is applicable to the present case, and the measure of indemnity stipulated by s. 71, sub-s. 3, of the Marine Insurance Act for damage to cargo insured by a valued 1949 ELCOCK u. THOMSON. (1) The Marine Insurance Act, 1906, s. 27, sub-s. 1 : " A policy " may be either valued or un- " valued." Sub-s. 2 : " A valued " policy is a policy which specifies " the agreed value of the subject- " matter insured." Sub-s. 3 : " Subject to the provisions of this " Act, and in the absence of fraud, " the value fixed by the policy is, " as between the insurer and " assured, conclusive of the in- " surable value of the subject " intended to be insured, whether " the loss be total or partial." Section 69 : " Where a ship is " damaged, but is not totally " lost, the measure of indemnity, " subject to any express pro- " vision in the policy, is as " follows : " . . . . (3.) Where the ship " has not been repaired, and has " not been sold in her damaged " state during the risk, the assured " is entitled to be indemnified for " the reasonable depreciation aris- ing from the unrepaired damage, but not exceeding the reasonable cost of repairing such dam- age . . . ." Section 71 : " Where there is a partial loss of goods, mer- chandise, or other moveables, the measure of indemnity, sub- ject to any express provision in the policy, is as follows: . . . . (3.) Where the whole or any part of the goods or mer- chandise insured has been de- livered damaged at its destina- tion, the measure of indemnity is such proportion of the sum fixed by the policy in the case of a valued policy, or of the in- surable value in the case of an unvalued policy, as the differ- ence between the gross sound and damaged values at the place of arrival bears to the gross sound value." (2) (1921) 38 T. L. R. 230. (3) 2 Burr. 1167. 758 KING'S BENCH DIVISION. [1949] 1949 policy ought to be applied. The analogy of a building to goods is closer than the analogy of a building to a ship. v. Even, however, if the analogy to a ship be chosen, s. 69, sub-s. 3, HOMSON. 0 ^ .^g Marine Insurance Act must be construed as being limited by s. 27, sub-s. 3. That sub-section provides, that the agreed valuation must be taken to be conclusive " whether " the loss be total or partial." [Steamship " Balmoral " Co., Ld. v. Marten (1) and Pitman v. Universal Marine Insurance Co. (2) were then referred to.] Whichever analogy is chosen,, therefore, the agreed valuation must not be ignored, and, if marine principles are to be applied at all, the percentage of actual depreciation resulting from the fire in the present case- must be applied to the agreed value. If neither of those methods of calculating the measure of indemnity are applicable the assured is entitled to the cost of reinstatement. Havers K.C. and Gahan for the underwriters. The agreed valuation should be ignored in the present case. It only applies in the case of a total loss. The assured are therefore entitled to the diffeience between the actual value of the- mansion before the fire and its value after the fire. The principles of marine insurance law are applicable to the present case : Castellain v. Preston (3) ; City Taylors Ld. v. Evans (4). The analogy applicable is that of a ship. A building is more like a ship than goods. Like a ship it is usually capable of being repaired. The measure of indemnity laid down by s. 69, sub-s. 3, of the Marine Insurance Act,. 1906, must therefore be applied. No distinction is drawn in that sub-section, such as the distinction in s. 71, sub-s. 3, between valued and unvalued policies. It must therefore have been the intention of the legislature for s. 69, sub-s. 3, to apply in the case of a valued policy. Section 27, sub-s. 3,. begins : " Subject to the provisions of this Act," and it is clearly subject, therefore, to s. 69, sub-s. 3. Alternatively, if the -agreed value must be taken into consideration, the correct percentage to apply to the agreed value is the propoition which the cost of reinstatement bears to the cost of building a new mansion. Scott Cairns K.C. replied. Cur. adv. vult. (1) [1902] A. C. 511. (3) (1883) " Q- B. D. 380. (2) (1882) 9 Q. B. D. 192. (4) 38 T. L. R. 230. 2 K. B. KI NG' S BENCH DI VI SI ON. 759 Jul y 1. MORRIS J. In order to adjudicate upon the 1949 present claim it is necessary to determine what is the sum ELCOCK appropriate to be paid under a valued policy of insurance v. in respect of damage to a mansion caused by fire. THOMSON. The cubic content of the whole mansion was 990,260 cubic feet. The cubic content of the portion of the mansion which was burnt out was 209,000 cubic feet, representing just over 21 per cent, of the whole. But I am satisfied t hat the measure of the depreciation in value of the mansion wluch was caused by the fire cannot properly be determined by having regard merely t o the proportion to the whole structure of the part which was burnt out. If reinstatement of the damage at a date a few months after the fire had been possible the cost of such reinstatement would have been 40,252/., excluding architects' and surveyors' fees, or 43,252^., including such fees. If a new mansion had been erected at about such date similar t o the mansion in question as it stood before the fire, the cost of erection would have been 205,000/. (His Lordship then considered the evidence as t o the actual value of the mansion before and after the fire, and continued :) The result is t hat in my judgment the actual value of the mansion before the fire was i8,oooZ. and its value after the fire was 12,600/. Mr. Scott Cairns presented alternative formulations of claim on behalf of the assured. He submitted (i) t hat the assured were entitled t o recover the difference between the amount of 100,000/. and whatever amount was found by the court to represent the value of the mansion after the fire. Alternatively he submitted (ii) t hat the actual value of the mansion before the fire should be assessed and also the actual value after the fire, and that the percentage of depreciation should then be applied t o the agreed or conventional value of 100,000/. so as t o produce a resulting figure which would be the amount recoverable. As a further possible alternative method of claiming he submitted (iii) t hat the assured were entitled to recover a sum representing the cost of reinstatement of the mansion. Mr. Scott Cairns did not, however, put t hat basis forward very strongly. On behalf of the underwriter, Mr. Havers' main submission was t hat the principles which would apply if there were a claim under a valued policy of marine insurance on a ship which was damaged were the principles which could and 760 KING S BENCH DIVISION. [1949] 1949 ELCOCK V. THOMSON. Mom's J. should be applied in adjudicating upon the present claim. He submitted that the interpretation of s. 69, sub-s. 3, of the Marine Insurance Act, 1906, was that, if a ship covered by a valued policy was damaged but not lost, and if it was not repaired, recovery under the policy should be limited to a sum representing the actual depreciation in value caused by the casualty. As an alternative submission he contended that recovery should be limited to that percentage of the agreed value of 100,000/. as the cost of reinstatement about the date of the fire bore to the cost of the construction of a new mansion at that date. Thus he contended that the cost of reinstatement 40,252/., represented 19*635 per cent, of 205,000/., the cost at about the date of the fire of the construction of a new mansion similar to the one which existed, and that the sum to be awarded should therefore be limited to I9"635 per cent, of 100,000/. Mr. Scott Cairns submitted that there was no reason for preferring the analogy of the rules governing a policy on a ship to that of the rules relating to goods, and he referred to the reasoning in Lewis v. Rucker (1). Alternatively he submitted that if, contrary to his contention, s. 69, sub-s. 3, of the Marine Insurance Act could be regarded as directing the way to the principle applicable in the present case, that sub-section ought not to be regarded without reference also to s. 27, sub-s. 3. I pass now to consider what is the basis upon which the claim should be allowed. When parties have agreed upon a valuation then, in the absence of fraud or of circumstances invalidating their agreement, they have made an arrangement by which for better or for worse they are bound. As Atkin L.J. pointed out in City Taylors, Ld. v. Evans (2) ' " I n a valued policy, " what is valued is the subject-matter of the insurance, and " not the amount of the loss." He pointed out that in marine insurance the position is made clear by the Marine Insurance Act, 1906, s. 27, sub-ss. 2 and 3. It was common ground be- tween the parties that the policy in the present case was properly to be regarded as a valued policy. When losses occur after parties to contracts of insurance have agreed upon values then in some cases advantage may occur to the insured while in others advantage may occur to the insurer. (See North of (1) 2 Burr. 1167. (2) 38 T. L. R. 230, 234. 2K. B. KING'S BENCH DIVISION. 761 England Iron Steamship Insurance Association v. Armstrong (1).) In Irving v. Manning (2) the assistance of the judges was sought by the House of Lords, and Patteson J., delivering the opinion of the judges, said in reference to a valued policy on a ship (3) : " By the terms of it, the ship, etc., for so much " as concerns the assured, by agreement between the assured " and assurers, are and shall be rated and valued at 17,500^., " and the question turns upon the meaning of these words. " Do they, as contended for by the plaintiff in error, amount " t o an agreement that for all purposes connected with this " voyage, at least for the purpose of ascertaining whether " there is a total loss or not, the ship should be taken to be " of that value, so that when a question arises whether it " would be worth while to repair, it must be assumed that " the vessel would be worth that sum when repaired ? Or " do they mean only, that for the purpose of ascertaining the " amount of compensation to be paid to the assured, when " the loss has happened, the value shall be taken to be the sum " fixed, in order to avoid disputes as to the quantum of the " assured's interest ? We are all of opinion that the latter " is the true meaning ; and this is consistent with the language ' ' of the policy and with every case that has been decided upon " valued policies." Patteson J. said further (4) : " A policy of insurance is " not a perfect contract of indemnity. It must be taken " with this qualification, that the parties may agree beforehand " in estimating the value of the subject assured, by way of " liquidated damages, as indeed they may in any other contract " to indemnify." Mr. Havers did not dispute that if the mansion had been entirely destroyed by fire the agreed valuation would have become the measure of the indemnity to be paid by under- writers. But he argued that as the mansion was only damaged the agreed valuation should not enter into the assessment of the amount payable by underwriters. His argument was in the main based upon a contention that under s. 69, sub-s. 3, of the Marine Insurance Act the amount payable under a policy of marine insurance where a ship was damaged and had not been repaired, nor sold in her damaged state, would be the amount of the depreciation. He submitted that, as there is no express mention of valued (1) L. R. 5 Q. B. 244. (3) Ibid. 305. 1949 ELCOCK V. THOMSON. Morris J. (2) 1 H. L. C. 287. (4) Ibid. 307. 762 KI NG' S BENCH DIVISION. [1949] 1949 policies in s. 69, sub-s. 3, the result should follow that, in the ELCOCK case of a partial loss of a ship, payment under a policy of v. insurance should be made without regard to any agreed THOMSON. v a i u a t j o n _ J e submitted that a fire policy being a contract .Moms j . of indemnity closely resembling a marine policy should be similarly construed, and he relied upon passages in the judgment in Castellain v. Preston (1) in support of his contention that the two types of policy should be similarly regarded. In considering these contentions, as Mr. Scott Cairns pointed out, it is first to be observed that the statutory provisions of the Marine Insurance Act, 1906, do not apply to the present case. But, if those provisions are to be looked at in order to seek guidance on principle, I am not prepared to accept the validity of Mr. Havers' contentions. Section 69, sub-s. 3, of the Act uses the words " is entitled to be indemnified " for the reasonable depreciation." Those words do not fix the measure of such indemnity. They do not lay it down that the parties' agreed valuation is to be ignored. They certainly do not provide that s. 27, sub-s. 3, of .the Act is to be disregarded. Indemnification for reasonable depreciation must in my judgment take into account any agreed valuation. Such agreed valuation is the corpus out of which depreciation takes place and by reference to which the depreciation must be measured. Furthermore, in my judgment, there is nothing in s. 69, sub-s. 3, which is inconsistent with or which overrides what was laid down in Pitman v. Universal Marine Insurance Co. (2) and Steamship " Balmoral " Co., Ld. v. Marten (3). In Pitman v. Universal Marine Insurance Co. (2), the view of Lindley J., and of the majority in the Court of Appeal, was that if the owner of a ship which is injured by perils insured against does not repair the ship but sells her during the continuance of the risk, he can recover from underwriters for the depreciation in value of the ship, and can arrive at the measure of the underwriters' liability by applying the proportion of deprecia- tion caused by the casualty to the value as agreed in the policy. Lord Lindley said in Steamship " Balmoral" Co., Ld. v. Marten (4): " The notion prevalent at one time, and supported by the " high authority of Mr. Benecke, that although the valuation " in a policy is conclusive in the case of a total loss, yet that " in the case of a partial loss the valuation may be opened, (1) n Q. B. D. 380. (3) [1902] A. C. 511. (2) 9 Q. B. D. 192. (4) Ibid. 521, 522. 2 K. B. KI NG' S BENCH DIVISION. 763 " has long been exploded There are numerous decisions 1949 " shewing this to be the case in valued policies on goods and ~ E L C O C K " freight (the most recent being The Main (1), and I am unable v. " to discover any reason for applying to ships a doctrine HQMSQN. "repudiated as unsound when applied to goods or freight. Morris j . " At the same time, I have not discovered any direct decision " on this point. The principle that a valuation in a policy " on ships is to be regarded in cases of partial loss was assumed " to be correct in Pitman v. Universal Marine Insurance Co. (2) " and was not questioned on appeal. The owners, however, " contend that the underwriters have no concern with the " mode in which the amounts payable for losses insured against " are arrived at. The owners say they are fully insured up "to a certain limit, and that if that limit is not exceeded " all losses insured against must be fully paid. This, my " Lords, appears to me to ignore the difference between valued " policies, as understood in this country, and open policies, " and to be erroneous according to English law." There appears to be no decided case which affords conclusive authority in regard to the issues raised in the present action. Some guidance in principle can however be derived from the decisions in cases where insured ships have sustained partial loss. In my judgment, on the facts of the present case, the assured are entitled to be indemnified in respect of the depreciation which was caused by the fire, and in quantifying such depreciation the insurable value of the mansion as agreed by the parties cannot be set aside and disregarded. I observe that by the words at the end of the schedule to the policy by which such agreement as to value is expressed it is stipulated that " in the event of loss " the property " will be assumed to be " of the value recorded and " will be " assessed accordingly." In the body of the policy the words used are " to insure from loss or damage." I have considered whether any significance is to be attached to the fact of the use of the word " loss " only at the end of the schedule, and whether it could be argued that the agreement as to value was only to apply in the event of the destruction or loss of an item as opposed to damage occurring to it. No such point was however taken or argued, and I cannot imagine that any significance attaches to the use on y of the word " loss." I t would be strange and unnatural if an agreed value were (1) [1894] P. 320. (2) 9 Q 3 . D. 192. 7 6 4 KING S BENCH DIVISION. [1949] ELCOCK V. THOMSON. 1949 only to apply in the event of complete destruction and not in the event of partial destruction. The respective words " loss " and " damage " as used in the policy seem to be synonymous. It would not seem to be the case that the word Mnsj. " l os s " is only referable to complete destruction. Apart from this however the opening words of the provision, namely the words, " The sum set opposite each item in this specification " has been accepted by the underwriters and the assured " as being the true value of the property insured," appear to contain agreement as to value irrespective of the meaning, of the word " loss " which is later used. Although in the case of item (1.) in the schedule to the insurance policy, namely the mansion, the actual value is shown to have been far less than the agreed value, it must have been the case that the agreed value of other items were far below their actual values in 1947. Thus, without specifying any particular item, a house whose agreed valuation was 2,000/. may very well in 1947 have actually been worth 6,oooZ. If such a house had been totally destroyed underwriters would only have been liable to pay 2,000/. If damage by fire had resulted in a depreciation in actual value from 6,000/. to 2,000/., and if actual repairs were not effected, underwriters would, I imagine, have contended that they were only liable to pay two-thirds of 2,000/., whereas on Mr. Havers' contention they would have been liable to pay more. If repairs were actually done, and done in a reasonable way, and at a reasonable cost, it may be that the underwriters would be liable to pay the cost of them up to the extent of their liability under the policy. Further it may be that if repairs were not done,, but could be done at a figure representing less than under- writers' liability on the basis of depreciation, underwriters could limit their liability to the lower figure. Thus if the agreed valuation of a house were 2,000/., and its actual value were 1,000/., and if it were so damaged that its actual value became 500/., but it could be repaired for 500/., it may be that the underwriters' liability would have been 500/. As the questions which I have posed do not call for present determination, I express no final opinion in regard to them, but I have considered it desirable to have them in mind when examining and testing the submissions made to me. It may well be that if 43,252/. had in fact been expended in repairing the damage done, underwriters would have been liable t.o pay .that amount. It is not, however, necessary to express any concluded view in regard to that question. 2K. B. KING S BENCH DIVISION. The result is that, in my judgment, the percentage of actual depreciation resulting from the fire should be applied to the agreed values as set out in the policy so as to arrive at the amount recoverable. On my findings the mansion was worth 18,000/. before the fire and 12,600/. after the fire. There was, therefore, a depreciation of 5,400/. in 18,000/., or a depreciation of 3 in 10. By the mansion I mean the entirety described in items (1.) to (5.) of the schedule which together had an agreed value of 106,850/. The loss or damage which occurred to the assured was therefore three-tenths of that figure, namely, 32,055/., and the defendant is liable for his proportion of that sum. There will be judgment accordingly. Judgment accordingly. Solicitors for assured : Upton, Britton and Lumb. Solicitors for underwriters : Chamberlain & Co. 1949 ELCOCK V. THOMSON. Morris J. R. P. C. GALLAGHER v. SH1LC0CK 1949 Mar. 17, 25. Sale of goodsRights of unpaid sellerContract for sale of motor- Finnemore j . boatDeposit by buyerBuyer's default in completionRe-sale by sellerWhether operative as rescission of contractBuyer's right to return of depositSale of Goods Act, 1893 (56 & 57 Viet, c. 71), ss. 39. 4- By s. 48, sub-s. 3, of the Sale of Goods Act, 1893 : " . . . . where " the unpaid seller gives notice to the buyer of his intention to " re-sell, and the buyer does not within a reasonable time " pay . . . . the price, the unpaid seller may re-sell the goods " and claim damages. By sub-s. 4 : " Where the seller expressly reserves a right " of re-sale in case the buyer should make default, and on the '.' buyer making default, re-sells the goods, the original contract " of sale is thereby rescinded . . . . " Having regard to the express provision for rescission in s. 48, sub-s. 4, of the Act of 1893, where the right of re-sale has been reserved in the contract of sale, the true construction of sub-s. 3 is that, where an unpaid seller, in the absence of such a reservation, exercises his right of re-sale under sub-s. 3, that exercise does not VOL. II. 1949. 3 E 2