In RR Securities & Ors v Towergate Underwriting Group Ltd , the claimant, RR Securities Ltd, was awarded damages against insurance broker Towergate Underwriting Group Ltd (the defendant), on the basis that they failed to advise that there was a need for minimum security standards to be met at its premises as a condition of insurance cover.
The claimant’s premise was a former church, which was used by a company for the storage and maintenance of arcade machines. The company was controlled by an individual (R), who had operated amusement arcades for many years.
The company obtained insurance covering the premises and the machines, for the period from July 2008 to July 2009. The policy was arranged by the company, advised by the defendant.
In December 2008, there was a fire caused by arson at the premises, which caused extensive damage. The company therefore registered a claim under the policy.
The insurer declined the claim on the grounds that:
- The premises did not comply with the minimum security standards, which was a condition of the insurance cover; and
- The company and R had failed to take reasonable steps to prevent the loss from occurring.
The company assigned the claim to the claimant, who accepted that the insurer was entitled to avoid paying out insurance money for the company’s failure to meet the minimum security standards. However, the claimant did not accept that the insurer was entitled to decline the claim on the grounds that the company and R were reckless regarding security on the premises.
Insurance policy conditions
The defendant accepted that the company and R had not been informed that the minimum security standards were a condition of the policy. However, conversely, they argued that no improvements would have been made to the security of the premises had the company been advised about this condition.
The defendant believed that the insurer was entitled to avoid the claim in any event, as no reasonable precautions had been taken regarding the security of the premises.
As the parties failed to come to an agreement, the claimant issued a claim for damages against the defendant for failing to advise the company about the minimum security standards that had to be met, in order for the insurance cover to be effective.
The judge found in favour of the claimant, and held that:
- The defendant had provided no real evidence to prove that the company would not have carried out the necessary work to comply with the minimum security standards if it had been informed that this was a condition of the cover. Furthermore, the company was able to demonstrate that they would have been able to afford to implement the minimum security standards, even though R had become insolvent following the fire;
- On reviewing the defendant’s submission that the company and R had failed to take reasonable precautions regarding the security of the premises, the judge held that it was not enough that the insured’s failure was negligent; it had to be at least reckless. This meant that the claimant had to have recognised that a danger existed, and been unconcerned by that danger;
- The judge referred to the previous case of Sofi v Prudential Assurance Co Ltd , in which an insurer’s appeal was dismissed on application of the test, when considering the insured’s recklessness. In referring to Sofi, the judge commented that it was impossible to conclude that the company and/or R had been reckless: they had put a number of security mechanisms in place, suggesting they were far from reckless;
- The judge noted that, even if the minimum security standards had been implemented, this would not have prevented the fire, as the arson attacker would not have been deterred by the minimum security standards. However, it would have provided the claimant with insurance;
- Lastly, the valuation evidence of the claimant’s expert was to be preferred. The claimant was entitled to recover £360,000 for the damaged machines, plus interest and costs.
In light of the above, insurers and brokers may find it beneficial to clearly spell out to policy holders any fundamental and/or onerous clauses in the insurance contract, particularly clauses relating to the validity and/or voidance of any claims.
This would ensure that the relationship is established on certain terms from the outset, while also enhancing customer service. This approach would also reduce the scope for any unnecessary disputes.
For more information on minimum security standards or any of the issues raised in this article, contact our Property Insurance Litigation team or call 0117 904 6000.