Insurer’s arguments fail to impress the Court of Appeal

Go Back 09.3.20 INSIGHTS

The Court of Appeal has rejected the insurer’s appeal in the fire damage claim of Endurance Corporate Capital Ltd v Sartex Quilts & Textiles Ltd [2020] which concerned issues relating to the reinstatement basis of indemnity for property losses; whether there had to be an intention to reinstate; and the issue of betterment.


Sartex occupied industrial premises (‘the premises’) manufacturing ‘shoddy hard pads’ which were insured against property loss and damage from, inter alia, fire underwritten by Endurance. The premises were severely damaged by fire in May 2011.

In November 2013 insurers paid out £2.1m for property damage based on the market value of the premises and plant. This was not accepted by Sartex who issued proceedings against insurers in May 2017 for the costs of reinstating the premises to their former condition using modern building materials and replacing the plant and machinery (less the amount already received).

Sartex had vacillated as to its intention regarding the premises in the 8 years prior to trial. However, at the time of trial in January 2019, it had applied for planning permission to re-build the premises and entered a contract to purchase the necessary plant & machinery.

The judge found, as a matter of fact, that the intention of Sartex was to carry on the business of manufacturing shoddy hard pads either by reinstating the premises or by establishing a facility elsewhere, with the necessary plant and machinery, and awarded them a further c£1.4m.

Permission of Appeal

Insurers were granted permission to appeal by Males LJ on the limited ground that Sartex did not have a genuine, fixed and settled intention (at least until after the expiry of the limitation period) to reinstate the premises and, if this failed, the additional ground that the judge was wrong not to make any deduction for betterment.

Crucially, Males LJ refused insurers permission to appeal the judge’s factual findings that Sartex did, at all times, have a fixed intention to carry on the business of manufacturing either by reinstating the premises or establishing such a facility elsewhere.

Court of Appeal’s Decision

Giving the Court’s agreed judgement, Leggatt LJ, dismissed the appeal, finding:

1. Contractually, under the insuring clause, insurers agreed to ‘indemnify’ Sartex against loss or damage caused by an insured peril. The measure of indemnity was to be calculated on the basis of reinstatement, subject to a cap under the special conditions of the policy. Since there was no term of the policy which stated what the cap would be, it must be ascertained by applying default legal principles. The insurer had agreed to indemnify Sartex and had to place it in the same position, in so far as money could do, as if the breach had not occurred.

Where the breach arose from loss or destruction or damage to property (as it does where the contract is a property insurance policy), this could be done either by awarding the cost of replacing or repairing the property; or awarding the market value of the property in its condition immediately before the damage occurred (less any residual value), depending on the use the insured were intending to put the property.

2. Insurers had failed to provide any evidence that:

a) Suitable alternative premises were available elsewhere which could have been used at a lower cost;

b) The other options considered by Sartex after the fire which involved acquiring or constructing a site elsewhere should have been adopted; or

c) The value of the property had increased in value as a result of the fire.

In the circumstances, the question of the intention of Sartex was irrelevant to the possible measure of indemnity. The only argument put forward by insurers was that the correct measure for damages should be the reduction in market value of the premises. This was also irrelevant because Sartex could not sell the premises as they did not own them.

3. In terms of betterment, the insurer’s expert had made no attempt to quantify any items of betterment for which an allowance could properly be made or to provide an estimate of the likely saving in maintenance costs, based on reasonable assumptions. As the contract breaker, the insurer had the burden of proving that the damages should be reduced for betterment and, in the absence of such evidence, the judge was correct not to make any deduction.


The insurers always faced an uphill struggle when they failed to obtain permission to appeal on the trial judge’s factual findings.

The judgment clearly shows that insurers will not be able to limit a policyholder’s losses simply by mere inference. If they wish to succeed in terms of reinstatement or on issues regarding betterment then it is incumbent on them to provide cogent evidence to defeat the policyholder’s own evidence.

To read the full judgment please click on the below link:

Roger Jones | Partner

Roger Jones is an insurance specialist advising on insurance claims, particularly those involving casualty, property and theft, he has over 25 years of experience in the market. Previously a partner at Kennedys, he has now switched sides and is a welcome new addition to the Wynterhill team.

This post is intended to provide guidance of a practical nature but does not contain legal advice or advice as to what action you should or should not take specific to your insurance needs or those of your business, or with regard to any particular situation.