Legal Watch:Property Risks & Coverage29th October 2014Issue 010

In This Issue:

• Defendant not liable for spread of fire

• Unsuccessful claimant liable for all costs

• Cost consequence of refusing to mediate

• Assessing business interruption losses

• ABI Key Facts

Contact UsIf you would like any further information on the cases or articles featured in this issue, please contact:

Christopher MacQueen

T: 020 7469 6267E: cmq@greenwoods-solicitors.com

Simon Thomas

T: 020 7469 6266E: dst@greenwoods-solicitors.com

Andrew Wallen

T: 020 7469 6286E: adw@greenwoods-solicitors.com

Marise Gellert

T: 020 7469 6249E: msg@greenwoods-solicitors.com

IntroductionThis month we feature the case of County Motor Works (Chelmsford) Ltd v PBFW Ltd [2014], a spread of fire case successfully defended by Greenwoods. Thanks go to Christopher MacQueen, who dealt with the case, for his helpful summary.

Thanks also go to Simon Thomas and Andrew Wallen for their respective articles dealing with recent costs decisions, Kellie v Wheatley & Lloyd Architects Ltd [2014] and Northrop v BAE Systems Ltd [2014].

We also cover the case of Sugar Hut Group Ltd & Others v A J Insurance [2014] which may ring some bells with those who watch a certain popular reality television programme!

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Defendant not liable for spread of fireCounty Motor Works (Chelmsford) Limited v PBFW Limited [2014] EWHC 3392 (QB) is a spread of fire claim where the claimant unsuccessfully alleged that a fire that started in the defendant’s premises and spread to the claimant’s premises was caused by the defendant’s negligence. This is a cautionary tale and a good example of just how important the details are in such cases.

Background The claimant business (County Motor) provided MOT and repair services for motor vehicles. The defendant (PBFW) was a furniture manufacturer and retailer. The businesses occupied adjoining premises in an industrial unit at Suffolk Drive, Dukes Park Estate, Chelmsford.

PBFW’s premises contained a spray booth, which was used for the sprayed application of various lacquers and finishes to the furniture, including linseed oil.

At around 8pm on 27 September 2010 a fire occurred within PBFW’s unit. It was common ground between the parties that there were only two possible causes of the fire. County Motor alleged that fire started as a result of the self-combustion of linseed oil-soaked rags which PBFW had disposed of in an unlidded metal tin within the spray booth enclosure. Linseed oil-soaked rags are known to spontaneously combust and for that reason manufacturers recommend that they should be stored under water in a covered, metal container, or washed before storage or disposal.

PBFW contended that it was likely that the fire started in one of several electrical items located on shelves adjacent to a plastic bin, which was outside of the spray booth enclosure.

The fire spread to County Motor’s premises and caused significant damage.

Witness evidenceThe only witness in the case was a director of PBFW. His evidence was that:

• He was the only person who undertook spraying of linseed oil at PBFW

• He always applied linseed oil by spray

• Sometime it would be necessary to wipe away excess linseed oil with rags

• Such rags would always be disposed of in metal tins located within the spray booth enclosure

• These metal tins would contain approximately two inches of water

• It was his practice to ensure that the lids were on the metal tins at the end of each working day, and

• He had not applied any linseed oil for over 24 hours prior to the fire occurring

County Motor sought to oppose this evidence by reference to a written statement prepared by the fire officer who investigated the fire. The judge considered this evidence but determined that this was insufficient to displace the evidence from the director of PBFW.

Expert evidenceThe judge was not persuaded by County Motor’s expert and listed nine potential flaws in his argument. These were all issues identified with County Motor’s theory as to the cause of ignition and fire spread theory which required an assumption not supported by the evidence.

Additionally, it appears that the judge had concerns about the credibility of the expert for County Motor, commenting as follows:

‘Originally, Mr Davison considered that the fire started “either in an open-topped 25L tin inside the spray booth, or in a plastic bin located just in front of the spray booth”

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(paragraph 8.13 of report of 4 April 2014). By the time of the joint meeting of experts in July 2014, Mr Davison had decided that the fire could only have “originated from a tin containing one or more linseed oil-contaminated rags within the confines of the spray booth” (paragraph 3.3 of the joint expert’s report of 14 July 2014). In other words, he has changed his mind and this does not inspire confidence in his judgment.’

JudgmentThe judge accepted that the likely cause of the fire was an electrical fault despite there being no physical evidence to support this finding. Broadly this was because PBFW’s theory explained all of the circumstantial evidence. The judge set out his reasons for his finding as follows:

• Even if self-ignition had occurred in a tin in the spray booth, there was no evidence or explanation as to how the fire had spread out of the tin

• Even if the fire had somehow spread out of the tin in the spray booth, it would only have been a low intensity fire, given the low fuel load in the surrounding area

• A fire starting in the tin would not have been intense enough to spread in the way alleged by County Motor

• The fire could not have spread from the spray booth enclosure at ceiling level into the mezzanine as alleged by County Motor

• Even if the fire had started in the tin that had been left in the spray booth enclosure, it was unlikely that it would have attacked parts of the unit located all the way across on the other side of the building, about 18 metres away, within 113 seconds

• The director of PBFW’s evidence had emerged unscathed from an effective cross-examination

• The necessary environmental conditions were not present to support the self-heating/auto-ignition process

• County Motor’s expert had not identified any physical evidence of self-heating

• County Motor’s expert, unlike PBFW’s expert, had changed his evidence on the crucial issue of where the fire had started

“...he has changed his mind and this does not inspire confidence in his judgment.”CommentIn most spread of fire cases the evidence required to prove every aspect of the fire’s progression will not be identified, creating natural hurdles for the claimant to overcome. Understanding and identifying these hurdles at an early stage in the proceedings is key to succeeding in such cases, regardless of whether you are bringing or defending the claim. The lesson in this case is clear it really is all in the detail.

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Unsuccessful claimant liable for all costs In the recent decision of (1) Peter Kellie (2) Kelly Kellie V Wheatley & Lloyd Architects Ltd [2014] EWHC 2886 the court looked at the costs consequences that were to flow from a failed claim for professional negligence brought by the claimants (K) against the defendant architects (WLA).

In particular, the judge was asked to consider whether, in view of the result and the conduct up to and including trial, costs should be awarded on the indemnity basis.

Main actionIn the underlying claim brought by K ([2014] EWHC 2212) they alleged that they had retained WLA to act as their architects in relation to the design and construction of a detached garage/workshop at their house. It was K’s case that they indicated to WLA from the outset that their favoured design for the garage/workshop was in the “Border Oak” style, with a pitched roof.

However, in response WLA had advised that such a design could not be achieved because it would require planning permission which would not be forthcoming due to local restraints on such development. K claimed that, as a result, they had the garage/workshop constructed in a different style and with a nearly flat roof.

Following conclusion of the development works, K brought a claim against WLA asserting that the advice provided (as to the potential availability of planning permission) was negligent, in that the garage/workshop could have been built in the desired style, having regard in particular to permitted development rights attaching to the property. K maintained that two principal items of loss had been sustained:

• The value of the house (as remodelled) was lower than it would have been if the garage/workshop had been built to their required design, and

• Construction works would have cost less

In response, WLA rejected the suggestion that K had indicated that they required the “Border Oak” style to be implemented. WLA maintained their advice had been reasonable in all the circumstances and that the alleged losses were contrived. If not accepted, WLA also argued the claim was statute-barred since the allegedly negligent advice was provided in February 2004, being more than six years before the issue of the claim form in July 2010.

The court held the evidence was not supportive of K. K could not establish they had engaged WLA to construct the garage/workshop in a Border Oak style. As such, the claim for breach of duty failed. The expert evidence indicated that the chance of the local planning authority granting planning permission for such garage style was no more than speculative. It had not been shown that the value of the property would have been enhanced, whether by the sum alleged by K or at all, if such a garage had been built. K had also been unable to show that it would have been cheaper to construct such a garage.

Finally, even if K had established negligence or breach of contract, WLA’s limitation defence would have failed. Whilst preliminary advice had been given in 2004, WLA had continued with design works into 2005 and had a continuing duty to review their design thereafter. The court applied the decision in the case of New Islington and Hackney Housing Association Ltd v Pollard Thomas and Edwards Ltd [2001] B.L.R. 74.

Costs decisionAt the end of the main claim, the court awarded an interim payment on account of costs of £70,000 in favour of WLA. The judge reserved three issues for consideration as follows:

• Whether K should pay more than 90 % of WLA’s assessed costs

• Whether the assessment of WLA’s costs should be on the indemnity basis, and

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• Whether, in the light of the decision on the first two issues, K should pay any further amount by way of interim payment

K argued that WLA should recover only 90% of its costs on the grounds that it raised, pursued to trial and lost on two discrete issues: the no-loss defence and the limitation defence. In response, WLA sought indemnity costs on the basis that the claim was weak, had been pursued in the hope of pressurising it and its insurers to avoid the time and cost involved in prolonged proceedings, and relied on the fact that K had refused two reasonable offers of settlement.

Dealing with the reserved issues, the judge held as follows:

(i) Entitlement to costs

The power to grant a proportion of a successful party’s costs arises from CPR 44.2(6)(a). In making its assessment, the court will have regard to the conduct of the parties and whether a party has succeeded in whole or in part. In evaluating conduct, the court will consider whether a party was correct to pursue a particular issue and, if so, the manner of such pursuit.

When looking at the two particular arguments pursued by WLA, non-loss defence and limitation defence, K argued that it was unreasonable to pursue them and that their inclusion led to an increase in preparatory work and, therefore, costs. WLA argued, and the court agreed, these were not truly discrete issues; they were merely arguments on the issues of no loss and no liability. The court applied the judgment in J Murphy & Sons Ltd v Johnston Precast Ltd [2008] EWHC 3024 (TCC). The court concluded that whilst each point gave rise to specific legal issues, any additional evidential enquiry was minimal. The defences did not affect the outcome of the case and made no identifiable difference to the costs incurred by either party. As such, the court considered that their impact should not affect the basic costs outcome, namely that the unsuccessful party should pay the costs of the successful party.

(ii) Standard or indemnity basis

The proceedings had commenced before recent changes to the CPR as to costs, however the parties had submitted

costs budgets in accordance with the pilot scheme applicable in the Technology & Construction Court. Both parties referred the court to the obiter dicta of Coulson J in Elvanite Full Circle Limited v AMEC Earth & Environment (UK) Limited [2012 EWHC 1643 (TCC) in which the court considered the impact of costs management orders. That provided;

“whether under PD 51G paragraph 8, or CPR 3.18,the costs management order (with its approval of the costs budget) is expressed to be relevant only to an assessment of costs on a standard basis. However, as a matter of logical analysis, it seems to me that the costs management order should also be the starting point of an assessment of costs on an indemnity basis”.

The judge considered this to be of only limited assistance. He reasoned that:

“costs management orders are designed to set out the probable limits of the costs that will be proportionately incurred”.

In looking at indemnity costs, the court found that an award of costs on the indemnity basis is justified only if the paying party’s conduct is morally reprehensible or unreasonable to a high degree, so that the case falls outside the norm. In seeking indemnity costs, WLA argued that K’s claim had been weak, they had improperly relied upon a witness statement in the knowledge that fuller detail would be given at trial, had pursued the claim only as a means of pressuring WLA (or its insurers) into a commercial deal and failed to accept two reasonable offers to settle.

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“...an award of costs on the indemnity basis is justified only if the paying party’s conduct is morally reprehensible or unreasonable to a high degree...”The court found that although the case was not a strong one, it was not so weak as to be especially remarkable. The evidence was not greatly impressive on paper but that was not the same as saying that the pursuit of the case in reliance on it was unreasonable to a high degree. The court accepted the criticism of K’s witness evidence but recognised that trials are the forums at which such matters are to be properly tested. In addition, the court found there was no reason to believe that the claim was pursued with a view to pressurising insurers into settlement. Whether individually or collectively, the issues raised by WLA did not cause the court to make a finding that indemnity costs would be payable. As such, the court concluded that K must pay all of WLA’s costs to be subject to detailed assessment on the standard basis if not agreed.

(iii) Sum payable

In deciding the appropriate amount of a payment on account of costs the court should make a reasonable assessment of what was likely to be awarded on assessment, applying the case of Gollop v Pryke [November 29, 2011, unreported]. Having regard to WLA’s approved budget and to the length of the trial, it was not likely that less than £90,000 would be awarded on a standard assessment of those costs. Since trial had gone beyond its estimate, it was likely some further allowance would be made for this and, in the circumstances, there was no good reason why K should not pay £90,000 on account of the costs awarded to WLA.

CommentIn accordance with established principles, the costs were awarded in favour of the winning party. Despite the appearance, certainly from the underlying judgment, that the claimants had pursued a (borderline) hopeless claim the court resisted demands to award indemnity costs. It was made clear that whilst much of the claimants’ evidence was capable of robust and successful challenge that, of itself, was not sufficient to reach a conclusion that the claim ought never to have been brought.

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Cost consequence of refusing to mediate In the recent case of Northrop Grumman Mission Systems Europe Limited v BAE Systems (Al Diriyah C4I) Limited [2014] EWHC 3148 (TCC) the court considered the appropriate costs order where the ultimately successful party had refused to mediate during the course of the litigation.

BackgroundThe claimant (C) had brought Part 8 proceedings in a contract action against the defendant (D) on the basis that D was not entitled to terminate a Licence Agreement for convenience under Clause 10.4 of the Enabling Agreement. Judgment was given in D’s favour.

C accepted its loss at trial meant it was, in principle, liable for D’s costs on the standard basis. However C asked the court to exercise its discretion under CPR 44.2 and reduce the costs payable by 50% due to D’s refusal to mediate the dispute. D opposed any reduction in its costs.

Refusal to mediateUnder CPR 44.2 (4) and (5) the court has regard to the conduct of the parties both before and during proceedings. That conduct includes a refusal to mediate. The court went on to consider two authorities on the issue, Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 and PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288.

In Halsey the Court of Appeal identified particular factors to be taken into account, including the nature of the dispute, the merits of the case, the extent to which other settlement methods had been attempted, whether the costs of alternative dispute resolution (ADR) were disproportionately high, whether any delay in setting up or attending the ADR would have been prejudicial and whether ADR had a reasonable prospect of success.

In PGF II, the Court of Appeal particularly considered paragraph 1.56 of the Jackson ADR Handbook which sets

out the practical steps a party should take if it believes there are reasonable grounds for refusing a mediation.

The court particularly noted the following points at paragraph 30:

• Not ignoring an offer to engage in ADR

• Responding promptly in writing giving clear and full reasons why ADR is not appropriate at the stage based if possible on the Halsey guidelines

• Raising with the opposing party any shortage of information or evidence believed to be an obstacle to successful ADR together with consideration of how that shortage might be overcome

• Not closing off ADR of any kind and for all time in case some other method than that proposed or ADR at some later date might prove to be worth pursuing

The factsD had sought to terminate the agreement by giving notice on 29 November 2011. C had responded to this indicating the notice was rejected and they continued to perform the contract and were to seek £2.6m, on the basis that clause 10.4 of the Enabling Agreement was not incorporated into the Licence Agreement. D accepted that a fair and reasonable settlement was to be agreed subject to the terms of clause 10.4, but maintained it was properly incorporated.

Correspondence then ensured between the parties, which was shown to the court. Initially C proposed that the in-house legal representatives met on a without prejudice basis to see whether resolution could be achieved. D did not object to the principle, but asked D to substantiate the costs arising from the termination prior to any such meeting occurring.

In July 2012 solicitors were instructed on behalf of both parties and correspondence between them followed. C maintained that it was confident in its position, would

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pursue the matter to litigation if necessary and proposed a mediation take place. D’s position remained unchanged, with D indicating that until C sought to substantiate its figures, D did not see any purpose in a mediation taking place at that stage. Correspondence continued in that vein until March 2013 when C set out that it was entitled to £2.6m, even if the clause applied, and again invited D to agree to a mediation, the costs of which it said was insignificant compared to the overall claim. D refused once more to the effect that if C considered continued correspondence on the matter disproportionate, it could not see how the costs of a mediation would not be likewise disproportionate.

Proceedings were issued on 22 October 2013 and on 20 January 2014 D wrote to C with a non-negotiable “drop-hands” settlement offer. C responded by setting out the numerous invitations to engage in ADR it had made previously and indicating that there was, in C’s view, no meaningful offer for it to consider.

JudgmentIn its judgment the court firstly considered the various relevant factors set out in Halsey. These are not repeated in this article but can be found at paragraphs 56-70 of the judgment.

In short, the court concluded that this was a case, the nature of which was susceptible to mediation and that were a mediation to have been held, there would have been reasonable prospects of success. Despite BAE reasonably considering it had a strong case, the court held that it was unreasonable for BAE to refuse to mediate taking into account the Halsey factors.

However, the court went on to indicate that a refusal to mediate is not the only factor to be taken into account. The court must have regard to all the circumstances and this includes the provision at CPR 44.2 (4)(c) that the court must consider:

“any admissible offer to settle by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.”

The court stated that the offer did not justify D’s refusal to mediate, however it was an offer that C had failed to better at trial. This was an issue also to be taken into account when considering the parties’ conduct. In those circumstances, where both parties’ conduct was open to criticism, the court held that it was not appropriate to take their conduct into account in order to modify the standard order in respect of costs.

CommentIt is often believed that a refusal to mediate by an ultimately successful party will lead to costs penalties being imposed, unless that refusal can be shown to have been reasonable (which is, seemingly, a high threshold to meet). But for the offer made by D in this matter, the court’s judgment seems to suggest that would likewise have been the case here and a costs sanction would have been imposed. However, D “got out jail” because it made a genuine offer that C did not beat at trial.

Crucially, it should be recognised that the court will take all conduct by all parties into account when being asked to make an order deviating from the normal order on costs. Refusing to mediate is not the only or principal factor to be taken into account, but one of many.

“Refusing to mediate is not the only or principal factor to be taken into account, but one of many.”Therefore practitioners should be careful in believing that tactical invitations to the opposing party to engage in ADR will automatically lead to a costs sanction on the ultimately successful party.

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Assessing business interruption lossesIn Sugar Hut Group Ltd & Others v A J Insurance [2014] EWHC 3352 (Comm) the court was required to assess business interruption losses following a serious fire at a well-known nightclub in Brentwood, Essex (the club).

BackgroundOn 13 September 2009 there was a serious fire at the club. As a result the club was effectively unusable for a period of some 49 weeks, eventually reopening on 25 August 2010. The capacity of the club was increased when it was reinstated.

The claimant (Sugar Hut) claimed against its insurers, who sought to avoid the policy on the grounds of a non-disclosure before inception and breaches of warranties under the policy. Separate proceedings challenging the avoidance of the policy failed and the judge in those proceedings awarded the insurers their costs on the standard basis.

Sugar Hut subsequently commenced proceedings against the defendants (AJB) the insurance brokers who procured the policy in March 2009.

Certain allegations of negligence were admitted but others were denied and the claim was also resisted on the basis of causation and contributory negligence but shortly before the trial of liability, AJB conceded liability on the terms set out in a consent order, which provided that AJB would pay 65% of Sugar Hut’s losses.

The losses claimedThe property damage claim of £310,000 and Sugar Hut’s and the insurers’ costs in the previous unsuccessful proceedings of £573,136.88 were agreed (AJB paying the agreed 65%).

Sugar Hut claimed for 65% of:

• Business interruption losses of £1,345,794

• Accountants’ costs of £19,275

In addition, Sugar Hut claimed various other heads of loss which were said to relate directly to the fire, as well as loss of profits at two of its other nightclubs, on the basis that the fire destroyed business data that affected its ability to contact customers and because those two clubs on their own could not, on their own, attract top DJs, who were drawn in by the reputation of the club in Brentwood.

There was also a dispute in relation to the rate and period of interest applicable to the claim.

The director and ultimate beneficial owner of Sugar Hut gave evidence that he had intended to increase the capacity of the club prior to the fire and had already made some improvements to the club prior to the fire.

Following the reopening, the club continued to be a successful operation and its overall turnover increased even more than before. The club also appeared on The Only Way is Essex, which was first aired in autumn of 2010, very shortly after the newly refurbished club reopened. This had what became known as “the TOWIE effect”. The club owner argued that although the national profile of the club increased, leading it to become a tourist destination, this had a negative impact on the ‘high spenders’ who stopped attending the club, as did the local customer base. Although the club attracted a significantly higher number of customers after it reopened, those customers spent significantly less per head.

It was common ground between the parties that for Sugar Hut to recover any money by way of damages from AJB, the burden lay with them to show that such monies would have been recoverable against the original insurers.

The disputeThe major area of dispute concerned the proper assessment of the overall loss of turnover during the period immediately following the fire until the club reopened in August 2010.

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The experts for the respective parties used different methods of calculation leading to very different results:

• Sugar Hut’s expert valued the business interruption claim at £1,345,794, on the basis of a loss of turnover of £2,626,769

• AJB’s expert valued it at no higher than £385,776 based on a loss of turnover of £1,883,311

There was also a dispute in relation to the rate of growth profit:

• Sugar Hut’s expert put this at 78.5%

• AJB’s expert put this at 73.2%

The parties agreed saved costs, as well as certain items of continuing costs but there was a dispute regarding:

• Staff wages/mobile phone costs

• Alternative accommodation costs for one member of staff who allegedly lived within the club premises

• Redundancy costs in respect of a redundancy payment to one staff member post fire

• The losses at the other two venues

• The accountants’ fees for the investigation and presentation of the claim to the original insurers

• Depreciation – this was a point taken by AJB very shortly before the trial and had not been pleaded or considered by the experts in their reports

• Interest

The judgmentThe judge commented that there were considerable difficulties (or at least uncertainties) in explaining the reason(s) for any possible general increase in turnover, particularly against the background of the general effect of the recession at the time. The judge accepted that the figures did show a general and significant increase in the levels of turnover in 2008-2009 although he remained doubtful as to the accuracy or reliability of the figure put forward by Sugar Hut’s expert. Given all the uncertainties, he assessed the figure at 20% for the pre-fire period but made it clear that this figure was not based on any mathematical exercise.

He then applied the 20% uplift to part of the period of the closure – on the basis that he was of the view that there was insufficient evidence to justify applying that level of growth to the entirety of the following year, had the fire not happened.

The judge applied a notional increase equivalent to the Consumer Price Index (CPI) for the remainder of the period in 2010 until the re-opening of the club.

In so doing he stated that:

“I fully recognise that this exercise is necessarily somewhat crude and inexact but, in my view, it provides a reasonable assessment in the particular circumstances of the present case.”

The judge then went on to consider what, if any account, should be taken of the turnover actually achieved after the club was reopened. The club owner’s evidence that the club’s turnover would have grown substantially in 2010 even without “the TOWIE effect” was considered by the judge to be not merely speculative but unsupported by the evidence. The refurbishment effectively created a new club, with greater capacity and the exposure of the television programme substantially increased the number of visitors.

“I fully recognise that this exercise is necessarily somewhat crude and inexact but, in my view, it provides a reasonable assessment in the particular circumstances of the present case.” On the issue of the rate of growth profit, he assessed the figure at 75.8%, halfway between the two experts’ figures.

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The judge awarded nothing in respect of the staff wages/mobile phone costs claimed, on the basis that the evidence with regard to what the staff members in question did pre and post fire was “severely lacking”. Likewise the redundancy costs claimed were rejected in light of the lack of supporting evidence.

The claim for alternative accommodation was also rejected on the basis of a lack of evidence, although the judge accepted that the head of claim might, in principle, be recoverable, had the evidence been provided to support it.

So far as the claim in respect of the two other venues (one in Hertford and the other in Fulham) was concerned, although it was agreed by both experts that there was a significant drop in average daily takings after the fire at Brentwood, the judge held that there was insufficient evidence to attribute this to the fire at Brentwood and rejected this head of claim.

On the claim for the accountants’ fees, the judge noted that to make good this claim Sugar Hut would have to show that the monies would have been incurred pursuant to a requirement of some kind by the insurers, to fall within the professional accountants’ clause under the policy. They had failed to do so and on that basis this head of claim also failed.

The judge was not willing to reduce the claim for depreciation as sought by the defendants.

Finally, so far as interest was concerned, the judge held that the actual amount of interest payable by Sugar Hut was irrelevant and that the real question was:

“...what rate of interest would generally be payable by a company like the Sugar Hut Group Ltd. having regard to the general nature of its business operations.”

Based on reports from the Bank of England, the judge assessed that rate at 5% per annum simple. He was not willing to accept submissions that the period of interest should be reduced as a result of the delay in bringing the claim to trial, on the basis that the delay, such as there was, was attributable to three factors, none of which should, in this instance, operate to penalise Sugar Hut, as none of them could be said to be criticisms of Sugar Hut:

• The fact that Sugar Hut originally sued the insurers under the insurance policy

• The decision to have a split trial

• The delay in obtaining a hearing, which the judge described as “most regrettable but...certainly not the fault of these claimants”.

CommentThe facts of the business interruption claim in this case are, it has to be said, somewhat unusual but the court was willing to apply different approaches to different periods for the likely increases in turnover, rather than a broad brush approach one often sees when a claim has complicating factors such as were evident here. Clearly, credible expert evidence in such circumstances is essential.

The information and opinions contained in this document are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. This document speaks as of its date and does not reflect any changes in law or practice after that date. Plexus Law and Greenwoods Solicitors are trading names of Parabis Law LLP, a Limited Liability Partnership incorporated in England & Wales. Reg No: OC315763. Registered office: 8 Bedford Park, Croydon, Surrey CR0 2AP. Parabis Law LLP is authorised and regulated by the SRA.

www.plexuslaw.co.ukwww.greenwoods-solicitors.com

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Contact UsFor information on articles and cases featured in other editions of Property Risks and Coverage Newsletters, please contact:

Marise Gellert

PartnerT: 020 7469 6249E: msg@greenwoods-solicitors.com

ABI Key FactsEach year the ABI produces a summary booklet of the UK insurance industry. The recently released 2014 booklet, which can be found by following the link below, contains facts and figures about UK insurance in 2013 (unless specifically stated otherwise) based on ABI data and covering ABI members only.

https://www.abi.org.uk/Insurance-and-savings/Industry-data/Key-Facts-2014

In 2013 insurers paid out £11.1m per day in property claims, of which £8.1m was domestic and £3m commercial. Of that figure, 41% of domestic claims were made up of escape of water claims (27%) and weather-related claims (17%). Perhaps surprisingly, subsidence only made up a further 5% of domestic claims, the balance being made up of theft (16%), fire(15%), accidental damage (11%) and ‘other domestic claims’ (12%).

According to the ABI statistics, general insurers detected 118,500 cases of attempted claims fraud in 2013, totalling almost £1.3bn, which is an increase in value of 18% compared to 2012.

That figure, of course, only includes the cases detected but it shows that insurers must continue to be alert to the possibility of fraud in every case. Echoing Christopher MacQueen’s comments above, this shows how important it is to examine the detail of every case.

The ABI Key Facts booklet states that fraud was most likely to be detected in liability insurance but is that because that is where the fraudulent claims are more likely to occur or because those dealing with liability claims are simply more geared up to suspect and detect fraud?