This judgment was handed down remotely at 10.30am on 25 July 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
- The Claimant ("Probitas") applies for summary judgment on its claim for declaratory relief to the effect that the Defendant ("Pro 2 Care") has no basis under an insurance policy obtained by Pro 2 Care from Probitas for seeking business interruption cover from Probitas, and that Pro 2 Care has no cause of action against Probitas under the policy for a refusal to pay Pro 2 Care any alleged business interruption losses under the policy, said by Pro 2 Care to have been caused by water pipes that burst at its property on 21 December 2022.
- Probitas says Pro 2 Care has no defence to the claim; and that it has a counterclaim that is without merit and which should also be the subject of summary judgment.
- Probitas is a Lloyd's underwriting syndicate specialising in property, construction and casualty insurance and reinsurance.
- Pro 2 Care is the owner of a property at Cloughside House, Peel Cottage Road, Walsden, Todmorden, OL14 7BF ("the Property"). The sole director, ultimate beneficial owner and controller of Pro 2 Care is Mr Usman Malik ("Mr Malik").
- The claim concerns an insurance policy obtained by Pro 2 Care from Probitas for the policy year 24 September 2022 to 23 September 2023, bearing the Unique Market Reference # B6492BUL00023 ("the Policy"). The Policy was a renewal of a policy that originally incepted in September 2021.
The Parties' Cases
- It is Probitas' case that the Policy does not afford Business Interruption cover. And, even if it did, there is no insurable interest. It says there was never any business carried out at the Property; let alone any revenue earned there. Accordingly, whether the Policy affords Business Interruption Cover or not, Probitas says there was no business being carried out at the Property that was ever interrupted by reason of the event relied upon as the basis for its alleged entitlement to business interruption cover: the bursting of water pipes during the course of its renovation on 21 December 2021. Probitas says the pro forma business interruption language in the underlying Policy wording (that Probitas says does not apply in this case), could never bite in any event.
- Pro 2 Care's case is that the Policy included Business Interruption cover on its face. Pro 2 Care says that it had started a business for the running of care homes and the Property was due to be the first property to open for that purpose. But for the property damage caused by the burst pipes on 21 December 2022, Pro 2 Care says the Property would have opened as a children's care home in or about February 2023. It says the delayed opening of the Property constituted business interruption for the purposes of the Policy. It also says it had an insurable interest in respect of the loss of "Gross Revenue" resulting from that delay which was an "Insured Interest" as specified in the Policy Schedule and Policy Wording. In summary, Pro 2 Care says it is entitled to be indemnified under the Policy in respect of its "Loss of Gross Revenue" caused by the delayed opening.
- In the alternative, it is Pro 2 Care's case that Probitas has waived any ability to contend that the Policy did not provide business interruption cover. Pro 2 Care pleads that Probitas' agreement through Lloyd's on 21 March 2024 to reconsider the claim amounted to an agreement to indemnify Pro 2 Care against its Loss of Gross Revenue.
- Pro 2 Care counterclaims for a declaration that it is entitled to an indemnity pursuant to the Policy in respect of the Loss of Gross Revenue described in clause 9.1 and Section A9 of the Policy Wording: "the amount by which the Gross Revenue during the Indemnity Period shall fall short of the Standard Gross Revenue in consequence of the Damage". It pleads that this claim is limited to £1 million under the Policy.
- Pro 2 Care also counterclaims for damages in the sum of £2,670,950 for losses caused by Probitas' alleged breach of section 13A of the Insurance Act 2015 and an implied term of the Policy ("the section 13A claim").
- In breach of the implied term, Pro 2 Care says Probitas failed to pay the sums due under the Property Damage section of the Policy within a reasonable time and that there was an unreasonable delay of about 11 months. It says this elongated the time for Pro 2 Care to remedy the water damage and lengthened the period during which Pro 2 Care has been unable to accept residents at the Property.
- In reply, Probitas pleads that cover for a delayed opening is not Business Interruption cover. It is Delay in Start Up cover; a specialist form of cover that was not purchased in this case and which the Policy does not afford. Probitas denies that it waived its entitlement to re-decline the claim.
- Probitas denies any breach of section 13A of the Insurance Act or any delay or unreasonable delay in the settlement of Pro 2 Care's Property Damage claim. It submits Pro 2 Care's allegation of delay is not properly articulated or made out on any of the evidence. It says the counterclaim has no real prospect of success and summary judgment should also be awarded against Pro 2 Care on the section 13A claim.
- The Application for summary judgment is supported by the First and Second Witness Statements of Francis Mackie, a Partner at Browne Jacobson LLP. Pro 2 Care relies upon Mr Malik's Witness Statement in response to Mr Mackie's First Witness Statement. Together the parties have placed some 2200 pages of material and almost 1000 pages of authorities before the court.
- Probitas was represented by Mr Robinson KC and Pro 2 Care by Mr Taczalski (who did not plead the Defence and Counterclaim). I thank both Counsel for their excellent Skeleton Arguments and oral submissions.
Decision
- For the reasons below, I have decided:
i) to grant summary judgment in favour of Probitas in the form of the declaration sought;
ii) to refuse to grant summary judgment in Probitas' favour on Pro 2 Care's counterclaim for damages for losses caused by Probitas' alleged failure to pay sums in respect of Property Damage Insurance in a reasonable time pursuant to section 13A of the Insurance Act 2015 and an implied term of the Policy.
- Although Pro 2 Care pressed on me that even if I thought there was a merely arguable case, the fact there would be implications for the insurance market would be a good reason for the case to go to trial, I am not persuaded that there is such a good reason here.
Background Facts /Allegations
- In the following paragraphs I set out some of the facts and allegations that the parties have drawn to the attention of the court on this Application. In interpreting the Policy, I have, however, limited my consideration to the terms of the Policy. I have not taken into account any of the material which Probitas relies upon which Pro 2 Care contends to be inadmissible and/or which it disputes was received or read.
- In Pro 2 Care's Reply to the Defence and Counterclaim (para. 3), it says that its business began during the course of the year ended 31 March 2021. During that year, Pro 2 Care ceased to be dormant when Mr Malik obtained a loan to allow Pro 2 Care to pursue a care home business. Mr Malik left his previous employment and began to work full time on Pro 2 Care's business. Pro 2 Care's accounts show the loan coming in during year end March 2021, and Pro 2 Care acquiring its business asset, the Property, in the accounts for the year ending March 2022.
- Pro 2 Care's purchase of the Property completed in September 2021. In the same month, the refurbishment of the Property began and necessary planning applications were made.
- On 24 September 2021, Bollington Insurance Brokers Ltd ("Bollington"), an underwriting agent to whom Probitas delegated authority to underwrite property policies, issued an insurance quotation to Pro 2 Care (the "2021 Quote"). Probitas says the production of the 2021 Quote followed contact between Mr Malik and Bollington which resulted in a 23 September 2021 Market Presentation prepared by Bollington. The Market Presentation records Mr Malik indicated his intention to renovate the Property and then to open a children's care home. The declared value for the Property was £900,000; contents £100,000 and computers £15,000.
- Mr Mackie states in his evidence that Pro 2 Care / Mr Malik never asked for Business Interruption cover. No information about the business or revenues was ever provided before insurance cover was incepted. No business plan was provided by Pro 2 Care to Probitas then or at any later stage.
- Mr Mackie's evidence is that Bollington and Probitas do not quote for or provide Business Interruption Cover unless it is specifically requested by an insured. Mr Mackie says that neither Bollington nor Probitas would be able to quote for or provide Business Interruption cover without detailed further information from an insured about matters such as the business being carried on and the revenues being earned. Without such information they would not be able to assess the risk or price the additional premium.
- Mr Malik says he relied upon the brokers to ask him the questions they needed to ask him to ensure there was appropriate cover. He cannot remember whether he was asked about Business Interruption cover. If he had been asked, he would have said he wanted it.
- The 2021 Quote was on a printed template form and included the following text:
Type: Property Damage, Business Interruption, Employers' and Product/Public Liability including Professional Indemnity
WageRoll: Clerical Not Applicable
Non Clerical Not Applicable
Turnover: £50,000
Risk Type: Children's Home
Sum Insured PROPERTY SECTION
Total Property Damage
GBP £1,015,000 comprising 1 location
Business Interruption - Gross Revenues
GBP N/A with an indemnity period of N/A month(s)
Excess Property Damage & Business Interruption GBP £250
Additional Quote Subjectivities
The following Exclusion shall apply to the PD/BI sections of this policy: This Policy does not insure any loss, claim, cost, expense or other sum directly or indirectly caused by, arising out of or relating to infectious or contagious disease and/or any virus or bacterium or other micro organism.
No contract works to be undertaken during the period of insurance.
Liability terms offered strictly subject to satisfactory Covid 19 action plan being provided to & agreed by underwriters prior to inception.
Premium: Property Damage & Business Interruption GBP£1,550.00 + IPT
Property Values:
Insured Premises [the Property]
Buildings sum insured £900,000
Content/fixtures/fittings sum insured £100,000
Computers £15,000.
- It is Pro 2 Care's case that Mr Malik did not receive the 2021 Quote and did not see the 2021 Market Presentation.
- To all intents and purposes the terms and wording of the 2021 Policy were identical to the terms and wording of the relevant 2022 Policy set out and discussed below at paragraph 57 onwards.
- On 10 May 2022 Calderdale MBC granted Pro 2 Care a Lawful Development Certificate for the use of the Property as a children's care home. During this period, Pro 2 Care was registered for VAT.
- Mr Malik's witness statement exhibits photographs of the Property in June 2022 which it is said show that much redecoration had been completed; with flooring and final finishes still to be completed.
- The quote for the relevant renewal of Pro 2 Care's insurance dated 23 August 2022 (the "2022 Quote") was in essentially identical form to the 2021 Quote. It was sent to Mr Malik under cover of a letter dated 1 September 2022. The letter stated:
"Insurance Policy: Property Owners
Effective Date: 24/09/2022
Your insurance policy is due for renewal shortly and we have pleasure in enclosing your renewal quotation(s) and documentation. These have been based on your requirements which he disclosed to us previously or in our recent renewal discussions. Our understanding of your requirements are shown in the enclosed documentation.
There are a number of documents enclosed and it is important that you review each of them. Within this letter we have summarised what we consider to be the most important points to assist you. We direct you to those documents, or parts of documents, which you must read carefully.
Your renewal premium(s) for the forthcoming year are detailed as below:
Policy: Property owners
Premium: £1,550.00
Insurance Premium Tax £186.00
Administration Fee(s) £60
Total due: £1,796.00
Property Owners
Your Requirements and Our Recommendations
We draw your attention to your Duty of Fair Presentation obligations, along with the importance of checking that you have adequate sums insured. Full details can be found in the Important Information section. ...
Significant Terms, Conditions, Warranties, Exclusions and Subjectivities
Your policy documents will record what is insured and against what Insured Perils ...
It is important that you read and make sure that you understand the full extent of the cover that is provided by your insurance policy. The policy wording should be read in conjunction with your policy schedule. Whilst you must review all of your documentation, outlined below are any significant terms ....
Policy Documents
It is important that you check through your policy documentation. Please read all documents carefully, paying particular attention to the limits, endorsements and exclusions. If any information is incorrect, please contact us immediately. ...
If you have any questions relating to insurance arrangements, please do not hesitate to contact us. We look forward to receiving your renewal confirmation by the renewal date. Failure to provide your instructions could result in your policy and cover lapsing. ...
Enclosures
Policy Schedule(s) Please review and advise us immediately if there are any terms you are unable to comply with or do not understand.
Policy Summary(s) An overview of the proposed cover including limits. Please read in conjunction with your policy and advise us immediately if there are any terms you are unable to comply with or do not understand.
Our Invoice Please note payment terms.
Important Information Please read and retain.
Important Information
Please read this section carefully as it contains important terms and may require you to take action.
1. Sums Insured and Under-Insurance (average)
Ensure that you are insured for the full value of risk in accordance with the policy terms and conditions. We strongly recommend that you obtain professional valuations for reinstatement purposes of buildings, machinery and plants at regular intervals. Sums insured and limits of indemnity should be kept under review throughout the period of insurance.
It is important that you are NOT underinsured. Make sure you have insured your buildings for the full rebuilding cost including allowances for architects' costs and site clearance, and your contents for their full replacement value as new items.
You must notify us if the full replacement value of your contents or full rebuilding cost of your buildings exceeds the amount shown on your schedule.
The insurer will only be able to settle claims that the percentage you are actually insured for. For example, if the value of your content shown on your schedule only represents 70% of the full replacement value then the insurer will not pay more than 70% of your claim."
- The 2022 Quote was on a printed template form and included the following text:
Type: Property Damage, Business Interruption, Employers' and Product/Public Liability including Professional Indemnity
WageRoll: Clerical Not Applicable
Non Clerical Not Applicable
Turnover: £50,000
Risk Type: Children's Home
Sum Insured PROPERTY SECTION
Total Property Damage
GBP £1,015,000 comprising 1 location
Business Interruption - Gross Revenues
GBP N/A with an indemnity period of N/A month(s)
Excess Property Damage & Business Interruption GBP £250
Additional Quote Subjectivities
The following Exclusion shall apply to the PD/BI sections of this policy: This Policy does not insure any loss, claim, cost, expense or other sum directly or indirectly caused by, arising out of or relating to infectious or contagious disease and/or any virus or bacterium or other micro organism.
No contract works to be undertaken during the period of insurance.
Liability terms offered strictly subject to satisfactory Covid 19 action plan being provided to & agreed by underwriters prior to inception.
Premium: Property Damage & Business Interruption
GBP £1,550.00 + IPT
Property Values:
Insured Premises [the Property]
Buildings sum insured £900,000
Content/fixtures/fittings sum insured £100,000
Computers £15,000
- Probitas says three matters are clear from the 2022 Quote (and 2021 Quote). First, the Property would be insured for £1,015,000. This is evidenced by the entries for "Sum Insured, Property Section" and "Total Property Damage". Second, there was to be no Business Interruption cover as the Quote states "N/A", not applicable, under this heading against both "Gross Revenues" and "indemnity period". Third, the total sum to be insured under the Policy of £1,015,000 consists of the breakdown of "Property Values" set out.
- In Mr Mackie's Second Witness Statement, he says the Turnover figure of £50,000 was randomly generated and typed in by Gallagher so that it could run the quote. It was not a figure supplied by Mr Malik. Mr Taczalski submits that this is not a matter about which Mr Mackie can give reliable evidence. In any event, neither the figure of £50,000 nor any figure for Turnover appears in the documents subsequently.
- On 16 September 2022, Mr Malik wrote to Gallagher regarding the renewal. The email was entitled "Re: FW Property Owners Insurance Renewal - Cloughside". He asked:
"Can it be reduced to £1500?"
- Gallagher replied on 16 September 2022:
"Given the property being unoccupied there is no way insurers will reduce their premium I'm afraid. Most insurers either won't insure this or want at least £2500 with far more restricted cover.
I can remove our admin fee of £60, which takes it to £1550.00 + insurance premium tax £186.00 = £1736.00."
- Mr Malik says that he had an initial conversation in advance of the 2021 Policy expiring and that he received the 2022 Quote. He says he does not remember looking at the 2022 Quote at the time and would not have paid it much attention because it was to be a straightforward renewal / extension. He says he looked at the cost of renewal because his focus was on ensuring the best possible price.
- The Pre Renewal Questionnaire for Renewal Date 24 September 2022 issued by Gallagher (Bollington having re-branded as Gallagher in about February 2021 [FM1/fn. 6]), included the following:
Full Business Description
Your insurers have been informed of the following business description:
• Property Owner, with a view to opening as a children's home.
Certain Policies may provide cover in respect of specific activities only, please refer to the individual policy covers detailed further in this report.
Material Damage - [the Property]
Buildings
Building £900,000
Contents
Content Item - Contents £100,000
Content Item - Computer £15,000
Property Owner's Liability £5,000,000 Limit of Indemnity
Excesses £250
Appendix 1 - Principal Insurable Risks
We show below some of the principal risks that are insurable, some of which may be covered by your current portfolio. Whilst this list is not exhaustive it is intended to be a guide to assist you when deciding which risks to insure. Your Account Executive will be pleased to discuss any of these with you.
|
PROPERTY |
LIABILITIES |
|
Material Damage |
Employers Liability |
|
Business Interruption |
Public/Products Liability |
|
Book Debts |
Retrospective Employers Liability |
|
Computer |
Produce Guarantee |
|
Money |
Professional Indemnity |
|
Crime |
Financial Loss |
|
Goods in Transit |
Libel and Slander |
|
Marine |
Directors and Officers Liability |
|
Contract Works |
Pollution |
- The Policy renewed on 24 September 2022 for the year 24 September 2022 to 23 September 2023. The relevant terms are set out from paragraph 57 below. Mr Mackie states the renewal was retrospective. Mr Malik says that this is wrong. The renewal was organised in advance of the expiry of the 2021 Policy.
- There is a dispute between the parties as to which set of Policy Wording was attached to the Policy as concluded. One of the copies exhibited attaches differently dated Wording from the other. The language of the two sets of Wording is apparently identical, but presented differently. Pro 2 Care contends that it was Probitas' July 2020 Wording that was attached to the Policy. For the purposes of this Application, and like Mr Robinson, I proceed upon the basis that it was the July 2020 Wording which was attached as Pro 2 Care contends.
- An endorsement to the Policy on 24 September 2022 for "PD/BI" increased the "Building Sum Insured" from £900,000 to £1,000,000. An additional premium of £138.85 was paid.
- Gallagher's Market Presentation for the renewal dated 28 October 2022 states, amongst other matters:
Client Name [Pro 2 Care]
Correspondence / Trading Address [address given for other premises]
Business Description Property Owner
Core Premises Cover Sections
Premises address (if different from above) [the Property]
Occupancy Unoccupied
Are parts of the premises partly unused/
Unfurnished/unoccupied Yes
Details Unoccupied, undergoing renovation to be a children's home
Buildings
Building
Building name/description [the Property]
Sum insured £900,000
Contingencies Standard fire & Specified Perils
Cover basis Reinstatement
Excess (subsidence) £250
Contents
Contingencies Standard fire & Specified Perils
General Contents
Sum insured £100,000
Cover basis Reinstatement
Computer Equipment
Sum insured £15,000
Excess £250
Cover basis Reinstatement
Liabilities
Public Liability
Indemnity Limit £5,000,000.00
Excess £250
- Mr Robinson submits that on the basis of the answers given to it by Mr Malik Gallagher recorded that Pro 2 Care was a "Property Owner, with a view to opening as a children's care home". The sum insured remained at £900,000 for the Property, plus £100,000 of general contents and £15,000 for computer equipment, giving a total of £1,015,000. Business Interruption cover was not mentioned, as Probitas says it would have been if the Policy was going to provide Business Interruption cover. The entirety of the cover to be provided on renewal was listed under "Material Damage" and "Property Owner's Liability". No mention was made there of Business Interruption cover.
- Mr Malik says this 2022 Market Presentation was not sent to Pro 2 Care or even prepared contemporaneously. Pro 2 Care suggests it was compiled after the damage to the Property occurred in December 2022.
- Prior to the inception of the Policy on 24 September 2022, it is common ground in the statements of case that Pro 2 Care informed Probitas that the Property was "undergoing renovation to be a children's home" (Particulars of Claim para. 7 and Defence para. 8).
- It is common ground that Pro 2 Care did not at any stage earn any revenue from running a business at the Property prior to the burst pipe which it says gave rise to the relevant business interruption. In Pro 2 Care's Response to Probitas' Request for Further Information, it pleads:
"Of: "As such, [the Policy] provided cover in respect of the loss of Gross Revenue due to Business Interruption ...
Requests:
12. What Gross Revenue does the Defendant allege it earned from its business at [the Property] between the date the Policy incepted and the date on which the Water Damage occurred?
Response:
12: None. ... the fact that the business was not generating Gross Revenue in this period is no answer to the claim for loss of Gross Revenue which would have been earned at [the Property] but for the interruption caused by the Water Damage."
- After the Policy was renewed, Pro 2 Care produced a business plan in November 2022. It relies upon this business plan for the purposes of its counterclaim. It is not suggested this (or any) business plan was produced or provided to Gallagher or Probitas before the Policy incepted on 23 September 2022.
- In Mr Malik's witness statement he describes the development of Pro 2 Care's November 2022 business plan with help from a key individual who was to join Pro 2 Care as Director of Commissioning from a market leading provider, Cambrian Group. He also says that work was undertaken by Pro 2 Care to identify staff for key roles. An intended timeline was identified by Pro 2 Care for Ofsted registration, which would have the Property opening in February 2023. About 70% of the renovation work was complete in November/December 2022.
- Mr Taczalski says Pro 2 Care's timeline:
"may have been an ambitious target, but whether that is the case or not, and the date from which Pro2Care would have earned revenue from Cloughside House is not an issue that can be decided summarily".
- On 21 December 2022, water pipes burst inside the Property, which caused damage to the Property and disrupted the progress of the renovation works. Pro 2 Care sought Property Damage cover from Probitas under the terms of the Policy.
- On 5 January 2023 Mr Malik emailed Mr Gayle of Gallagher in relation to Pro 2 Care's claim in the following terms:
"As discussed this morning, I am glad you were aware that the [Property] was unoccupied and we were not yet operational when the [Policy] started. ... shall I update Katie Miller the claim handler or is she already aware of this?"
- After initial payments by Probitas to Pro 2 Care of £98,778.32 to cover the stripping out and drying costs incurred after the internal water damage to the Property occurred, the true reinstatement value of the Property was the subject of disagreement between the parties. The initial payments were made in 8 tranches on 27 July 2023, 31 July 2023, 1 September 2023, 22 September 2023, 21 November 2023, 19 February 2024, 21 March 2024, 23 April 2024.
- In July 2024, Pro 2 Care accepted an additional sum of £381,221.68 in satisfaction of any claim under the Policy for Property Damage. Following an exchange of emails between Mr Malik and Probitas' solicitors on 22 and 23 July 2024, the sum was paid to Pro 2 Care that month.
- Summaries of the alleged delays and alleged reasons for the delays in the Property Damage payment relied upon by Pro 2 Care are included within the Defence and Counterclaim (para. 36) and in Mr Malik's Witness Statement (from para. 64) in support of Pro 2 Care's section 13A counterclaim. They include delays as to the strip out works because Probitas refused to accept the full extent of the need for such works; delay caused by Probitas' failure to accept expert recommendations promptly as to flooring; delays to the issue of a schedule of works for tendering; and delays in accepting the lowest tender.
- By letters and emails between Mr Malik of Pro 2 Care and Probitas (via McClarens as loss adjusters), including correspondence on 3 April 2024, 18 April 2024, 20 May 2024 and 8 July 2024, Pro 2 Care asserted an entitlement to cover under the Policy in respect of alleged Business Interruption losses. By reference to its November 2022 business plan, Pro 2 Care says these losses were in the region of £5,890,248.
- In 2024 Pro 2 Care made complaints to Lloyd's that Probitas was refusing wrongly to provide Business Interruption cover under the Policy. Probitas undertook to reconsider the claim for cover for business interruption. It did so, and rejected it.
- As at the date of the Application, the Property has not yet been able to open the Property for the first time as a children's home. The repairs to the damage and the renovation works are expected to complete in the summer of 2025.
The Policy
- The Policy consists of (1) a Policy Schedule and (2) the Probitas Combined Care Home Wording dated July 2020; together running to 150 pages.
- The Policy Schedule reads in material part as follows:
POLICY NUMBERS: Property Damage &
Business Interruption PC308 ....
Employers' Liability UA 36 ....
Public/Products Liability UA36 ....
TYPE: Property, Business Interruption, Employers' and Product/Public Liability including Professional Indemnity
INSURED Pro2care Ltd
BUSINESS Property owner of soon to be children's case home ...
POSTAL ADDRESS [address given for other premises]
INTEREST Section A - Property Damage & Business Interruption
Real and Personal Property and Business Interruption or as defined in the policy
Insured
Section B - Money
....
Insured
Section C - Personal Injury (Assault)
...
Not insured
....
POLICY LIMITS: Section A - Property Damage & Business Interruption
See Schedule of Values and Deductibles Section
Section B - Money
See Schedule of Values and Deductibles Section
Section C - Personal Injury
Not applicable
...
Section I - Computer Breakdown
Not applicable
Excess: A Property Damage & Business Interruption
See Schedule of Values and Deductibles Section
B Money
See Schedule of Values and Deductibles Section
C Personal Injury (Assault)
Not applicable
....
I Computer Breakdown
Not applicable
Conditions: Additional Exclusion The following Exclusion shall apply to the PD/BI sections of this policy. This Policy does not insure any loss, claim, cost, expense or other sum directly or indirectly caused by, arising out of or relating to infectious or contagious disease and/or any virus or bacterium or other micro-organism.
PREMIUM: Property Damage & Business Interruption
GBP 1,550.00 + IPT
Employers' Liability N/A
Public & Products Liability N/A
TOTAL PREMIUM GBP 1,550 + IPT
- The "Schedule of Property Values and Deductibles" forming part of the Schedule stated the sum insured for the "Buildings" was £900,000; for contents was £100,000 and for computers £15,000. Each with a deductible of £250.
- No reference is made in the "Schedule of Property Values and Deductibles" to any sum being insured for Business Interruption or any Deductible.
- The Probitas Combined Care Home July 2020 Wording reads in material part:
"INTRODUCTION ...
This Policy (and Schedule which forms an integral part of the Policy) is a legal contract. ...
The Schedule attached to this policy provides details of the Sections that are operative and the cover that has been agreed. ...
We will provide the insurance described in this Policy subject to its Terms and Conditions for the Period of Insurance shown in the Schedule and any subsequent period for which you shall pay and we shall agree to accept the premium. ...
TABLE OF CONTENTS ...
Policy Conditions
Policy Exclusions
General Policy Definitions
Section A: Property Damage Insurance and Business Interruption Insurance ...
POLICY CONDITIONS ...
4. CHANGE IN CIRCUMSTANCES
As a condition precedent to Our liability under this Policy, You must notify us in writing as soon as possible of any changes or alterations in your Business or the Premises, Property insured or any other subject matter insured under this Policy
(a) Examples of changes notifiable pursuant to this condition include but are not limited to: ...
(iv) changes to the type of work, processes or goods manufactured / sold by Your Business; ...
(vi) an increase in the amount and level of work away from the Premises;
(vii) a change in the turnover, number of people employed and wages paid ...
(b) Following any such changes, depending on the assessment of materiality, We may in Our absolute discretion:
(i) agree for cover under this Policy to continue to apply on the same terms notwithstanding the notified change or alteration;
(ii) amend the Policy to record the correct information;
(iii) restrict the cover provided under this Policy;
(iv) impose additional terms;
(v) alter the Premium;
(vi) cancel the Policy
There will be no cover for any claims under this Policy if notice is not given as required by this condition and there will be no cover provided following the giving of notice unless and until We agree for cover under this Policy to continue to apply on the same or amended terms. ...
General Policy Definitions
The following words or expressions shall have the meanings set out below for the whole of the Policy unless a more specific definition applies in an individual section.
Business The business description of the Policyholder as stated in the Schedule
Damage Accidental loss, destruction or damage
Increased Cost of Working
Means the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the Loss of Gross Revenue which but for that expenditure would have taken place during the Indemnity Period in consequence of the Damage
Limit of Indemnity The amount stated in the Policy and/or Schedule as being the maximum amount of the Insurer's liability in respect of any Event ...
Period of Insurance The period of time that the Policy is in force as shown in the Schedule
Premises The premises owned, occupied, leased or rented by the Policyholder as stated in the Schedule
Premium The monetary amount paid or payable by the Policyholder for coverage under the Policy
Property The material assets owned by the Policyholder ...
Schedule The statement of details specific to the Policyholder, forming part of the Policy
Sum Insured The sum stated in the Schedule, which corresponds with the relevant section.
SECTION A: PROPERTY DAMAGE INSURANCE AND BUSINESS INTERRUPTION INSURANCE
This insurance does not apply if shown as not insured in the Schedule.
1. GENERAL INSURING CLAUSE
If any of the Property Insured described in the Schedule suffers Damage by any of the covers insured during the Period of Insurance, the Insurer will in accordance with the provisions of the Policy pay to the Policyholder:
1.1 In respect of property damage insurance, the amount of loss or at the Insurer's option reinstate, repair or replace such property provided that the Insurer's liability in any one Period of Insurance shall not exceed in the whole the total Sum Insured or in respect of any item its Sum Insured or any other stated limit of liability.
1.2 In respect of business interruption insurance, the amount of loss resulting from the interruption or interference with the Policyholder's Business at the Premises caused by the Damage to the Property, provided that:
(a) the Insurer's liability in any one Period of Insurance shall not exceed in the whole the total Sum Insured or in respect of any item its Sum Insured or any other stated limit of liability;
(b) payment has been made or liability admitted by Insurers for the Damage under a Policy Covering the Interest of the Policyholder in the Property, all payments would have been made or liability admitted for the Damage but for the operation of a proviso in such Policy excluding liability for losses below a specified amount.
2. PROPERTY DAMAGE AND BUSINESS INTERRUPTION COVERS
The following are the covers insured unless stated as covers not insured in the Schedule. [...]
2.5 Escape of water or oil from any tank, apparatus or pipe excluding Damage:
- by water discharged or leaking from an automatic sprinkler installation; or
- in respect of any Building which is empty or not in use."
- Clauses 9, 10 and 11 of the Policy Wording for Section A identify the methodology for calculating any covered business interruption loss. The Section definitions used in these clauses are to be found in clause 18, they provide as follows:
Accidental means an unexpected, unintended or unintentional event, which occurs at an identifiable time and place.
Gross Revenue means the money paid or payable to the Policyholder for work done and services rendered, in course of the Business, at the Premises
Indemnity Period The period, beginning when the Damage occurs, ending when the results of the Business cease to be affected by the Damage, but not exceeding the Maximum Indemnity Period (as shown in the Schedule)
Insurable Amount In respect of business interruption, "Insurable Amount" shall mean the Gross Revenue which would have been earned in the twelve months immediately following the date of Damage, if the Damage had not occurred and allowing for trends in the Business or circumstances which would have affected the Business irrespective of the Damage occurring.
Standard Gross Revenue
means Gross Revenue which would have been obtained during the Indemnity Period, if the Damage had not occurred and allowing for trends of the Business or circumstances which would have affected the Business irrespective of the Damage occurring.
Turnover the money paid or payable to the Policyholder for work done and services rendered, in course of the Business at the Premises.
In the Definition of Estimated Gross Revenue and Insurable Amount, the amount of Gross Revenue shall be proportionately increased to correspond with the Maximum Indemnity Period where it exceeds twelve months.
- Sections 9, 10 and 11 provide:
"BUSINESS INTERRUPTION INSURING CLAUSES
Calculated on the basis of Gross Revenue (unless shown as not insured in the Schedule). Subject to the special provisions below the Insurer will pay as indemnity:
9.1 in respect of Loss of Gross Revenue:
the amount by which the Gross Revenue during the Indemnity Period shall fall short of the Standard Gross Revenue which would have been obtained during the Indemnity Period, if the Damage had not occurred and allowing for trends of the Business or circumstances which would have affected the Business irrespective of the Damage occurring in consequence of the Damage;
9.2 in respect of Increased Cost of Working:
the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the Loss of Gross Revenue which but for that expenditure would have taken place during the Indemnity period in consequence of the Damage:
but not exceeding the total of:
• The amount of the reduction in Gross Revenue thereby avoided; plus
• 5% of the Sum Insured by the item (but not more than £250,000).
10. UNDERINSURANCE IN RESPECT OF BUSINESS INTERRUPTION
If at the time of the Damage the Sum Insured is less than the Insurable Amount the amount otherwise payable shall be proportionately reduced.
11. SPECIAL PROVISIONS ...
11.2 Alternative Trading
If during the Indemnity Period services are rendered other that at the Premises, for the benefit of the Business, either by the Policyholder or by others on the Policyholder's behalf, the money paid or payable in respect of such sales or services shall be taken into account in arriving at the Gross Revenue during the Indemnity Period. ...
11.5 Savings
If any of the charges or expenses of the Business payable out of Gross Revenue cease or reduce in consequence of the Damage the amount of such savings during the Indemnity Period shall be deducted form the amount payable."
- As set out above, for these purposes:
i) "Policyholder's Business" is defined in the Policy Wording as "The business description of the Policyholder as stated in the Schedule".
ii) The Schedule described the business of Pro 2 Care as "Property owner of soon to be children's care home".
- As mentioned above, by an endorsement effective from 24 Sept 2022 the Policy was extended by increasing the Building Sum Insured to £1,000,000 for an Additional Premium in respect of "MD/BI" of £138.85.
Applicable Principles
- CPR r24.3 provides that:
"The court may give summary judgement against the claimant or defendant on the whole of the claim or an issue if-
(a) it considers that the party has no real prospect of succeeding on the claim, defence or issue; and
(b) there is no other compelling reason why the case or issue should be disposed after trial."
- In the LCD Appeals [2018] EWCA Civ 220, the Court of Appeal quoted with approval the following considerations applicable to summary judgment applications, taken from passages in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) and Swain v Hillman [2001] 1 All ER 91 at 94:
i) the court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospective success: Swain v Hillman;
ii) a "realistic" claim is one that carries some degree of conviction. This means they claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];
iii) in reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman;
iv) this does not mean that the courts must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10];
v) however, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgement, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;
vi) although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial that is possible or permissible on summary judgement. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Limited v Bolton Pharmaceutical Co 100 Limited [2007] FSR 3;
vii) on the other hand, it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. If it is possible to show by evidence that, although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgement because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v PTE Training Limited [2007] EWCA Civ 725; and
viii) a judge in appropriate cases should make use of the powers contained in Part 24. In doing so, he or she gives effect to the overriding objective as contained in Part 1. It saves expense; it achieves expeditions it avoids the court's resources being used up on cases where this serves no purpose; and it is in the interests of justice. If the claimant has a case which is bound to fail, then it is in the claimant's interest to know as soon as possible that that is the position: Swain v Hillman at [94].
- These are the principles that I have applied. The claim gives rise to short points of construction. I am satisfied that I have before me all the evidence necessary for the proper determination of the issues in the claim and that both parties have had a full opportunity to address those issues in oral argument. I should therefore grasp the nettle and decide these points.
Business Interruption
- Every policy must be read and applied on its face, but Probitas refers me to Riley on Business Interruption (11th Ed.), for a description of the broad purpose and operation of business interruption cover. The essence of such cover is said at para. 1.1, to address "the interruption risk within a business". The insured purchases insurance to mitigate the interruption risk in return for a premium. The insurance premium "will reflect the degree of risk involved".
- The Editors of Riley explain at para. 1.8:
"All around the world, the delivery of goods and services almost invariably requires investment in buildings, plant and equipment, as well as people; even virtual businesses incur an initial establishment cost. Any enterprise, be it a commercial business, a government organisation, or even a charity, will look to an income stream to finance or repay that investment. All these types of enterprise (described above) stand to be affected if as the result of damage caused by fire or an associated insured peril, their cash flow is interrupted, and part of their future earnings lost. Insurance is therefore necessary to afford protection against that loss of future earnings; and in the event of a claim a method of measuring that loss of future earnings must be applied.
Over the past hundred years or so, two basic methods for insuring and calculating loss of earnings have evolved and have been selectively followed by the various markets of the world. They are the "loss of turnover" basis used in the UK and the "gross earnings" or "business income" basis, used in the US".
- The standard methods for calculating Business Interruption loss are discussed in Riley in para. 1.9:
"... UK Business interruption insurance is based on a loss of turnover. That is true in the sense that turnover is the starting point for the calculation of loss for both gross profit and gross revenue policies. A gross profit policy then deducts costs (generally known as the uninsured specified working expenses) that a policyholder assumed would vary directly in line with any reduction in turnover, before adding increased costs incurred to mitigate loss and finally reducing the adjusted loss to reflect any actual reduction in other costs (that is other than those already deducted to calculate gross profit). A gross revenue policy streamlines that process by simply deducting the actual reduction in any costs that occurs ...".
Then at para. 1.10:
"Experience has shown that the proportionate effects for fire (for example) upon the earning capacity of a business can be readily and accurately measured, in most cases, by comparing the turnover in the months following the damage with that in the corresponding period, in the 12 months preceding it, subject to appropriate adjustments for special circumstances or trends of business. For example, if a fire causes interruption of business throughout October, November and December, the loss of turnover during those months can be found by means of a comparison with the turnover for October, November and December in the preceding year. In general, the loss of turnover during any other period of whatever length can be used as a yardstick for measuring the interruption of trading, subject provision being made for any necessary adjustments."
- Probitas says the delayed opening of a business is not what business interruption insurance ever insures against. It submits business interruption cover is easily distinguishable from Delay in Start Up cover or Advance Loss of Profits cover which do cater for such circumstances. As the Editors of Riley explain at paras. 3.13-15:
"3.13 Another form of dependency risk relates to investment in new projects, be they infrastructure, new production plants, or extensions to existing facilities. If these projects are delayed, then the anticipated revenue stream is likely to be affected. This is termed advanced loss of profits or delay in startup. The term advanced loss of profits (ALOP) tends to be used in relation to established businesses that are expanding their capacity at existing locations, whereas delay in start up (DSU) is the term more commonly used when dealing with new projects such as infrastructure (e.g. a new airport) or a major production facility (ego an oil refinery). A delay in completion of such a project is another risk that a business may face, yet the standard business interruption cover would be unlikely to engage because the building, plant or machinery may not be at the premises, and will not yet have been used by the insured for the purpose of the business. Unlike the other dependency risks discussed earlier in this chapter, separate cover will be required as opposed to an extension to an existing business interruption policy ...
3.14 ... [DSU] cover is triggered at the points an incident occurs that is likely to delay the project beyond the date that it would otherwise have commenced commercial operation, but for the action of the insured peril.
3.15 ... Unlike standard business interruption cover, the indemnity period under an ALOP or DSU policy does not commence with the date of an incident triggering the material damage cover. Instead the indemnity period will commence at a date in the future when revenues would otherwise have commenced ...
Reduction of turnover during the Indemnity Period is used as the index by which the loss is to be measured but because the facility will not have been in operation, or at any rate not at full output (otherwise the claim cannot arise), it has to be a reduction in anticipated turnover. The rate of gross profit is that "which but for the Incident would have been and on the turnover during the Indemnity Period." The standard turnover is that "which but for the Incident would have been earned during the Indemnity Period" and the annual (or comparative) turnover is "the Turnover which but for the Incident would have been earned during the Maximum Indemnity Period immediately following the date on which turnover would have commenced to be earned"."
- Probitas also refers to Riley at para. 8.3:
"Separate specific cover is required to address the risk of damage to a completely new factory, or major extension to existing premises, during the construction phase. Such property is, by its very nature, not yet being used by the insured and maybe at a location not specified in the policy. This cover is termed "advanced loss of profits insurance" or "delay in start up".
- And to the summary of Delay In Start Up Insurance in Construction All Risks Insurance (4th ed.):
"18-001 Delay in start up insurance ("DSU"), often taking the form of advanced loss of profit insurance ("ALOP"), provides cover for financial losses (i.e. loss of profit) caused by delay to the completion of the construction ... project as a result of physical damage. Other forms of DSU are "loss of revenue", "fixed costs only" or "debt service only", Each of which may give rise to different considerations. Although DSU is a separate class of insurance from that contained within the material damage section of the CAR [construction all risks] policy, it will normally be provided in conjunction with such cover.
18-002 DSU concerns not the immediate impact of the physical damage on the insured (i.e. the need to repair or rebuild the contract works), but the consequential effect that the damage has on the project as a whole. Because DSU is a separate class of insurance, it will be contained within its own section of policy, with its own definitions, policy limits and period of insurance (the latter being a crucial feature of the insurance) ... Although it bears obvious similarities to business interruption cover, having developed from and being based on standard precepts from BI, there is a significant practical difference between the two types of insurance, because in the case of DSU there will be no historical record of the profitability of the insured's business, which (by definition) will not have commenced commercial operations at the time the claim arises."
- Pro 2 Care says that these descriptions of business interruption insurance and Delay in Start Up insurance and Advance Loss of Profits insurance are of no assistance to Probitas because all policies turn upon their own wording. It adds that Probitas does not say that Pro 2 Care knew about Delay in Start Up Insurance when it entered the contract and Mr Malik says he did not.
Interpretation
- There is no dispute about the principles that apply in interpretating the Policy. The principles set out in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173 are discussed in some detail in Chitty on Contracts (25th edition) and in The Interpretation of Contracts (8th edition) by Sir Kim Lewison.
- The core principle is that an insurance policy, like any other contract, must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would have been reasonably available to the parties when they entered into the contract, would have understood the language of the contract to mean. Evidence about what the parties subjectively intended or understood the contract to mean is not relevant to the court's task: Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 at [14]; Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [15].
Did the Policy afford Business Interruption Cover?
- Pro 2 Care does not have more than a more than merely arguable case that the Policy afforded Business Interruption cover.
- The standard to be applied is that of an ordinary policyholder who, on entering into the contract, is taken to have read through the policy conscientiously in order to understand what cover they were getting. Although there are elements of the Policy which may superficially be taken to support the case that Business Interruption was insured, when the ordinary policyholder finished their reading they would have concluded that the policyholder had not obtained such insurance because the cover afforded to them under Section A of the Policy was limited to Property Damage insurance cover only.
- Turning to the Policy Wording, the principal relevant provision is the statement that "The Schedule attached to this Policy provides details of the Sections that are operative and the cover that has been agreed". Each of the headings used in the Schedule mirrors the heading of a Section of the underlying Policy Wording as set out in the table of contents. These same headings appear throughout the Policy Wording at the top of each individual Section or chapter.
- The first heading which appears on page 1 of the Schedule (and in the Policy Wording), is: "Section A: Property Damage & Business Interruption". Beneath the heading in the Schedule it is stated "Insured".
- Mr Taczalski submits the word "Insured" here appears in contradistinction to other Sections which are imperative, and stated to be "Not Insured".
- The word "Insured" is stated in the Schedule against each of "Section B. Money"; "Section E2. Public and Products Liability", "Third Party Bodily Injury and Third Party Property Damage"; "Section E4 Legal Defence Costs"; "Section E6. Legionellosis" and "Section G Fidelity Insurance". All Section headings used in the table of contents in the Policy Wording and headings which appear at the top of each of the relevant Sections or chapters of that Wording.
- At the end of the Policy Schedule, next to the words "Property Damage & Business Interruption", the Premium is stated to be £1,550.
- At first blush, the word "Insured" under the heading of Section A and the statement of the Premium in respect of Section A provide very promising support for Pro 2 Care's Defence. However, the conscientious reader would necessarily continue to read the remainder of the Schedule and Policy Wording in order to establish the actual details of the cover provided to the Insured under the operative Section of the Policy.
- In doing so, they would find that Section A includes two separate forms of insurance: Property Damage and Business Interruption under the combined Section heading. They would also find that Section A is divided into 17 separate parts.
- Certain of the clauses within Section A are common to both these forms of insurance. Other clauses in Section A are relevant to one only of the two different forms of insurance. For example, in respect of insurance for Property Damage: clause 3 (Property Damage), clause 4 (Underinsurance in respect of Buildings and Contents) and clause 12 (Extensions Applicable to the Property Damage Section Only). And, in respect of Business Interruption insurance: clause 9 (Business Interruption Insurance Insuring Clauses), clause 10 (Under Insurance in respect of Business Interruption) and clause 13 (Extensions Applicable in respect of Business Interruption Only).
- As a result, the fact that Section A was stated in the Schedule to be "Insured" would not automatically necessitate the conclusion that each and every element within Section A was operative without more.
- The Policy Limits element of the Schedule for "Section A Property Damage and Business Insurance" directs the reader to the "Schedule of Values and Deductibles Section". The "Schedule of Values and Deductibles Section" for Section A is devoted to Property Values.
- The table comprising the "Schedule of Values and Deductibles Section" is entitled "Property Values". The "Property Values" are stated to relate to the "Insured Premises". The Insured Premises are defined in the table as "Cloughside House". There is no reference to the Business.
- The table contains a "Sum Insured" for the Buildings; a "Sum Insured" for the Contents; and a "Sum Insured" for Computers. Three "Sums Insured" which total £1,015,000.00.
- Zeros appear in the "Property Values" table for "Sum Insured" against "Residents Possessions"; "Freezer Contents"; "Stock"; "Rent Receivable"; "Rent Payable" and "Subsidence" in respect of the identified Insured Premises.
- There are no Policy Limits in the "Schedule of Values and Deductibles Section" for any cover provided under Section A for Business Interruption.
- The Policy Excess element of the Schedule for "Section A Property Damage and Business Insurance", directs the reader back to the "Schedule of Property Values" for the Insured Premises to identify the relevant figures. In the table, figures of £250 appear as the stated "Deductible" for each of the Buildings, the Contents, and the Computers. No other excess is stated for the purposes of Section A.
- Mr Taczalski submits in his Skeleton Argument that:
"nothing stated that BI was being treated separately and was not insured; contrast where parts of Section A were not operative, for example "rent receivable" and "rent payable".
And:
"The Policy treats Property Damage and Business Interruption together under Section A, and there is only one "Sum Insured" which could sensibly be a "Sum Insured" corresponding to the relevant section - and that is the figure given for Buildings Sum Insured of £900,000, which was then increased to £1m by endorsement (where the premium is expressly said to be in respect of MD/BI). Pro2Care's position is that there are two separate indemnities provided by the Section A insuring clause, and so the figure applies separately to each."
- I cannot agree with these submissions. The Schedule set out the relevant details for the purposes of insurance under Section A in respect of Property Damage to the itemised elements of the Insured Premises only. There is nothing in the plain and ordinary language which supports Pro 2 Care's submission that the parties intended that the Sums Insured for Buildings, Contents and Computers at Cloughside House are properly to be interpreted as including or adding Business Interruption cover for the purposes of Section A.
- This literal reading accords with commercial common sense. The reader would expect the stated figures to represent the market valuations of the Property described.
- Similarly, in respect of the "Insured" "Section B. Money", the reader of the Schedule is again directed twice to the "Schedule of Values and Deductibles Section" for the relevant details of the Policy Limits and Excess for Section B. In this Schedule of Values, the "Money Risks" table sets out a series of specific items with the corresponding "Sum Insured" and the deductible applicable to each.
- As regards the remainder of the Policy Limits, the parties included a series of specific sums within the body of the Schedule for each of the other "Insured" Sections: "Section E2 Third Party Bodily Injury £5,000,000"; "Section E2 Third Party Property Damage £5,000,000"; "Section E4 Legal Defence Costs"; "Section E6 Legionellosis £1,000,000"; "Section G Fidelity Insurance £100,000". The Excess section lists the excess applicable in the case of each category of insurance afforded under the relevant Sections.
- In contrast to the express treatment of the Property Damage element of Section A in the Schedule, and in contrast to the treatment of each one of the other operative Sections, nowhere within the Schedule would the conscientious reader find the critical information which any insured Policyholder would require in respect of the Sum Insured and the Excess if the Policy also afforded cover against Business Interruption.
- I do not consider the Additional Policy Subjectivities take matters further here. The language is apparently pro forma language. It confirms that Covid 19 could not be relied upon in respect of any aspect of the Policy; including Property Damage.
- Turning to clause 1 of the Policy Wording, Pro 2 Care relies upon the fact the heading "Section A: Property Damage Insurance and Business Interruption Insurance" is followed by the words: "This insurance does not apply if shown as not insured in the Schedule". These same words appear beneath all the Section headings throughout the Policy Wording. For the reasons set out above, I do not consider this wording takes matters further.
- As to clause 1 of the Policy Wording itself, the words "any of the Property Insured described in the Schedule" necessarily apply for the purposes of each of clause 1.1 and clause 1.2. As Mr Robinson submits, there is logic to this. The event that will interrupt an ongoing business in the context of a property policy is property damage: something that happens to the premises where the business is being run that prevents it from operating. Section A(2) of the Policy details such risks: fires, explosions etc.
- To the reader of clause 1, it would be readily comprehensible that Section A contains provisions which relate to the two separate forms of "insurance" as described in Section A: "Property Damage insurance" and "Business Interruption insurance". This is reflected in the division of clause 1 into clause 1.1 "in respect of property damage insurance" and clause 1.2 "in respect of business interruption insurance".
- There is no "and" between clauses 1.1 and clause 1.2. These are separate covers. The fact that there is Property Damage insurance under clause 1.1 does not necessitate the conclusion that there must also be Business Interruption insurance under clause 1.2.
- In accordance with the general insuring clause, a payment in respect of Property Damage insurance under clause 1.1 must be made by reference to "such Property" and the "Sums Insured" in the Schedule for the "Period of Insurance". As explained in the Schedule, the Property identified for these purposes is described in the Schedule of Property Values and Deductibles for the Premises. It is the Buildings, the Contents and the Computers as described. The relevant "Sums Insured" in the Schedule are specified to total £1,015,000.00 for the purposes of clause 1.1. The "Period of Insurance" specified is the year 24 September 2022 to 23 September 2023.
- Business Interruption insurance cover is described in clause 1.2 as "the amount of loss resulting from the interruption or interference with the Policyholder's Business at the Premises caused by the Damage to the Property". I discuss the important matter below of the "Policyholder's Business" as defined in the Schedule, and there is overlap here with the arguments discussed in respect of the issue of insured interest. However, for present purposes, the reader of the Policy knows that no children's care home is in operation at the Property on 24 September 2022.
- In contrast to the provision in the Schedule of all relevant details necessary for the calculation of the payment in respect of Property Damage insurance under clause 1.1, it would be readily apparent to the reader that the Schedule contains none of the requisite details that would be required to calculate any Business Interruption insurance payment under clause 1.2 of Section A to the Policy. In particular, and by reference to clause 9, the Schedule does not state the "Maximum Indemnity Period" and the "Sums Insured".
- For the purposes of clause 1.2, the amount of loss resulting from the interruption or interference with the Policyholder's Business at the Premises caused by the Damage to the Property must be calculated in accordance with clause 9 of Section A "on the basis of Gross Revenue (unless shown as not insured in the Schedule)". "Gross Revenue" is defined as "the money paid or payable to the Policyholder for work done and services, in course of the Business, at the Premises."
- Pro 2 Care submits that the words:
""unless shown as not insured in the Schedule" reiterate that if there is no cover, then this will be specifically identified on the Schedule. The Schedule says the opposite. It said "insured" under "Property Damage & Business Interruption", and it does not disapply the Gross Revenue method of calculation."
Second, where there is Business Interruption insurance then (subject to detail of the calculation in the defined terms) it is a gross value calculation.
- It is correct that there is no express statement "shown in the Schedule" that "Gross Revenue" (or Business Interruption) was "not insured". However, I consider this to be of little weight when the words "Gross Revenue" are not found in the Schedule at all. All the more so when the reader would understand that the Business had no "Gross Revenue" at the date the Policy incepted. The relevant matrix of fact is that the parties knew that there was no care home in operation at the Property and no money paid or payable to Pro 2 Care for work done and services in course of the Business at the Property.
- As mentioned above, the conscientious reader would also find no mention of the relevant "Maximum Indemnity Period" in the Schedule. The "Maximum Indemnity Period" is defined in the Policy Wording for Section A as:
"The period, beginning when the Damage occurs, ending when the results of the Business cease to be affected by the Damage, but not exceeding the Maximum Indemnity Period (as shown in the Schedule)".
The ascertainment of this maximum period is required for the purpose of identifying the Business Interruption Indemnity Period to which reference is made in clause 9.
- Pro 2 Care submits that the omission of any stated Maximum Indemnity Period is immaterial. The insurer "can specify a maximum indemnity period in the Schedule, but that was not done". In the absence of any stated Period, Mr Taczalski says that the only relevant question in applying clause 9 is when the "Business" ceases to be "affected by the Damage".
- Taking the example of the Damage which occurred on 21 December 2022, Pro 2 Care submits this means that the Maximum Indemnity Period under the Policy would only end when Pro 2 Care is in the same position as it enjoyed when the Damage occurred. That is, when the Damage is repaired and the care home business is within a few months of opening. On the present facts, in the summer of 2025.
- The omission of any reference in the Schedule to the "Maximum Indemnity Period" is a factor which undermines Pro 2 Care's case that Business Interruption cover was provided on the true interpretation of the Policy. This is an important element of the machinery to which express reference is made in clause 9 for the purposes of calculating any Business Interruption insurance payment.
- In accordance with proviso (a) to clause 1.2, the payment of Business Interruption insurance was also to be capped in respect of "the total Sum Insured or in respect of any item its Sum Insured or any other stated limit of liability". However, as mentioned, the Schedule does not contain any details of a "Sum Insured" or "Sums Insured" for the purposes of the Business or Business Interruption insurance. Again, a telling omission in this context.
- Pro 2 Care's position that the figure given for the Buildings Sum Insured of £900,000 (increased to £1,000,000 by endorsement), must "sensibly" apply separately as both the "Sum Insured" for the Property Damage insurance calculation under clause 1.1 and for a Business Interruption insurance calculation under clause 1.2 clutches at straws. It does not accord with the ordinary meaning of the words used and flouts common sense.
- On the true interpretation of the Policy, no Sum Insured was stated in the Schedule for Business Interruption insurance.
- Pro 2 Care submits that proviso (a) to clause 1.2 is only relevant here (and also with regard to the issue whether Pro 2 Care had an insured interest), to the extent of the indemnity for Business Interruption insurance; not to whether it should be provided at all. Pro 2 Care says it is sufficient that the indemnity in the opening words of clause 1 is triggered because the only further provision which must be satisfied in order for Probitas to be obliged to make a payment of Business Interruption insurance to Pro 2 Care under clause 1.2 of the Policy is that Property Damage as described in clause 1 and clause 1.2(b) has been admitted or paid.
- I do not agree. The extent of the indemnity provided under any insurance policy is a matter of fundamental importance to Insurer and Policyholder. Insurance is not provided in the commercial market on a limitless basis.
- As I read clause 1.2, each of the two provisos to clause 1.2 was intended to be applied as a pre-requisite to the payment of any Business Interruption insurance that was the subject of cover under Section A of the Policy. In the absence of a "total Sum Insured or in respect of any item its Sum Insured or any other stated limit of liability", this important proviso was rendered redundant.
- In circumstances where the only details of the cover agreed for the "Insured", and hence operative, Section A of the Policy in the Schedule were "Sums Insured" for Property Damage, I consider that the conscientious reader would have concluded that the operative element of Section A was the Property Damage insurance component of the Policy only. The Policy is a business policy. It makes no objective commercial sense to conclude that Business Interruption insurance cover was provided without any statement of the relevant details or any stated limits for the purposes of the Insured making any Business Interruption insurance claim, or the Insurer making any Business Interruption payment under the Policy.
- Within the context of a Policy where the critical definition of Pro 2 Care's "Business" was stated in the Schedule as "Property owner of soon to be children's care home", I consider the conscientious reader would also find (a) the provision of Property Damage cover under Section A and (b) the non-provision of Business Interruption insurance under Section A, to be unsurprising.
- In considering the operation of the machinery above, I should add that I do not effectively seek to transform the quantification machinery into a form of exclusion to take away cover that is provided by the insuring clauses. In my judgment, the insuring clauses do not provide Business Interruption cover here.
- For the reasons set out above, I do not consider that there is genuine ambiguity in the Policy, such that the ambiguity should be construed contra proferentem against Probitas: see, for example, the discussion in MacGillivray (15th ed), at 11-033.
- Subject to my conclusion as to the defence of waiver, it follows that Probitas is entitled to summary judgment in respect of its claim for a declaration.
The Dispute as to the Extent of the Matrix of Fact
- There is a fundamental dispute between the parties as to whether the 2021 Quote, 2021 Market Presentation, 2021 Policy, 2022 Market Presentation and 2022 Quote are admissible as an aid to construction of the Policy. Probitas says Business Interruption cover was never sought, nor quoted for, and never written.
- Mr Taczalski submits Mr Mackie has made "numerous assertions" in his Witness Statements as to what would or would not have been quoted for and when and how, which are, Mr Taczalski says, "surprising" and "probably wrong" and should be tested at trial. These include Mr Mackie's statement that Bollington/Gallagher (as a broker) will not quote for Business Interruption cover "unless an insured requests business interruption cover" and, if there was to be a quote for Business Interruption, that "both Bollington and Probitas would expect to see a business plan submitted in support of the application for insurance".
- Mr Taczalski submits the most "egregious overstatement" is Probitas' reliance on the Quotes and that "Probitas' entire case is built on the basis of the receipt by Pro 2 Care of a quote in 2021 which Mr Malik's (uncontradicted) evidence is that he did not receive." Against this background, Mr Taczalski says the fact the Policy was supposed to be a renewal on the same terms as the 2021 Policy is the only relevant fact that the Court can or should take into account. He adds that all that this explains is why Mr Malik says he limited his reading of the 2022 Quote to the Premium only, and did not read anything more.
- For the purposes of this summary judgment application I have not sought to determine any disputed matters of fact which could only be resolved following disclosure and evidence at trial. For the reasons I have explained above, I have not relied upon the content of any of the additional documentary material exhibited by Probitas in order to reach my decision that, upon its true interpretation, the Policy did not provide Business Interruption insurance to Pro 2 Care.
- As explained in FCA v Arch Insurance [2021] AC 649 at [47], for example:
"... the core principle is that [a contract] must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, could have understood the language of the contract to mean".
- For these purposes, pre-contractual negotiations are "admissible to establish that a fact was known to both parties" but "not generally admissible to interpret the concluded written agreement"; as explained in Lewison on the Interpretation of Contracts, cited with approval in BNP Paribas Depositary Services Ltd v Briggs & Forrester Engineering Services Ltd [2024] EWHC 2903 (TCC) at [23], as referred to by Mr Taczalski.
- Whilst the factual matrix cannot "trump" the language of the document being considered, and cannot be used to create ambiguity where none exists in the document, I consider that the relevant matrix of fact here would also be capable of including the 2022 Quote which Pro 2 Care received. Except in so far as the Policy was subsequently endorsed to increase the level of Buildings cover, the 2022 Quote was not part of a pre-contractual negotiation.
- The Policy is the product of the offer contained in the 2022 Quote which Pro 2 Care accepted when they signed the contractual Policy documents and the Premium was paid. As a matter of fact, the 2022 Quote states on its face that the "Sum Insured" for Business Interruption is "N/A" with an indemnity period of "N/A". The Property Values which are the subject of the 2022 Quote are for the Buildings, Contents and Computers. The Sums Insured are identical to those set out in the Policy. The Premium offered is identical to the Premium in the Policy.
- The 2022 Quote included cover for Property Damage. It did not offer cover for Business Interruption insurance.
- Interpreting the Policy objectively by asking what a reasonable person, with the background knowledge of the 2022 Quote available to the parties when they entered the Policy, would have understood the language of the Policy to mean, they would have understood that the cover afforded under Section A "Property Damage and Business Interruption" was in respect of Property Damage only and that the Policy did not afford Business Interruption insurance cover. The Premium payable and paid by the Insured for cover was a premium for Property Damage insurance.
Delay in Start Up Cover / Advanced Loss of Profits Cover
- I have not taken into account the fact there were other forms of insurances which might have been purchased in either construing the Policy or considering Pro 2 Care's insurable interest.
Was there ever a Business which was interrupted?
- If I am wrong in my construction of the Policy, and the Policy did indeed afford Business Interruption cover to Pro 2 Care, this cover could only attach to an insured interest. That is a Business carried out at the Property.
- Pro 2 Care does not have a more than merely arguable case that the Business Interruption cover afforded by the Policy engaged Business Interruption cover.
- Probitas says that at the time the Policy incepted, and at the time of the bursting of the water pipes said to give rise to Business Interruption losses on 21 December 2022, there was in fact no business being carried out at the Property. Specifically, there was no children's care home business being run from the Property and no children's care home business that was generating revenue at or from the Property.
- Pro 2 Care submits that:
"Probitas' Skeleton persists with the submission that there was no business, because there was no revenue before the Water Damage, and somehow the description of the Business on the Schedule demonstrates that there was no business at the time. With respect, this is nonsense and does neither Probitas nor its legal team any credit. Almost every business has a lead in time while it is developing or purchasing the assets it needs to earn revenue; they are no less operating a business during the time that they're setting up, than after they have their first paying customer."
- In oral submissions, Mr Taczalski described a business as something of a living organism with a life cycle. He said "it is no less a business before it earns its first £1". To this end, Pro 2 Care draws upon the factual steps that it had taken as a business in 2021 and 2022, as summarised in the Factual Background above.
- Pro 2 Care says it is relevant that the Policy itself was not simply a property owner's policy, but a "Combined Care Home Wording" policy. That this reflects the fact known to both parties that Pro 2 Care had bought the Property, a business asset, and was developing it to use as a care home.
- It says the Property was being developed in the course of a business and the development was part of the business to enable it to earn revenue. It was therefore obvious that if there was damage to the Property insured, the business of owning the Property and soon operating a children's care home may be interrupted, with financial consequences for Pro 2 Care.
- Pro 2 Care says that whether or not there is value to the indemnity it submits was provided to it under the Policy depends on the calculation prescribed by the Insurer in the Policy. As described in clause 9, the calculation requires the identification of the "Standard Gross Revenue" and then actual "Gross Revenue" during the Indemnity Period. The amount of the indemnity is the difference between the two. In circumstances where no Gross Revenue had ever been generated; the Gross Revenue is nil; and the "Standard Gross Revenue" is the result of a hypothetical calculation on a forward looking basis. Pro 2 Care says this calculation can properly be carried out using its November 2022 business plan and projections based upon an opening in February 2023.
- Mr Taczalski submits that the definition of the "Indemnity Period" as "ending when the results of the Business cease to be affected by the Damage" actively supports Pro 2 Care's case in this regard. Mr Taczalski says that "results" means "performance or what the business is doing". Accordingly, that the Business did not need to be an operational business at the date of the Damage (or the inception of the Policy), in order to have an insurable interest. He says that if Probitas had wished to limit the relevant "results" to financial results, it should have done so. Without any qualification by reference to financial results, Probitas cannot contend that the Policy circumscribed the type of business relevant for the purposes of Business Interruption insurance to a business that was earning.
- Whilst Pro 2 Care is correct in describing the life cycle of a business in general terms, the matter at hand is the interpretation of the Policy and the definition of "Business" as set out in the Schedule and used in the Policy. As defined, there was no care home business in operation at the Property insured when the Policy incepted or, indeed, at the date the water damage occurred. The Policyholder had no income stream, cash flow or turnover which stemmed from an operational business at the Property and which required protection.
- I agree with Mr Robinson that it is inherent in the concept of Business Interruption that there is a business, in the sense of a corporate entity offering goods and services in exchange for money, that is ongoing when the interruption occurs. Owning and developing a Property that is soon to be used to accommodate a children's care home business is not a children's care home business in the sense referred to in clause 1.2 and clause 9 of the Policy. The very fact that any relevant calculations are to be carried out by reference to the "Gross Revenue" of the Business, that is its income stream, clearly encapsulates that concept here.
- Pro 2 Care submits that Probitas' assertions that clause 9 cannot operate are wrong and "divorced from reality". However, I cannot accept Mr Taczalski's submissions as to the true interpretation of clause 9 when the Business was that of a "Property Owner of a soon to be children's care home" at the date of inception and Damage. The natural meaning of clause 9 reflects the existence of a business presently capable of generating Gross Revenue. Pro 2 Care's entirely forward facing construction of the clause is counter-intuitive. The clause is not premised on that basis or written in that way.
- There is no means by which effect can be given to the contractual methodology for the calculation of business interruption losses at Section A clause 9 when no business was ongoing at the Property and no revenue was being generated from the carrying out of a business at the Property. It is only in respect of "work done and services rendered" that an insured can earn Gross Revenue as defined.
- The definition of Standard Gross Revenue requires the identification of the revenue that would have been earned during the Indemnity Period if the Damage had not occurred. The sum recoverable is the relative reduction in earnings during the period the Damage is causally effective. In this case, neither "Gross Revenue" (which was nil) nor "Standard Gross Revenue" can be calculated, and nor can the difference between the two.
- I also cannot agree that the word "results" should be read as Mr Taczalski contends for the purposes of the Indemnity Period under clause 9. This is an unnatural interpretation of the language where the relevant exercise to be carried out to establish the Business Interruption insurance payable during the Indemnity Period requires a financial comparison between the Business' Gross Revenue and Standard Gross Revenue.
- In my judgment, it is of the essence of Business Interruption insurance that the cover indemnifies against the risk of an interruption to business income. That is a partial or total loss of business revenue by reason of an insured event. Not only is this a matter of principle, it is also apparent from the Policy Wording:
i) the general insuring clause in Section A at 1.1 of the Policy Wording requires Pro 2 Care to prove a loss or interference with the Business at the Property;
ii) the Business Interruption Indemnity Period commences on the date when the Business at the Property / Premises is interrupted by the Damage;
iii) the Policy calculates the loss recoverable by an insured as being the loss of Gross Revenue during the Indemnity Period which starts on the date of Damage plus any additional expenditure incurred to avoid or diminish the loss of Gross Revenue; and
iv) it is a reduction or loss of actual revenue that is covered.
- In these circumstances, the Policy could not and did not respond to afford Business Interruption cover to Pro 2 Care, because there was no care home business being run from the Property that was capable of being interrupted, by reason of the physical water damage caused by the burst pipes or otherwise. There was no causative loss. The Defendant did not suffer any "Loss of Gross Revenue" due to Business Interruption because (a) there was no care home business and (b) there was no Gross Revenue earned at the Property before or after the Damage occurred.
- As Mr Malik put matters himself in his 6 January 2023 email to Gallagher, Pro 2 Care's care home was not "operable" at the Property when the Damage occurred.
- With regard to this issue, Pro 2 Care also relied upon Lawrence J's classic description of an insurable interest in Lucena v Craufurd (1806) 2 Bos & PN R 269 at 302:
"A man is interested in a thing to whom advantage may arise or prejudice happen from the circumstances which may attend it ... and where a man is so circumstanced with respect to matters exposed to certain risks or dangers, as to have a moral certainty of advantage or benefit, but for those risks or dangers, he may be said to be interested in the safety of the thing. To be interested in the preservation of a thing, is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction".
- Mr Taczalski submitted that there is no conceptual or legal difficulty in the Policy insuring the future operation of the children's home. He relied upon Coromin Ltd v AXA Re [2008] Lloyd's IR 467 at [100], where Cooke J said:
"Reinsurers seek to rely upon an implied term to limit the word "business" in the BI section of the policy to "business which was being carried on by the assured during the period of the policy" having previously asserted an implied term limiting it to business carried on at the date of damage. In my judgement the implication of either term is not necessary not even reasonable."
- It is, of course, possible for insurance to be afforded in respect of future operations if that is what has been agreed under an insurance policy. However, I have read the judgment in Coromin carefully, and I do not consider that it provides any additional assistance to Pro 2 Care here in interpreting the Policy. The facts were entirely different. It was the broad definition of "business" in the policy in Coromin which was the reason for Cooke J's judgment. The insured was already running a business and the case concerned the proper interpretation of the extension for newly installed plant and equipment.
- Whether Pro 2 Care is right that it could have opened its care home business at the Property in February 2023 or Probitas is right that it is "entirely plausible" the earliest the Property could or would have opened for business, but for the water damage, was sometime in the summer of 2023, or perhaps even after the Policy expired in September 2023, I agree with Probitas that what Pro 2 Care "lost" in this case was its hope of starting a care home business from a particular future date.
- Absent an insurable interest, Pro 2 Care's Counterclaim for damages for Business Interruption based upon the sums set out in its business plan of November 2022 is fatally flawed.
- Subject to my decision in respect of the defence of waiver, it follows that Probitas is entitled to summary judgment in respect of its claim for a declaration.
Waiver
- Pro 2 Care's pleaded case in the Defence and Counterclaim (para. 22), is that even if it is wrong, and Business Interruption cover is not provided by the Policy, Probitas waived any right to rely on a defence on liability under the Policy (as opposed to quantum), and to assert that Business Interruption was not covered. Pro 2 Care pleads (para. 23) that Probitas agreed to indemnify it for Business Interruption losses in light of Lloyd's request in March 2024 that Probitas reconsider its position. This is denied at paragraphs 23-25 of the Reply.
- The allegation of waiver does not form a more than merely arguable defence to the Claim.
- The requirements for the waiver by estoppel upon which Pro 2 Care relies are agreed by the parties and described, for example, in Kosmar Villa Holidays Plc v Trustees of Syndicate 1243 [2008] 2 All ER (Comm) 14 at [38]:
"It requires a representation, in words or conduct, which must be unequivocal and must have been relied upon in circumstances where it would be inequitable for the promise to be withdrawn"
Pro 2 Care says these requirements are satisfied in this case.
- On 12 February 2024, Probitas wrote to Mr Malik in response to his complaint to them on 29 January 2024 about the refusal of Pro 2 Care's Business Interruption claim. Probitas said the Policy could have been clearer as excluding Business Interruption cover from scope, but that "it was clear that Business Interruption was excluded in the quotation provided". They provided the details for Complaints at Lloyd's.
- Pro 2 Care made complaints to Lloyd's about Probitas' refusal of Business Interruption cover. This was an extra-contractual complaint. The way in which Lloyd's handles such complaints is not binding on the parties, or indicative of the way in which a policy should be read.
- At this same time during February and March 2024 the correspondence demonstrates that Mr Malik was in regular contact with the loss adjuster at Mclarens regarding interim payments for the Physical Damage claim and tenders. There were, for example, email exchanges on 12 February 2024, 13 February 2024, 14 February 2024, 26 February 2024, 27 February 2024, 29 February 2024, 5 March 2024, 8 March 2024, 12 March 2024, 13 March 2024, 15 March 2024, 18 March 2024, 19 March 2024, 20 March 2024 and on the morning of 21 March 2024. This contact in respect of Property Damage continued thereafter.
- On 21 March 2024 Lloyd's completed its investigation of Pro 2 Care's complaint and summarised their response and conclusion in an email to Mr Malik (at 12.06). Lloyd's summary was that Mr Malik's complaint concerned his "dissatisfaction" that the Business Interruption claim had been declined. They said, underwriters had declined the claim "as they have stated BI is not covered under this policy ... underwriters have informed you that the policy was written to provide property damage but not BI". However, Mr Malik's position was that Pro 2 Care "expected the care home would have had residents from February 2023 and therefore expected to generate profit from then."
- Lloyds's email concluded (1) Business Interruption cover was not listed in the Values and Deductibles section of the Schedule; (2) the Policy could have been clearer in separating out Property Damage from Business Interruption cover and that (3) Probitas "have agreed to reconsider your claim under the remaining terms and conditions of the policy, providing you can evidence any loss of earnings to them".
- Mr Malik contacted Probitas by email on the afternoon of 21 March 2024. He wrote:
"Further to the complaint raised with Lloyds, please see below the final response. I understand from this that you are happy to consider the BI claim and require further information to assess the loss. I can send you a copy of our business plan with our financial forecasts, our submitted accounts to Companies House and if required can have management accounts prepared. The property damage claim is in process ...
If you anticipate the review of the BI claim to take long, can any interim payments be made to cover urgent bills and salary?"
- Probitas' Head of Compliance replied to Mr Malik on 21 March 2025 (14.22pm):
"From my perspective the complaint is now resolved.
My claims colleagues will now assess the BI claim and will be in touch as to what you need to provide to evidence loss of earnings. @Stephen Holmes please could you get in touch with Mr Malik on this."
- Stephen Holmes wrote to Mr Malik (14.34pm):
"The adjuster .... has been made aware of the BI position too and will be in touch with you on this aspect shortly".
- Mr Malik then wrote to Mclarens (14.49pm):
"Thanks for the update [in relation to Property Damage].
I understand from Probitas that the business interruption claim will now be considered following an investigation by Lloyds and that Stephen Holmes has updated you regarding this.
This may have implications on your tender review ...
While the business interruption and tender is under review are we entitled to any interim payments to cover our urgent bills such as the property loan repayments and salary?"
And (17.12pm):
"Please tell me what you need from me in order to assess the business interruption claim? I can send you our business plan which includes the financial forecast from February 2023 and I can also send the accounts we submitted to Companies House. I can also have management accounts prepared if required."
- On 22 March 2024, Mr Malik wrote again to Mclarens (6.31pm):
"Did you ascertain what you need from me for the business interruption claim?"
- Mclarens replied on 26 March 2024:
"Its being reviewed with our accountant and I will get a list to you asap."
Mr Malik responded by return:
"I might need some time to get the items together, so the sooner I can get the list the better.
Are you looking to settle the property damage claim and business interruption together or do you anticipate the business interruption to take a while and therefore settle the property claim first? Are you still going to come back to me this week on the tender?"
- On 3 April 2024, Mclarens replied to Mr Malik:
"Insurers have requested that we consider a potential Business Interruption claim. I cannot see any reference within the policy schedule to indicate that this cover had been selected. ... I therefore await insurers confirmation as to the cover that has been arranged and relevant policy limits in this regard.
...
In order to determine the potential value of any claim, for Gross Revenue less any savings made as a result of not being operational, (based on policy definitions) we will require: ...".
- Mr Malik replied on 3 April 2025 and included some information. He asked about the period for which management accounts would be required. He suggested finalising the Property claim if Mclarens anticipated "the BI process to take long", and asked for a response on the tender.
- Mclarens replied on 17 April 2025 that they awaited management accounts "for the period you wish to claim for if available". They said the projections Pro 2 Care had provided were "just projections"; that "an ROA of 25% from the outset is an extremely ambitious projection"; and they could not recommend an interim payment because the projections provided "don't sufficiently demonstrate a substantial loss". They asked a series of further questions.
- Mr Malik responded on 18 April 2025:
"Management accounts would need to be prepared if required, please let me know if you think it will help with the assessment of the claim or will add any value to it?"
- On 22 April 2025, Mclarens informed Mr Malik:
"Further to our requests for information surrounding your business interruption claim, we are reviewing with our forensic accounting team to determine if the projections are realistic and achievable.
...
We have received evidence of your monthly mortgage payments, but no further demonstration of your fixed costs has been provided, which will need you to evidence with appropriate documentation. Please evidence all costs being incurred by the business. We are reluctant to request all management accounts at significant costs if you are able to demonstrate the costs being incurred without them, and on the basis that they are unlikely to give us enough information nation beyond that.
Interim Payment Request
Based on the matters set out above, we are not in a position to confirm and indemnify business interruption loss at this stage based on the information submitted and therefore cannot request an interim payment under the business interruption aspect of the claim.
However, it has been highlighted to us through these submissions that your mortgage account is in arrears and based on your previous e-mail it appears further payment will be due on Wednesday.
We can therefore recommend insurers arrange an interim payment of £10,000 without prejudice to liability for any business interruption loss. For the avoidance of doubt, any liability of Insurers for Business Interruption under your policy remains to be determined and Insurers rights are fully reserved in this regard. It should be noted that this payment does not mean your Business Interruption claim is covered. This payment may be offset against the outstanding Property Damage claim."
- Correspondence with solicitors took place in June 2024. The claim was declined on 4 July 2024.
- After a further complaint was subsequently made by Pro 2 Care to Lloyd's in relation to both interim payments for the Property Damage claim and the Business Interruption claim, on 19 July 2024 Lloyd's final response to Pro 2 Care stated:
"I understand that in line with a previous complaint final response, underwriters have reassessed your business interruption claim, and this has subsequently been declined.
... I note as a result of my colleague's response to your previous complaint, underwriters were asked to reconsider your claim under the remaining terms and conditions of the policy because your policy schedule was unclear as to whether BI coverage had been taken out as part of your insurance coverage. However, as a result of the re-assessment underwriters have concluded there is still no business interruption loss that the policy can respond to ...
As Lloyd's indicated in their email of 21 March 2024 Insurers have been requested to "reconsider" any Business Interruption claim. Insurers have done so. However, as explained above, there is no Business Interruption cover given in the policy. ...
Having reviewed your policy wording and the available evidence, I agree that there is no business interruption claims underwriters to consider. Your intended children's care home business was never established or operating. I understand that operating in the sector required an application to Ofsted and such an application had not been made at the time of the insured event. So even if underwriters were to accept business interruption cover in place, there is no BI loss for them to assess as there was no business in existence. As stated above, the loss you are claiming for here would require a specialist policy in the form of delay in start-up cover."
- Pro 2 Care says that Probitas' statements in the emails that followed Lloyd's email of 21 March 2024 amounted to the necessary unequivocal representations that its business interruption claim was accepted. Pro 2 Care says it relied on these representations to its detriment by proceeding to spend time engaging with the loss adjuster and, in the circumstances, that it is inequitable for Pro 2 Care to resile from the representations.
- Mr Taczalski submits there was a not insignificant period of to-ing and fro-ing, with Pro 2 Care engaging to try and satisfy Probitas and its loss adjuster, before Probitas reverted to its previous position of denying Business Interruption cover in its entirety. He says the issue of waiver is a triable issue. In particular, he also notes there would be a question for the trial judge as to the extent of Pro 2 Care's reliance, and whether this makes it inequitable for Probitas to resile.
- It is Probitas' case that Probitas never changed its position. There was no representation and no reliance. Lloyd's email recorded that they had declined the claim. All that Probitas was said by Lloyd's to be willing to do was to reconsider the claim. That is what then happened. The claim was reconsidered and declined. At no stage did Probitas commit itself to accept the claim.
- I agree with Probitas that it did not make any representation that the Business Interruption claim it had declined was now accepted as a valid claim. In response to the complaint made to Lloyd's, all that Lloyd's communicated that Probitas had agreed to do was to reconsider the claim as a whole. Whilst Pro 2 Care seeks to rely upon its engagement with Mclarens as a result of the representations that it alleges were made to it on / after 21 March 2024, Mclarens' emails of 3 April and 22 April 2024 clearly recorded that the claim had not been accepted.
- On the basis of the material relied upon by Pro 2 Care, there is no substance to this defence.
The section 13 Claim
- Section 13A of the Insurance Act is headed "Implied term about payment of claims":
(1) It is an implied term of every contract of insurance that if the insured makes a claim under the contract, the insurer must pay the sums due in respect of the claim within a reasonable time.
(2) A reasonable time includes a reasonable time to investigate and assess the claim.
(3) What is reasonable will depend on all the relevant circumstances, but the following are examples of things which may need to be taken into account –
a. The type of insurance
b. The size and complexity of the claim
c. Compliance with any relevant statutory or regulatory rules or guidance
d. Factors outside the insurer's control.
(4) If the insurer shows that there were reasonable grounds for disputing the claim (whether as to the amount of any sum payable, or as to whether anything at all is payable) –
a. The insurer does not breach the term implied by subsection (1) merely by failing to pay the claim (or the affected part of it) while the dispute is continuing, but
b. The conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when.
(5) Remedies (for example, damages) available for breach of the term implied by subsection (1) are in addition to and distinct from -...."
- Pro 2 Care says it took about 19 months for Probitas to pay the Property Damage claim. The vast bulk of the claim was not paid until 30 July 2024. That was unreasonable in respect of about 11 months: Defence para. 36. Had the claim been paid sooner, repair works would have started sooner and finished sooner. Revenue would have been earned sooner from the Property. Mr Malik's Witness Statement exhibits a very considerable amount of factual detail in this regard.
- Applying the factors set out in section 13A(3), Pro 2 Care identifies that the type of insurance and size and complexity of the claim are particularly relevant here. Mr Taczalski points to para. 266 of the Explanatory Notes where it is suggested that a property claim should take less time to value than, say, a business interruption claim. Smaller claims should be expected to take less time than larger claims. By way of example, in Quadra Commodities SA v XL Insurance Co SE [2022] EWHC 431 at [140-143], Butcher J held on the facts before him that one year was the reasonable time for investigating, evaluating and paying the complex international and uncertain claim arising from a large scale fraud.
- Probitas denies there was unreasonable delay in paying the claim. It refers to the approach adopted in the only two reported cases considering section 13A: Quadra Commodities (as cited above), and Delos Shipbuilding SA & Ors v Allianz Global Corporation and Speciality SE & Ors [2024] EWHC 719.
- It says that Pro 2 Care's case is factually flawed in law; that it has no properly pleaded case on breach under s. 13A(2) or loss under s. 13A(5); and that it has not pleaded how the alleged 11 months of delay compares to the period it should have taken Probitas to handle the Property Damage claim. It says there is no properly articulated case as to why Probitas acted in a way that was unreasonable. It says that Pro 2 Care's complaint is delay, but delay is not enough to establish the cause of action.
- Probitas also contends that Pro 2 Care takes no account of the fact Probitas made staged payments on the Property Damage claim as and when elements of that claim were proved and accepted by Mclarens. It points out that Pro 2 Care's EBITDA calculation is not based on actual loss, but rather a hypothetical calculation based on its November 2022 business plan. That, it says, is a loss of a chance.
- The issue of unreasonable delay under section 13A is a paradigm example of a factual dispute which requires evidence and cannot be resolved summarily. I cannot be satisfied that I have before me all the evidence necessary for the proper determination of the counterclaim. This is the case both as to period of delay and loss.
- I do not think it necessary to reach a concluded view on this point, but consider Pro 2 Care's approach to be clearly arguable. It would be better decided at trial in the light of the evidence as a whole. I shall therefore decline summary judgment on this point.
- The fact the section 13A counterclaim will need to proceed does not however provide a reason for the claim and counterclaim as a whole to proceed. In reaching my conclusions to grant summary judgment in respect of the issues identified above, I considered whether there was any other compelling reason why the claim or the issues should instead be disposed of after trial. There is no such reason. The relevant legal issues under the claim and the counterclaim for breach of the section 13A implied term are separate issues and they turn upon a consideration of different documents. Disposal of the claim now saves expense; it achieves expedition; and it is in the interests of justice.
Conclusion
- I shall grant summary judgment in favour of Probitas in relation to its claim for the declaration sought. I shall dismiss Pro 2 Care's counterclaim for a declaration to contrary effect. The section 13A counterclaim will go forward to trial.
- I shall hear counsel as to what, if any, further or other relief may follow from my findings and in respect of any directions which require to be made.
