Privy Council on CAR policy(Insurance)

Sun Alliance (Bahamas) Limited and another (Appellants) v Scandi Enterprises Limited (Respondent) (Bahamas)

From the Court of Appeal of the Commonwealth of the Bahamas

In 1990 the Respondent, Scandi Enterprises, acquired a dilapidated two-storey building with 12 apartments with a view to improving and re-letting it. The planned improvements involved putting the building and the individual units into good repair, refurbishing the interiors and adding an extra storey. In 1992 the Vice-President and part-owner of the company, approached Mr Donald Ward of Insurance Management (Bahamas) Ltd which acted as local agents of the Appellant insurers. Mr Ward suggested that Scandi should insure the proposed works under a Contractors All Risks (CAR) policy and thus a CAR policy was duly issued to Scandi in July 1992 for a period of one year for an insured value of B$700,000 but in December 1992, the building was extensively damaged by fire.

An action for a claim for B$700,000 on the policy was bought. The basis of the claim was that the policy insured Scandi against all risks of loss or damage to the building, that the policy was a valued policy at B$700,000 and that the building had become a total loss. The question before the Privy Council was whether the building (as opposed to the works) was insured. The trial judge held that it was not. The second issue was whether the policy was a valued policy. The judge held that it was not, so that the insured were required to prove their actual loss. Since they had not sought to do so, the claim would have failed even if the buildings had been insured. But the Court of Appeal reversed him on both points.

The Privy Council held that the property insured under the policy was the “Contract Works”. This meant the works described in the preamble to the insuring clause under the heading “Contract”. The policy distinguished between contract works according to whether they are permanent or temporary. The Permanent Works were the structures to be created under the building contract. They were insured up to the point when they are taken into use or occupation by the employer or (subject to certain provisos) when a certificate of completion was issued. The temporary works were those works which were required in order to carry out the permanent works, but did not form part of them. A pre-existing building which was not being rebuilt did not form part of the works, whether permanent or temporary. It was the structure upon or in relation to which the works are being carried out.  In the present case, the judge found that no works had been carried out by the time of the fire, apart from some renovations to two of the 12 units, and some minor work on the building done by a plumber and an electrician. These were worth less than B$5,000 and no claim had been made for them. The damage claimed related entirely to the pre-existing building, which was not part of the insured property. In the evidence about the placing of the insurance the cardinal fact was that Mr Ward expressly refused to insure the buildings.

The Privy Council further observed that in those circumstances, the question whether this was a valued policy did not strictly speaking arose. Still it observed that a contract of insurance is a contract of indemnity. In the ordinary course, the insured must prove the amount of his loss. By way of exception, a valued policy may be agreed, ie a policy in which the parties have agreed in advance the value of the property insured irrespective of its actual value. An agreed value is not the same thing as the sum insured, which merely serve as a maximum. An agreed value was unlikely to be a practical proposition in a CAR policy where the property was contract works whose value would necessarily increase over time, and where the values at risk would depend on how far the works had advanced when the casualty occured. Hence it was not a valued policy and the appeal was thus allowed.