Insurance

The Court of Appeal composed of Chief Justice Silvio Camilleri, Mr Justice Tonio Mallia and Mr Justice Joseph Azzopardi on January 26 2018 held among other things that it would be contrary to good faith to extend the scope of an insurance policy to cover risks which were not meant be covered.

The facts in this case were as follows:

On 28 April 2005, at approximately 11:30pm a fire damaged the property of Kordin Grain Terminal Company Limited in Kordin Grain Terminal. At the time of the incident, the Company had taken three insurance policies: (i) a contractors Plant & Machinery Insurance to cover same damage to its machinery; (ii) a Fire Insurance Policy, to insure its building, furniture, electronic components and (iii) a Consequent Loss Policy to obtain re-imbursement for loss of income, in the event that a fire caused damage to its building.

The Company received compensation but the dispute here was whether it was entitled to claim compensation for loss of income under the Consequent Loss Policy as a result of damage to its machinery as well. The Company claimed that this risk was covered under this Policy, whilst the insurance company Middlesea Insurance disagreed, and rejected its claim.

Faced with this situation, the Company proceeded to file legal proceedings against Middlesea Insurance (now Mapfre Middlesea plc), Gasan Mamo Insurance, Elmo Insurance, Atlas Insurance, SMS Insurance on behalf of Ecclesiastical Insurance plc and Millenium Insurance Agency on behalf of Lloyd’s Underwriters. It requested the Court: To declare that it was entitled for re-imbursement under the Consequent Loss Policy for all losses which it suffered as a result of the incident of 28 April 2005;

To liquidate the damages, the loss of profits/income as a result of such incident;

And to condemn the insurance companies to pay for the sum it liquidated to be paid under the policy.

In reply, the insurance companies contested the legal action against them. They challenged the validity of the legal action which they said, failed to describe the dispute clearly.

As regards the merits, it was submitted that the Consequent Loss Policy only covered loss of income in relation to the damages insured under the Fire & Special Perils Policy and excluded loss of income arising from damage to the machinery. They said that the Company’s claims were unfounded, and once it had already compensated the Company, it should not suffer judicial expenses.

On 3 October 2013, the First Hall Civil Court found that the Company’s legal action to be formally valid. It decided the merits of the case however by declaring that the Consequent Loss Policy did not entitle the Company to compensation for loss of income as a result of the damage by fire to its machinery.

The Court considered that the Consequent Loss Policy was issued in connection with the Fire & Special Perils Policy, and that its machinery was not covered under this Policy. The cover note issued by Island Insurance Brokers on 6 August 2004 expressly stated that this Policy only covered losses/damages under the Fire & Special Perils Policy.

In this respect the First Court held that it had no doubt that at the time of the incident the Consequent Loss Policy covered only loss of income as a result of damage to the Company’s buildings and objects as mentioned in the Fire Policy.

If the Company’s brokers were not careful to attend to the Company’s requests to ensure that it was also covered for loss of income arising from damage to its machinery, this was a res inter alios for the insurance companies, pointed out the First Court.

Aggrieved by the decision of First Court, the Company entered an appeal. It asked the Court to revoke its decree of 27 February 2007, which ordered the removal of an ex parte expert witness’ report, and to order that the said report be considered as admissible evidence.

It also requested the Court to accept its requests for compensation for loss of income caused by damage to its machinery, and to send the case back to the Court of First Instance in order to liquidate the damages.

The Company argued that the insurance policy was clear and covered loss of income in the event of damage by fire to both its building and machinery.

This Court maintained that a contract of insurance was one of utmost good faith, applicable to both the assured and the insurance Company.

Reference was made to the case “Montaldo Insurance Agency Ltd noe vs Abela et dated 18th July 2017.

“il-principju ta’ uberrima fides jorbot mhux biss lill-assikurat izda liz-zewg partiiet, u l-qorti tara illi fl-imgieba taghha s-socjeta konvenuta qieghda twaqqa dan il-principju minn wiehed ta’ bona fides ghal wiehed purament mekkaniku li l-assikuratur jinqeda bih biex jehles mill-obbligazzjonijiet tieghu taht il-polza”.

It noted that Semin Park in “The Duty of Disclosure in Insurance Contract Law (1996) Dartmouth writes:

“uberrimae fidei must not be indiscriminately used by insurers and judges as an excuse for ignoring insurance claims.”

This Court agreed with the First Court that the Consequential Loss Policy had to be interpreted, in the light of the cover note, to cover loss of income as a result of damage to the building, by fire, even though in its literal sense, it was worded without restriction. A cover note had the same effect as an insurance policy, and obliged the parties to its terms, said the Court. A cover note was in fact a temporary certificate of insurance which confirmed that the person indicated was covered by insurance.

Reference was made to the case Mizzi noe vs Grech et noe dated 3 October 2003 where it was stated:

“(a) Il-broker huwa l-agent ta l-assikurat u mhux tal-kumpanija assikuratrici – “Lawrence Azzopardi et nomine – vs- Joseph Muscat” Appell 7ta’ Ottubru 1997; “Newsholme Bros. – vs Road Transpor and General Insurance Co. Ltd. “(1929- All E R Rep 442);

“(b) L-istess bhal Proposal Form, ilCover Note “hija parti ntegrati talpolza ta’ l-assikurazzjoni; u kwindi dikjarazzjoni falza maghmula fil-formula hija qisha dikjarazzjoni falza filpolza” – “Antonio Zammit – vsJoseph Muscat nomiee,” Qorti talKummerc, 31 ta’ Jannar 1952. Li jfisser illi “insurance by Cover Note entails the same duty of disclosure by an applicant as attaches to a formal policy of insurance” – “Mayne Nickless Ltd – vs- Pegler”, Supreme Court of New South Wales Australia, 1974 – N.S.W.C.R. 228)”.

The cover note in question expressly stated that compensation for loss of income was in relation to damage by fire to the company’s building. The Consequential Loss specification which was part of the policy referred only to the policy on the building and not to any other policy.

It did not result that it was the intention of the insurance company to cover what the company claimed by this lawsuit.

Though it could have been the intention of the company to obtain coverage for loss of income resulting from fire to the machinery, it did not appear that this was also the intention of the insurance companies.

The Court said that it would be contrary to good faith to extend the scope of the policy to cover risks which were not covered by the policy. The Court of Appeal said that the First Court made a good appreciation of the facts. This Court should not disturb the First Court’s appreciation of the facts, unless for grave reasons.

This Court relied on the First Court’s appreciation of the insurance policies and interpretation of the exchange of correspondence. It added that by not hearing the Company’s ex-parte witness would not be prejudicial to it.

For these reasons, on January 26, 2018 the Court of Appeal gave judgement by dismissing the Company’s appeal. It confirmed the decree of the First Court of 27 February 2008 as well as the decision of the First Court dated 03 October 2013.