Fire and other Property Insurance and Accident Insurance

1.  Fire policies

The same general principles apply to fire policies as apply to other types of insurance contract, with the exception of rules on reinstatement of property,¹ so this discussion will look at the nature of the insured perils and the interpretation placed upon the exceptions commonly found in such policies.

1.1  Loss by fire

In determining whether a loss was caused by fire, the court will eschew technical discussions as to the nature of fire: ignition is an essential element and damage by mere over-heating will not make the insurers liable.² The insurers will be liable for damage to an insured building caused by an explosion where that explosion was the result of a fire in the building, but not where the damage was the result of concussion caused by an explosion in another property.³ In the absence of an agreement to the contrary, the cause of the fire is normally irrelevant. A fire caused by the negligence of the insured will not preclude a claim since covering this eventuality is ‘one of the objects of insurance against fire’:⁴ when an insured lit a fire in her grate forgetting that she had hidden jewels there, the insurers were held liable.⁵ Similarly, an act of arson will not prevent an insured from claiming, unless committed—or colluded in—by the insured in which case public policy will preclude a claim.⁶ For example, in Porter v Zurich Insurance Co,⁷ the court dismissed a claim under a policy of insurance for losses caused by a fire which the claimant had himself started, finding it to be contrary to public policy, the general law of insurance and the specific terms of the policy.

Once a fire has ignited then consequential damage to the insured property will be covered, such as damage by smoke or by the roof collapsing on to insured goods as a result of being weakened by the fire,⁸ as will ‘any loss resulting from an apparently necessary and bona fide effort to put out a fire’,⁹ such as damage caused by spraying water to extinguish the fire or by action to prevent fire spreading to the property.¹⁰ However, the property must be affected by fire or by ‘an actual existing state of peril of fire, and not merely a fear of fire’.¹¹ Moreover, a fire policy will not cover losses beyond the damage to the property caused by fire: fire damage may lead the insured to lose business or to incur additional cost in acquiring new premises while the building is repaired, but these losses are not covered by a fire policy and must be separately insured.¹²

1.2  Excepted perils in fire policies

1.2.1  Spontaneous combustion, heating and explosion

It is quite common for policies to exclude liability where the fire is the result of spontaneous combustion or heating process or explosion. Even without such exceptions the insurers are not liable for loss caused by an inherent vice of the subject-matter¹³ or, as has been seen, if the subject-matter is damaged by heat without an actual ignition. Normally, although a policy on a house will exclude liability where the damage is the result of an explosion,¹⁴ there will be a term making the insurers liable in the event of a domestic boiler or a domestic gas supply exploding.

1.2.2  Riot, civil commotion, war or civil war, rebellion, or insurrection, or military or usurped power

A fire policy may exclude liability where a fire is set as a result of certain types of public disorder. Riot is a common exception. Under the Public Order Act 1986, section 1, a riot occurs when twelve or more people, who are present together, threaten unlawful violence for a common purpose in such a manner as would cause a person of reasonable firmness to fear for his personal safety. This replaces the common law offence of riot which, among other things, required only three or more persons to be present,¹⁵ and presumably the statutory definition would be applied in cases on the term ‘riot’ in an insurance policy.¹⁶ The insured, who is denied recovery because of this exception, can make a claim against the local police authority under the Riot (Damages) Act 1886, section 2(1) which provides that:

The meaning of ‘any person’ was called into question in Yarl’s Wood Immigration Ltd v Bedfordshire Police Authority.¹⁷ On the night of 14/15 February 2002, a serious riot occurred at the Yarl’s Wood Immigration Detention Centre at Clapham, Bedfordshire and almost half the building was destroyed by fire. Yarl’s Wood is a contracted-out detention centre where immigrants and asylum seekers may be detained pending the resolution of their status. Such detention centres may be either directly managed by the Home Secretary or, as in the case of Yarl’s Wood, may be contracted out to private operators. Here, the private operators and their insurers sought to claim the recovery of the costs of the riot damage from the local authority, the Bedfordshire Police Authority, under the provisions of the Riot (Damages Act) 1886. The claim was substantial, amounting to some £32 million. A dispute arose as to whether the operators were within the statutory words ‘any person’ contained in section 2(1) of the 1886 Act. The Police Authority contended that the phrase should be limited so as to exclude parties, at any rate public authorities, who have primary or some responsibility for order within a detention centre, even if such authority is shared with the police. At first instance,¹⁸ Beatson J agreed, holding that:

On appeal, the appellants submitted that the judge had erred in holding that they did not qualify as ‘any person’ within the Act. Instead, they submitted that the purpose of the 1886 Act is clear from its wording, namely to provide compensation on a basis of strict liability ‘to any person who has sustained loss’, without limitation or any concept of a ‘qualifying person’. The Court of Appeal reversed the first instance decision, Rix LJ holding that on the face of it the Act contains no restriction on who could claim under it, and in fact, section 7 of the Act makes special provision for who may claim compensation in the case of bodies which would today be regarded as public authorities.²⁰ Furthermore, Rix LJ held that it was incorrect to adopt a purposive approach to the interpretation of the statute and, when the normal approach to interpretation was taken,²¹ no manifest anomaly was produced so the operators fell within section 2(1).²²

If the policy does not exclude riot, the insurers have the right to be subrogated to the insured’s right to claim against the authority.

For a civil commotion:

There need be no evidence of a revolt against the government, but ‘the disturbances must have sufficient cohesion to prevent them from being the work of a mindless mob’.²⁴ Clearly, such would also amount to a riot, but civil commotion has been described as one of the various stages between riot and civil war.²⁵ So, for instance, fighting between different factions in Lebanon in the 1970s was held to be a civil commotion.²⁶ Where the exception in the policy relates to ‘civil commotion assuming the proportions of or amounting to a popular rising’, then, while it is impossible to be precise about the meaning of these additional words, the commotion ‘must involve a really substantial proportion of the populace, although obviously not all the population need participate, and … there should be tumult and violence on a large scale’.²⁷

The exception for war will operate even if there has not been a declaration of war as long as the court determines that, in fact, a state of war exists.²⁸ A rebellion, such as the Irish Rebellion of 1916, may be defined as a ‘war’ for this purpose.²⁹ Typically, a policy will also expressly exclude liability for loss caused by civil war, although the word ‘war’ includes civil war, unless there is an indication to the contrary in the policy. It has been said by Mustill J that in determining whether there is a state of civil war the court must consider: whether there were opposing sides; what the objectives of those sides were and how they set about pursuing them; and what was the scale both of the conflict and of its effect on public order and on the life of the inhabitants?³⁰ Applying these criteria to Lebanon in 1975, he said that although the fighting was serious, it was not the case that one side was seeking to wrest political power from the other or to seize power by violence: for instance, the president had been criticised and his resignation suggested, but there had been no attempt at that time to remove him by violent means, and the prime minister enjoyed fairly broad support. Although the government was largely powerless to prevent the fighting, no faction sought to remove it. In addition, he took the view that there were no ‘sides’ in existence because there was a lack of common leadership or unanimity of purpose. The fighting was sporadic and incoherent. He therefore concluded that matters had not advanced from ‘massive civil strife and virtual anarchy to the stage of civil war’ at that time.³¹

In that same case Mustill J also considered the exceptions for rebellion and insurrection. He referred to the Oxford English Dictionary where rebellion is defined as ‘organised resistance to the ruler or government of one’s country; insurrection, revolt’. To this Mustill J added ‘the purpose of the resistance must be to supplant the existing rulers or at least to deprive them of authority over part of their territory’.³² An insurrection is ‘an incipient or limited rebellion’ and implies ‘a lesser degree of organisation’ than a rebellion. But the two shade into each other and in both cases there must be ‘action against the government with a view to supplanting it’.³³ Although they would normally involve personal violence, it has been held that economic sabotage, such as the blowing up of an oil pipeline in Mozambique, can come within both exceptions.³⁴ This action amounted to an insurrection: there was widespread internal discontent with the Frelimo government in Mozambique; the group which committed the act, Renamo, had the aim of overthrowing that government; Renamo had substantial support from large numbers of Mozambican dissidents and from the Rhodesian and South African governments; and yet it could not be said that Renamo was merely a puppet organisation of those governments, which might have taken away the crucial element of internal strife.³⁵

‘Military power’ is the action of invading forces from outside the country, including an air raid,³⁶ or the damage caused by the domestic army attempting to repel such an invasion or defeat rebels.³⁷ ‘Usurped power’ ‘consists of the arrogation to itself by the mob of a law-making and law-enforcing power which properly belongs to the sovereign’.³⁸ In other words, there are elements of treason, organisation and leadership, and in the spectrum of violent disturbances, it is therefore closer to rebellion or civil war than to riot. Even if the action is not designed to overthrow the government, it will amount to a usurpation of power if it involves taking on some of the functions of government.

2.  Burglary and theft

The terms contained in fire policies are commonly used in other forms of property insurance, including insurance against burglary and theft, and much of the discussion on the excepted perils in fire policies applies equally to these.

Where terms of art such as ‘burglary’ or ‘theft’ are used, they are given the definition ascribed to them by the criminal law unless the policy expressly provides another meaning.³⁹ Commonly, a burglary policy requires forcible and violent entry, so that the use of deception or the mere turning of a handle will not be sufficient even if it amounts to a criminal offence, nor will the use of force and violence which only occurs after an entry has been made.⁴⁰ The insured may be required to put in place certain security measures, or may be encouraged to do so by the offer of a reduced premium. Generally, a burglary policy will require that domestic premises are continuously occupied, although this does not mean that someone must be present at all times, so long as any period when it is unoccupied is temporary,⁴¹ and if a dwelling-house, it is being occupied as such. Not surprisingly, since the cover will be for property within a certain building, if that property is not inside the building the insurers will be not liable: goods insured under a burglary policy while kept inside a warehouse were not covered when in a lorry parked outside the warehouse in a locked and walled compound.⁴² Where a policy stipulates that the property covered is that for which the insured is ‘responsible’, it has been held that this refers to goods for which the insured bears a legal liability.⁴³

Marine policies, such as the Institute clauses ITCH(95), clause 6.1.3 and IVCH(95), clause 4.1.3,⁴⁴ insure against ‘violent theft by persons from outside the Vessel’, which excludes clandestine theft.⁴⁵ It has been said that this formulation is designed to protect insurers in circumstances where the presumption must be that the theft would not have occurred without some default of the captain or crew.⁴⁶ The violence may be to property and not just to persons, but must have been used to effect the theft and not merely to facilitate the escape of the thieves.⁴⁷ There must also have been a dishonest intention so that where the action was committed by someone who had an honest belief that it was not theft, there was not sufficient dishonesty to constitute loss by theft.⁴⁸ The Institute Theft, Pilferage and Non-Delivery Clause covers loss ‘caused by theft or pilferage, or by non-delivery of an entire package’. This is clearly wider in its scope and covers clandestine theft. One difficulty is presented by the situation where it is unclear how the goods disappeared: they may have been stolen or simply wrongly delivered. ‘Non-delivery’ must be construed within its context, so although proof of loss through theft or pilferage need not be shown, the assured must, nevertheless, provide prima facie proof that the goods were not lost by any other means than theft or pilferage.⁴⁹

It is common for all risks marine insurance policies to incorporate a clause excluding ‘mysterious disappearance and stocktaking losses’, ie excluding coverage for loss of property if the cause of the loss cannot be identified. The Commercial Court has recently ruled on the burden of proof under a contract of insurance incorporating this type of exclusion. In AXL Resources Ltd v Antares Underwriting Services Ltd,⁵⁰ the claimant metal trading company was insured by the defendant underwriters against all risks of loss, under a Lloyd’s Marine Open Cargo Policy which incorporated a clause excluding ‘mysterious