By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
RoyalStar Assurance’s predecessor has been ordered to pay $700,000 to a Freeport apartment complex developer, reversing an earlier court ruling in a 22-year dispute.
The Court of Appeal, in a March 2 verdict, unanimously overturned a Supreme Court ruling that found a Sun Alliance (Bahamas) insurance policy did not cover the property’s value, but only the proposed renovations to an apartment complex.
The 12-unit complex, located at 45 Kings Road in Freeport, was destroyed by fire on December 3, 1992. Its developer, Scandi Enterprises, has been locked in a court battle with Sun Alliance (now RoyalStar) ever since in a bid to secure the insurance payout it felt was due.
The latest verdict, delivered by Appeal Justice Neville Adderley, is timely given that it deals with the same type of insurance policy that is at the centre of the latest Bahamas Agriculture and Marine Science Institute (BAMSI) controversy.
There, the key questions surround whether the contractor for the fire-destroyed dormitory had All-Risks insurance coverage and, if he did, whether it was valid and came from a recognised underwriter (Southern Alliance is not a registered entity with the Insurance Commission).
The similarities end at the policy type, and the fact it has taken 22 years to get the Scandi Enterprises/Sun Alliance dispute past the Appeal Court stages shows how difficult - and protracted - contractor insurance disputes can be to resolve.
Detailing the case facts, Justice Adderley found that Scandi initially obtained an almost eight-month policy from Sun Alliance, worth $400,000, to cover “all risks” between November 15, 1991, and June 30, 1992.
Another policy, with the sum insured increased to $700,000, was taken out on July 27, 1992, to “further insure against all risks or damages to the property”.
Sun Alliance, though, alleged that an “oral agreement” between the agents for itself and Scandi meant that the policy was solely to cover the renovation and refurbishments to the 12-unit property.
The complex was subsequently destroyed in the December 1992 fire, and Sun Alliance argued that the policy was “void” because - since renovations had yet to start - it had incurred no liability.
Several well-known insurance executives were called to give evidence at the Supreme Court trial. They included Colin Jones; Donald Ward, business development manager for Insurance Management, which acted as Sun Alliance’s agent; and the latter’s operations manager, Peter Muscroft.
Mr Ward testified that the sum insured increased by $300,000 between the two policies because Scandi subsequently decided to add a third floor. He alleged that Scandi’s agent told him that the renovations would start in July 1992.
Mr Muscroft, meanwhile, alleged that “no risk had been incurred and no liability accrued” under the second policy because no work had started. He argued that there was no construction, no renovation plans and no material purchases to account for.
However, the Court of Appeal noted that under cross-examination, Mr Muscroft said the insurance payout in the event of a total loss was $700,000.
Gunter Risse, Scandi’s joint beneficial owner, testified that the sum insured “had nothing to do with the value of the renovations”.
He had told the Supreme Court that the $400,000 sum insured on the first policy represented the price paid to acquire the apartment complex, and he wanted to ensure it was adequately covered.
Following the first policy’s lapse, Mr Risse testified that the sum insured was increased to $700,000 because an appraiser advised him this was the apartment complex’s true worth.
He alleged that this was explained to Mr Ward, and Clifford Pinder and his Ace Construction company were hired to do the renovations.
Mr Risse alleged that work had to wait until July 1992, when the last tenant left the building. Renovations continued until November that year, when Mr Risse went on a vacation cruise. By that time, two units worth a total $4,300 had been completed by Mr Pinder.
“He then made a claim to be indemnified for the loss,” Justice Adderley noted. “The respondent [Sun Alliance] refused to honour the claim for the reason given by Mr Muscroft that no risk had been incurred and the policy was therefore void.
“There was some evidence from Mr Risse that before rejecting the policy on that ground, the insurers had earlier sought to rely on the fact that he did not have a permit to commence the renovations, and later that he had commenced renovations without their approval. However, these grounds were not pursued by them.”
The Supreme Court accepted Mr Ward’s evidence that Sun Alliance had rejected Scandi’s application to insure the whole building, and his explanation that the sum insured increased to allow for a ‘third storey’ addition.
While rejecting Sun Alliance’s allegation that the policy was “void”, the Supreme Court then said Scandi had to prove the value of damages sustained.
Justice Adderley, in determining the appeal, said the key was to look at what both parties intended in entering into the insurance contract.
He rejected Mr Jones’s assertion that it was a ‘standard’ contractors all-risk insurance policy because the application form described Mr Risse as the ‘self-contractor’. This meant that the policy terms relating to ‘third-party contractor’ had no effect in this case.
“There is cogent evidence militating against ‘the works’ being construed to mean the renovations,” Justice Adderley found.
He listed these as including:
Sun Alliance admitting that Scandi applied to insure the building, and the evidence showing the underwriter knew Mr Risse/Scandi were their own contractors.
Sun Alliance’s failure to obtain an estimate of the value of the renovations before issuing the policy.
“If ‘the works’ meant only the renovations, and not the building, it is difficult to comprehend that prudent insurers would have proceeded without an estimate of renovations of that magnitude,” Justice Adderley said.
Sun Alliance quoted the same $2,107 premium for renewal of the policy for 1993-1994. Justice Adderley queried why this would be the same if it covered solely the renovations.
The premium cheque for the first insurance policy was not returned. Justice Adderley said that if the policy covered the renovations only, Sun Alliance would have returned the cheque because no work was done while it was in force.
“Accepting the discussion with Mr Ward about the possibility of a third floor, if the whole additional $300,000 was allocated to the third-storey, that would leave the original $400,000 for renovating the 12-unit building,” Justice Adderley wrote.
“If that sum represented renovations only, and not the building as well, renovation costs per unit would average $33,333.
“Having regard to the unchallenged evidence given by Mr Risse that the cost of renovations paid to Mr Pinder for two units was $4,300, total renovation costs of the order of $400,000 for the 12 units is highly improbable.”
It therefore followed, said Justice Adderley, that the $700,000 sum insured included both the renovations and value of the building itself.
“The clear implication is that the building would be taken to have the stated value of $700,000 for insurance purposes, including the renovations, which were miniscule in value to the building itself,” Justice Adderley concluded.
“The fact that the insurer offered a policy at the same value of $700,000, at the same premium, for the subsequent year 1993-1994 with no further renovations envisaged is, among other things, cogent evidence of this.”
Justice Adderley said there was no need for Scandi to proof the value of its loss, as both Mr Muscroft and Mr Risse’s evidence had confirmed the payout would be $700,000 in a total loss.
With the ‘total loss’ confirmed, the Court of Appeal ordered that Sun Alliance (now RoyalStar) pay Scandi the $700,000 minus a $500 deductible.
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