The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Privy Council yesterday expressed “the strongest reservations” over the Bahamian Court of Appeal’s failure to properly interpret an insurance contract in overturning a verdict that required RoyalStar Assurance’s predecessor to pay out a $700,000 claim.

The highest court in the UK legal system found that the Court of Appeal considered “irrelevant” evidence in finding that a Sun Alliance (Bahamas) insurance policy covered the full property value of a dilapidated Freeport apartment complex, not just the proposed renovations.

The Privy Council also “expresses its surprise” and dissatisfaction with the Bahamian legal system, noting that the case only came to trial in the Supreme Court in 2010 - despite having been filed in February 1997.

“The Board is not fully informed about the reasons for this delay, but considers that an interval of 13 years before an action comes on for trial cannot be consistent with the interests of justice,” the Privy Council judgment said.

Then, in an admonishment, it said: “The Board understands that there are procedures which enable the Court to manage cases actively with a view to avoiding unnecessary delay. If such procedures exist, they should be used.”

The underlying dispute involved the acquisition by Scandi Enterprises of a 12-unit, two-storey apartment complex, located at 45 Kings Road in Freeport, in 1990. It planned to renovate the property and rent out the units to tenants.

“In July 1992, Mr Risse, a vice-president and part-owner of the company, approached Donald Ward [then] of Insurance Management (Bahamas), which acted as local agents of the [Sun Alliance] insurers,” the Privy Council recalled.

“Mr Ward’s evidence, which the trial judge accepted, was that Mr Risse wanted to insure the building against the usual physical risks, but Mr Ward refused to insure the building because it was by then unoccupied.

“Instead, he suggested that Scandi should insure the proposed works under a Contractors All Risks (CAR) policy. Mr Risse accepted that advice and a CAR policy was duly issued to Scandi on July 31, 1992, for a period of a year from July 27 for an insured value of $700,000. On December 3, 1992, the building was extensively damaged by fire.”

Scandi sought to claim the full $700,000 when it launched its Supreme Court action in 1997, basing this on the argument it was insured “against all risks of loss or damage to the building”, and that the property had become a total loss.

The Supreme Court had initially rejected Scandi’s claim on the grounds that the construction work, rather than the building, was insured by the policy. It also found that Scandi was required to prove its actual loss.

Both findings were reversed by the Court of Appeal, leading to the insurer’s appeal to the Privy Council.

“The policy is unusual in one respect,” the Privy Council found. “Scandi was the sole insured, there being in effect no contractor since Scandi proposed to carry out the works by employing small firms and individual workmen under their direct control.”

Otherwise, it said the policy was a standard CAR contract, covering ‘renovations’ to the apartment complex and the ‘contract works’.

“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,” the Privy Council said.

“These were worth less than $5,000 and no claim has been made for them. The damage claimed relates entirely to the pre-existing building, which was not part of the insured property.”

The Privy Council said the key evidence was Mr Ward’s refusal to insure the buildings, but it found that the Court of Appeal had failed to properly “construe” the insurance contract.

“They considered that because there was no contractor in this case, the ordinary principles on which CAR policies work could be ignored,” the Privy Council found.

“They decided that because of the discussions which preceded the contract, the ‘Contract Works’ could not be limited to the renovations, which were described as being the subject of the contract.

“Essentially, this was because the figure of $700,000 for the sum insured was too large to have represented the value of the works and must therefore have represented the value of the buildings. In particular, they thought it significant that the insurers quoted the same premium on the same insured values for the following year, 1992-1993, when the works would have been completed.”

The three Court of Appeal judges who heard the case are no longer with the court, but the Privy Council said: “The Board reiterates that where the express terms of a contract are clear, they must be applied.

“The Board has the strongest reservations about the admissibility of this material for any purpose of interpretation, let alone for the purpose of contradicting the express language of the insuring clause. But they are satisfied that it would be irrelevant even if admissible.”

As a result, the Privy Council reinstated the Supreme Court ruling in favour of Sun Alliance (RoyalStar). The insurer was represented before the Privy Council by Bahamian attorney, Gail Lockhart-Charles.