Insurers are often less than happy to pay up gracefully in the event of a claim and legal advice is sometimes necessary to enforce your rights. In one case, lawyers representing the owner of a listed building that was gutted by fire won a Court of Appeal ruling that insurers were obliged to pay more than £2 million towards the cost of reinstatement.

After the fire left the building in a ruinous condition, the insurers sought to avoid paying out on the policy on various grounds, including misrepresentation and non-disclosure. None of their arguments succeeded, however, and a judge ruled that they were contractually obliged to contribute to reinstatement up to the £2,121,800 limit of indemnity.

In challenging that decision, the insurers pointed out that, before the fire, the building was already an unused shell with a market value of only about £75,000. Planning consent had been granted for its conversion into flats, but the housing market in the area had stalled and any development project would be unviable. It was submitted that the value of the property had in fact been increased by the fire.

In ruling on the appeal, however, the Court found that, on a true interpretation of the relevant policy, the owner was entitled to an indemnity in respect of the value of the building, determined by reference to the cost of reinstatement. Payment under the policy would, however, only be triggered if the owner chose to embark on the reinstatement project, which it had been estimated would cost up to £2.5 million. The insurers’ appeal was rejected, save in respect of certain amendments to the declarations granted by the judge.