All fired up: destroyed hotel not covered by insurance policy

The Star and Garter Hotel, which was destroyed in a fire in 2010, has been found to have breached its insurance policy and is now liable to pay for the losses.

The hotel took out a one year buildings insurance policy on 3 December 2009 which contained an Electrical Installation Inspection Warranty. The warranty stated that the electrical installation “be inspected and tested every 5 years”.

However, when the hotel burnt down in October 2010, the last inspection had been in September 2003.

The insurer argued that the electrical installation should be inspected and tested every five years from the date of the last inspection or on inception of the policy if one had not been undertaken in the last five years.

The hotel argued the warranty only required an inspection every five years from the date of inception of the policy and therefore one had not fallen due.

The court rejected the hotel’s argument because it made no commercial sense. The purpose of the warranty was to minimise the risk of fire and having an inspection five years from the start of the policy would be useless, especially where the policy was only for one year.

The insurance cover was suspended from inception of the policy and the insurer was not liable for the losses.

This decision highlights that where there is any ambiguity or dispute as to the construction of a warranty, the court interprets such a warranty adopting a commercial and common sense approach and serves as a reminder to insurers to consider including express terms relating to the consequences of breaches of particular terms in the policy.