GB resort loses out on under-insurance

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Grand Bahama resort has lost out in its dispute over a Hurricane Matthew insurance claim because it failed to realise what would happen if the property was under-insured.

The Court of Appeal, in upholding a verdict by Justice Indra Charles, found that Summit Insurance Company and its co-underwriter, Heritage Insurance Company, had complied with the Insurance Act’s section 214 by informing Taino Beach Resort in writing about the effects of the “conditional average clause” in its catastrophic coverage policy.

This clause is triggered when a claim is made and, at the time loss/damage is incurred, a property’s value - be it residential or commercial - is greater than the sum insured under the insurance policy. This means, for example, that if a $200,000 house burns down but is only insured for $100,000, the latter figure is what the homeowner will receive from the insurer.

In Taino Beach’s case, given that it is a resort, it may have been faced with covering multi-million dollar or six-figure damages from its own pockets, as Bahamas-based Summit and Heritage will not have paid out the full value of its claim due to the under-insurance.

The figures involved were not disclosed in Tuesday’s judgment by Court of Appeal president, Sir Hartman Longley, which revealed previous arbitration and Supreme Court findings that rejected denials by Mr Collins, Taino Beach’s comptroller, that he ever received notice of the “conditional average clause” from Summit/Heritage.

“By the terms of an insurance contract entered into between the parties, the respondents [Summit/Heritage] agreed to insure the buildings etc of the appellant in Freeport, Grand Bahama, against the perils of a hurricane,” Sir Hartman wrote.

“A hurricane struck the island of Grand Bahama in 2016, and the appellant [Taino Beach] submitted a claim that was disputed. The dispute concerned the conditional average clause. It was the position of the appellant that it had no notice of the conditional average clause on which the respondents were relying to dispute the amount of the claim.

“The respondents claimed they had given the requisite notice and were entitled to rely upon the conditional average clause which, in effect, meant that the appellant was under insured and that affected the amount of the respondents’ liability significantly.”

The two sides appointed now-Supreme Court justice, G. Dianne Stewart, as arbitrator and asked her to determine as an initial point whether proper notice of the “conditional average clause” was given to Taino Beach in compliance with the Insurance Act.

Turning to the relevant part in the Act, Sir Hartman wrote: “That provision required the respondents [Summit/Heritage], if they intended to rely upon the condition of average clause, to ‘inform’ the insured in writing of the ‘nature and effect’ of the clause before the contract of insurance on which the claim is made was entered into.

“At the hearing, it was the case for the insurers that they had, on November 27, 2014, prior to the contract taking effect in January 2016, given the requisite notice by dropping off the notice in a package to the appellant’s place of business in Freeport and leaving it with their receptionist.

“Mr Bowleg, of the respondent [Summit], said he had dropped it off and had followed up with Mr Collins of the appellant and, by subsequent e-mail, sought to confirm that the appellant had received the package,” Sir Hartman continued.

“Mr Collins initially denied seeing the package and Mr Bowleg followed up with another e-mail confirming that the package was left with the receptionist. Mr Bowleg did not receive a reply to this e-mail, suggesting that Mr Collins collected the package.”

Now-justice Stewart, inn a December 29, 2017, ruling found that Mr Bowleg delivered the package containing notice of the “conditional average clause” and its implications, and that the quotes were seen by Mr Collins.

However, she then ruled that “this does not mean that he (Mr Collins) would have read the policy or seen the conditional average notice in the policy, which he would have had to have done in order to be notified”.

The arbitrator’s findings turned on what the Insurance Act meant by “informs the insured in writing” of the clause. She ruled that Summit/Heritage had not complied with the law because “the notice was not contained in a separate document” and there was “no evidence that the insured had read or had been asked to read it”.

This, though, was overturned by Justice Charles at the Supreme Court, who found the arbitrator’s ruling effectively set too high a bar on this clause’s interpretation. She held that “inform” meant to tell or provide the insured with a written explanation of the conditional average clause and its effect, and felt the two insurers had met the Act’s definition by delivering it to Taino Beach.

Delivering his verdict, Sir Hartman wrote: “It would follow that given the finding made by the arbitrator that Mr Collins, notwithstanding his denial, did receive from Mr Bowleg the package containing the notice that explained the nature and effect of the condition of average clause, that the appellant [Taino Beach] did have the requisite notice for the purpose of section 214 of the Act.....

“However, even if I had come to the conclusion that Justice Charles was wrong to interpret the word ‘inform’ as she did, I would still, on the evidence, have reached the conclusion that the appellant did have the requisite notice. That is because, in my judgment, the arbitrator ignored relevant evidence in coming to the conclusion that she did.”

Besides insureds having to sign a form indicating they have received notice of the ‘condition of average clause’, Sir Hartman explained: “Once the arbitrator formed the view that Mr Collins was untruthful she was entitled to make other adverse findings against him.

“In the circumstances it seemed to defy ‘common sense and commercial reality’ that Mr Collins, a chartered accountant and the comptroller of the appellant, would not have opened and read the content of the package from the insurers once he was made aware of them, particularly given his request to Mr Campbell ‘to sharpen’ his pencil.

“Significantly, Mr Collins never said in his carefully prepared written statement for the purposes of litigation that he had not read the contents of that package, for if he had it would have been pellucidly clear that the appellant had the requisite knowledge and notice of the condition of average clause.”

Sir Hartman agreed with Justice Charles that the Insurance Act imposed “a low threshold” on insurers, and that they did not have to “go further” - as in this case - and ensure Taino Beach had read it. This, he added, would have contravened a “true construction” of the Act.

“The insurer had to show that the document in writing explains the nature and effect of the clause,” Sir Hartman ruled. “Once that has been done the insurer has discharged its obligation. That was done.” He found the grounds of appeal advanced by Raynard Rigby, Taino Beach’s attorney, to be of little merit.

Ferron Bethell and Camille Cleare of Harry B. Sands & Lobosky represented Summit/Heritage.