Sale of Premises, Risk Passing and Insurable Interest
Harbour View Developments contracts to sell a retail unit to Bluegate Retail for £1.8m. Contracts are exchanged on 1 March, completion is 1 May, and the sale contract provides that risk passes on completion. Harbour View's property policy with Crescent Insurance runs to 31 December and covers the unit for £2m. It contains a condition: 'Cover ceases on any sale or transfer of interest unless the insurer agrees in writing to continue cover.' On 15 April a fire caused by an electrical fault damages the unit; the cost of repair is £600,000. Harbour View has not told Crescent about the sale. Bluegate has its own property policy, but it only covers properties from the date it takes possession. Harbour View claims £600,000. Crescent says the policy ceased because the unit was 'sold' on exchange, and that Harbour View no longer has an insurable interest.
1. Who had an insurable interest in the unit on 15 April, and why?
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Insurable interest in property requires a legal or equitable interest, or possession, such that the insured benefits from preservation and is prejudiced by loss. Harbour View retains the legal estate until completion and, under the sale contract, bears the risk until completion. If the unit is damaged, it must repair or complete at a reduced value. It therefore has an insurable interest on 15 April. Bluegate has an equitable interest on exchange, but risk has not passed and it has no possession. Its loss is not yet actual; if it is obliged to complete at full price, it may suffer a loss, but that does not transfer the property risk. The seller's interest is the primary one. The fact that the buyer has its own policy does not affect the seller's cover.
2. Can Crescent rely on the cessation condition to refuse the claim? Consider the wording and the timing of the fire.
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The condition is a cessation clause: 'cover ceases on any sale or transfer of interest'. The critical question is whether exchange of contracts is a 'sale' or 'transfer of interest'. Exchange creates an equitable interest but does not transfer the legal estate; completion does. The clause also speaks of 'transfer of interest', which points to completion. A court would construe the ambiguity against the insurer that drafted it. The fire occurred before completion, so cover had not ceased. If the clause had said 'on exchange of contracts', the result would be different. Non-disclosure of the sale is a separate point: the sale is a change in risk, but the policy expressly provides for sales, and the insurer must show materiality and inducement. On the wording, Crescent cannot rely on the clause. The claim for £600,000 is within the sum insured and represents the repair cost.
3. What would be the position if completion had occurred on 10 April and the fire on 15 April, with no assignment of the policy to Bluegate?
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After completion, legal and beneficial ownership passes to Bluegate, and Harbour View no longer has an insurable interest unless it retains a liability or risk. The policy condition would also cease cover on sale. Bluegate cannot claim under Harbour View's policy: it is not a party, and a property policy is not automatically assigned with the property. Assignment requires the insurer's consent or a contractual/statutory mechanism. Bluegate's own policy only starts when it takes possession, so there may be a gap. If Harbour View had assigned the policy with Crescent's consent before completion, Bluegate could claim, but the insurer would need to agree. The loss would fall on whoever bears the risk; here that is Bluegate after completion.