Outer House allows proof in multi-defender warehouse fire insurance action

About this case:

• Citation:
  [2026] CSOH 71
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Sandison

An industrial unit owned by the pursuer was occupied by a tenant to carry on a waste-processing business. After its insurer denied liability following a devastating fire at the unit in 2021, the pursuer brought claims against the tenant and its cautioner, as well as against its insurance broker.

The case was heard by Lord Sandison, with Kenneth McBrearty KC appearing for the appellant, Ross McClelland KC for the first defender and Jonathan Barne KC for the second and third defenders.

Fire caused by gas-fired burners

The pursuer was the owner of a large industrial unit in Bellshill. In terms of a lease between the pursuer and the second defender, the pursuer instructed the first defender, an insurance broker, to arrange a policy to insure the unit against various risks, including fire. A policy was duly arranged, taking effect from December 2020. As part of its waste-processing business, the second defender began in March 2021, without informing anyone, to use gas-fired burners at the site. Several months later, a devastating fire started by one of the gas-fired burners broke out in the unit, resulting in its total destruction.

The insurer denied liability. In terms of an endorsement to the policy, its liability was expressly conditional on the electrical systems at the unit having been inspected within two months of the policy’s inception. No such inspection took place. Moreover, a further endorsement to the policy observed that no composite or sandwich panels were present at the premises, a stipulation contrary to the position in fact. Finally, the pursuer had not given a fair presentation of risk at the inception of the policy, justifying avoidance ab initio in terms of the Insurance Act 2015 as well as of clause 25 of the policy itself.

Seeking damages of approximately £5.25 million, covering the insured value of the unit and a sum for lost rents, the pursuer averred that each of the defenders were responsible for the loss it had suffered. Had its insurance broker acted with due care, the pursuer argued, it would have obtained a policy covering the relevant risks at the relevant date. Had the tenant informed the pursuer about its proposal to use gas-fired burners at the unit, moreover, insurance cover in respect of such additional risks would have been obtained. Should the tenant be unable to pay damages in the amount sought, the third defender, a cautioner of the tenant’s obligations under the lease, would instead be liable.

‘Unlikely to be easy’ to establish causal link

Beginning his decision, Lord Sandison observed that: “It is appropriate, indeed necessary, in a case like this to consider the precise sequence of events and their legal effects in determining which particular event or events caused or made a material contribution to the loss in respect of which the pursuer maintains its claim. In order to determine the causal contribution, if any, which the alleged breach of contract on the part of the second defender made to the pursuer’s loss, it is necessary first of all to determine where matters stood when that supposed breach took place in March 2021.”

Addressing the pursuer’s arguments regarding the construction of various named clauses of the policy, he continued: “I doubt that it would be useful to attempt any sort of detailed textual analysis of this and the other generic clauses in the policy; they come from what is effectively a booklet seemingly compiled to provide general wording apt to cover a wide variety of circumstances that might or might not be relevant to a particular policy of insurance issued by the insurer, with the unhappy result that while all sorts of eventualities are dealt with to some extent, one is left with the distinct impression that none is dealt with in an especially considered manner. The drafter of the booklet … appears to have a serious aversion to punctuation of any kind, with no obvious explanation for the few exceptions to that rule, all adding to the rather impressionistic air which the text conveys.”

Summarising the position at the date of the second defender’s alleged breach of contract, Lord Sandison noted: “[A]s at that date, there was no policy cover against damage to the unit by fire, because of the failure of the pursuer to comply with the electrical installation inspection condition precedent by 7 February 2021. If that had not been the case, and cover against damage by fire had remained in place during March 2021, the failure of the second defender to disclose that it was going to start using gas burners, and their use, would not have entitled the insurer to avoid the policy as against the interests of the pursuer because of Clauses 3 and 4 of the Property Damage section of the policy (the loss of the unit by fire further not being damage excluded from the insurer’s liability by Clause 8). However, the insurer would have been entitled to (and in due course did) avoid the policy as a whole ab initio because of the pursuer’s failure to make a fair presentation of the risk in relation to the presence of composite panels at the unit.”

Reasoning on that basis that “the absence of cover from the policy … was not in any way caused or contributed to by the second defender”, he added: “A relevant case [for the pursuer] could only consist in a claim that fulfilment of its supposed obligations by the second defender would have fixed the problem which had been created, according to the pursuer’s case, by the first defender … I consider that it is at least arguable that the deployment of the gas burners amounted, in the abstract at least, to the use of the unit for a purpose which might have made an additional premium payable for its insurance … If the pursuer is ultimately able to establish that the second defender committed such a breach of contract, it will then have to establish a causal link between that breach and the loss it claims to have suffered in the form of having no insurance cover for damage to the unit by fire when it was destroyed by that mechanism. That seems unlikely to be easy to do … [but l]ikely difficulties in the way of the pursuer proving what will be required of it are not sufficient to deny it the opportunity to attempt to do so.”

Lord Sandison accordingly allowed the case to proceed to proof.