The Practical Lawyer


Insurance – ‘premises’ or ‘building’?

The general rule is that if there is a fire, then L’s insurance will be for the benefit of both L and T.

The leading authority is Berni Inns [1986], when the leased premises were destroyed by fire due to T’s negligence. The court decided that L and T intended that if there was a fire, then L’s loss would be recouped from the insurance monies (with L having no further claim against T for damages in negligence). Thus, the Berni Inns principle means that if L insures, then L will normally have no further claim against T.

However, we now have an important caveat to that principle. T ran an Italian restaurant on the ground floor and basement of a freehold building. Fire broke out in the kitchens, which caused severe damage to the ground floor and basement (‘the premises’), and also to the rest of the building (‘the building’). L was insured in respect of the damage to the whole building. But, the insurer (using rights of subrogation) then sued T for the damage caused to the other parts of the building (ie those parts not occupied by T). Surprisingly, that claim succeeded.

Under the lease, L covenanted to ‘insure the premises’ and that was the fatal error (from T’s point of view). The lease did not require L to insure ‘the building’. Accordingly, the Berni Inns principle only applied to the ‘premises’ (ie the part L was required to insure), and not to the rest of the building. There was nothing in the rest of the wording of the lease to imply a contrary intention.

When negotiating a lease on behalf of a T make sure that the insurance obligation on L extends to the whole building (if it does not, then try to agree a provision in the lease to limit T’s potential liability for the rest of the building). See Prezzo v Highpoint [2018] EWHC 1851 (TCC) . Source: Simmons & Simmons.


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