Should insurers indemnify an insured on a reinstatement basis in a property damage claim even where the insured had taken no steps to reinstate eight years after the incident? This was the issue before the court in Sartex Quilts and Textiles Limited v Endurance Corporate Capital Limited [2019] EWHC 1103 (Comm). It held that an order for indemnification was appropriate and all circumstances, including events before and after the incident and up to the trial, were relevant to determining the basis of the indemnity.

The facts

The insured held a policy covering buildings, plant and machinery at its factory. On 25 May 2011 a serious fire severely damaged the factory, causing one fatality and plant and machinery were a total loss. The insured sought an indemnity under the policy on the reinstatement basis even though it had not yet incurred any reinstatement costs.

The insurer maintained that the claim should be settled based on a market value assessment of the damage, resulting in an indemnity of £2,141,527. It said that the conditions of the reinstatement clause had not been met, specifically that the insured had not yet incurred any reinstatement costs and had not done so "without reasonable delay". This was the insurer's argument both in 2011 (at the time of initial settlement) and at trial in 2019.

Reinstatement or market value?

The insured maintained that it was entitled to seek an indemnity on the reinstatement basis under the main insuring clause of the policy, which provided indemnification "against loss" caused by the fire.

Intention to reinstate

The insurer did not dispute that the main insuring clause allowed indemnification on either a reinstatement or market value basis, but argued it could only apply if the insured could evidence an intention to reinstate the factory at the date of the loss and on a continuing basis up to the date of trial, demonstrating a "genuine, fixed and settled intention to reinstate what was lost or damaged."

The insurer contended that the absence of remedial works in the eight years since the fire, evidence of the insured's alternative redevelopment and relocation proposals and betterment as a result of a reinstatement indemnity showed the insured did not hold a fixed intention to reinstate.

Avoiding overcompensation

In order to ensure that the insured was not overcompensated for its loss, the Court had to establish what loss had been suffered by the insured as a result of the fire and what measure of indemnity fairly and fully indemnified for that loss. Attention was focussed upon the insured's intentions as at the time of (and immediately before) the fire. The insured was held to have shown on the facts that it had intended to reinstate at the time of the fire, immediately following the fire and up to the trial.

As such, the insured was not required to show a continuing "genuine, fixed and settled intention to reinstate" as was contended by the Insurer.

The insured's intention to reinstate continued despite no remedial works commencing after eight years and there being evidence of their consideration of other potential business options alongside reinstatement, such as redevelopment and relocation. The Court held that there was no obligation upon the insured to carry out business at the factory for "all time".

All circumstances to be considered

The Court was therefore satisfied that all of the circumstances, including events before and after the fire, and up to and including the trial allowed an award on the reinstatement basis both in respect of the buildings and the plant and machinery.

No deduction for betterment

Due to the Court's decision, the insurer contended that the insured would be receiving "new for old" and therefore in receipt of a benefit, which required an appropriate reduction to account for the better condition and quality of the "new". This, the insurer argued, would ensure that the indemnity reflected the actual loss and no more.

The insurer proposed a deduction of between 25-33% to reflect the betterment the insured would receive. However, the Court found that these were circumstances where the benefit was an "unavoidable consequence of the loss" as the insured had chosen (or received) the most reasonable and least expensive option available to him to reinstate the factory. To make a deduction would deprive the insured of a full indemnity.

Accordingly, the insured was awarded an indemnity on the reinstatement basis with no deduction for betterment.


This ruling acts as a valuable demonstration that when assessing loss in property damage claims, the insured's attitude towards the building, at the time surrounding the incident and after, will be closely scrutinised.

Insurers can no longer rely on reinstatement clauses that require reinstatement to begin "without delay" to catch insured's in the market value net. Impecunious insured's who are unable to source funding for the works until the reinstatement level indemnity is paid out will find more security in this decision.

What is on the horizon for 2020?

The appeal

The appeal case will be heard by the Court of Appeal in January 2020.

Insurers wishing to argue betterment deductions on reinstatement indemnities will have to provide strong evidence to justify this until judgment is handed down from the appeal. Regardless of the outcome of the appeal, insurers may wish to consider the inclusion of express betterment provisions within policies to protect against the inevitable increase in indemnities as a result of this current decision.