Fire-damaged church owner’s counterclaim for insurance payout dismissed

Lord Boyd of Duncansby (pictured) heard that in January 1998 the defender Lady IAm Hazel Virginia Whitehouse-Grant-Christ purchased a former church building known as St Brandon’s, Boyndie, Banffshire from the Church of Scotland General Trustees for the sum of £20,000 and subsequently arranged insurance cover for the building with the pursuers, Ecclesiastical Insurance Office PLC.

In the proposal form she declared to the pursuers that there was no one residing with her who had been convicted of any offence other than a driving offence and that no business would be operated from the premises.

In the evening of 13 February 2000 the premises were substantially damaged by fire and the following day the defender made a claim on her insurance policy, but that claim was repudiated by letter from the pursuers’ agents on the basis for that the defender’s husband had resided in the premises, and that, it was averred, he had two criminal convictions which were not disclosed.

The pursuers further alleged that the defender’s husband had been operating a business from the premises, which had also not been disclosed.

The pursuers then raised the present action seeking a declarator that they were entitled to avoid the policy on the ground that it was obtained by the non-disclosure of these material facts, which had they been disclosed they would have had a bearing on the assessment of risk and/or the amount of the premium.

Secondly they sought the production and reduction of the policy, and by minute of amendment the pursuers added a further conclusion for a declarator that any obligation on the part of the pursuers arising under the policy has been extinguished by the short negative prescription under and in terms of section 6 of the Prescription and Limitation (Scotland) Act 1973.

The defender disputed the factual basis upon which the pursuers sought to avoid the policy, insisting that her husband was at the time estranged from her and living elsewhere, and that no business was operated from the premises.

In March 2012 she raised a counterclaim which included a conclusion for indemnity under the policy for losses arising from the fire. The conclusions also included ones for payment of “patrimony” and “solatium”, the latter in respect of alleged defamatory statements attributed, in part, to the pursuers.

The pursuers submitted that any obligation to indemnify the defender under the policy arose on 14 February 2000. No relevant claim was made in relation to the obligation until the counterclaim was lodged on 9 March 2012.

They further submitted that the subsistence of the obligation was not relevantly acknowledged by the pursuers. Accordingly, the obligation had been extinguished by the short negative prescription, in terms of section 6(1) of the Act.

In relation to the counterclaim, they submitted that the conclusion seeking indemnification for losses had prescribed. In respect of the rest of the counterclaim, those parts which sought damages for alleged defamatory statements were either “irrelevant”.

Finally the pursuers submitted that the counterclaim was an “abuse of process”.

Turning to the matter of prescription, the judge observed that the issue was whether or not the defender made a relevant claim in relation to the obligation, or the pursuers relevantly acknowledged the subsistence of the obligation, in order to interrupt the running of the prescriptive period. Relevant claims are defined in section 9 of the Act as “a claim made by or on behalf of the creditor for implement or part implement of the obligation, being a claim made (a) in appropriate proceedings”.

The defender’s position was that the presenting of the summons acted to postpone the ascertaining of the obligation, and accordingly, no relevant claim could be made until that matter had been determined.

However, Lord Boyd said: “I conclude that the summons is not a relevant claim for the purposes of section 6 nor does the presenting of the summons to the court act or postpone the ascertaining of the obligation.”

The judge also rejected the argument that the defences to the principal action lodged by the defender could be considered a relevant claim. He explained that a relevant claim must be one in which a creditor seeks payment by way of a conclusion in appropriate proceedings – either to raise her own action of payment or to counterclaim within five years of the obligation subsisting.

The pursuers accepted that the counterclaim itself was a relevant claim for the purposes of section 6. However, since it was not lodged until 2012 on its own it could not have any bearing on the extinction of the obligation.

Delivering his opinion, Lord Boyd said: “For all of these reasons I am clear that there is no answer to the pursuers’ claim that any obligation to indemnify the defender for loss arising from the fire on 13 February 2000 has prescribed. Insofar as the counterclaim seeks indemnification for an insured loss under the policy that obligation has now prescribed for the reasons given above.”

He also rejected the defender’s claims about the alleged defamatory statements, as those statements made in various court processes attracted either “qualified privilege” or “absolute privilege”, but he concluded that the counterclaim did not constitute an “abuse of process”.