Horbury Building Systems Limited had erected ceilings within in a cinema complex. The ceiling to one of the cinemas collapsed, and the whole complex had been closed for several weeks. Clause 4.1 of the insurance policy said that Hampden Insurance would indemnify Horbury Building Systems “in respect of … damage to the property”. Horbury Building System argued that the loss of profit caused by the closure of the entire cinema complex arose as a consequence of the damage to one of the cinemas. The insurance company did not agree, believing that the damage related only to a single cinema and not the whole complex. The judge agreed with the insurance company, and Horbury Building Systems appealed.
Was the closure of the complete cinema complex as a result of one ceiling collapsing and/or was the closure of the complex consequential damage caused by the collapsed ceiling?
The judge at first instance was correct. The insurers had not indemnified Horbury Building Systems for loss of profit to the whole cinema complex. The policy covered liability for the physical consequence of the collapse of the ceiling in the cinema and the economic or financial losses caused by that physical damage. It did not extend to the closure of the entire cinema, especially given that the collapse of the ceiling in one cinema did not prevent the rest of the complex from operating.
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This was case about the extent of cover offered by the insurance policy. The insurance company indemnified the builder in respect of financial consequences of damage to the property. In this instance, the damage was caused to only one cinema, and so the building was covered for the financial losses arising from the loss of the use of that cinema. However, it did not cover the building for closure of the rest of the complex, even if the builder was held liable for the cinema operator’s loss of profit for the whole development. The case demonstrates, as indeed do may insurance cases, that insurance cover is only as wide as the terms of the policy which may be more limited than the liability of the insured to others.