The First Hall of the Civil Court, presided over by Madame Justice Lorraine Schembri Orland, on October 3, 2013, in the case “Joseph Cutajar v Middlesea Insurance plc” held, among other things, that the flooding which caused the damage could qualify as an event of force majeure, in respect of which Joseph Cutajar could not be held liable to his customers for losses suffered by them. In this respect, the insurance company could not be held liable to cover such damages.

The facts in this case were as follows: Joseph Cutajar took out an insurance policy from Middlesea Insurance plc to insure his business premises where he carried out an upholstery business from his shop in Triq il-Wied, Msida. The policy covered damage suffered from bad weather, storms and flooding against the risk of damage to all plant and machinery stock in trade, all other stock and goods in trust, office equipment as well as all other moveable items in the shop.

On September 15, 2003, Cutajar’s shop was flooded by rainwater, causing damages of up to Lm16,814. In his shop there were several items belonging to his customers. Without first consulting the insurance company, Cutajar went ahead and paid his customers the value of these belongings, which were ruined in his shop, in the hope of obtaining reimbursement from the insurance company.

The Insurance Company, however, refused to pay the full value of the lost items.

Faced with this situation Cutajar proceeded to file legal proceedings against Middlesea Insurance, requesting the court:

• To declare that he suffered damages amounting to Lm16,814 or such other amount to be established by the Court in the storm of September 15, 2003;

• To declare that the insurance company was to be held responsible to pay the damages and this according to the policy of insurance issued in his favour and;

• To order the insurance company to pay damages (Lm16,814) or such other sum.

In reply, the insurance company accepted responsibility but disputed to pay the amount claimed by Cutajar. It agreed to pay only the amount which it was obliged under the insurance policy.

It appeared that a substantial amount of Cutajar’s claims represented losses suffered by Cutajar’s customers, whose items were destroyed in the flooding.

At issue was whether Cutajar could recover what he had paid out to his customers, or whether the amount claimed had to be adjusted according to the clause on “average’’ and “under insurance’” in the policy.

An insurance policy was a contract binding upon the parties. The cardinal rule relating to contracts was that an agreement had to be respected and it was the intention of the parties as expressed in the agreement which had to prevail, and which had to be observed – this was the so-called pacta sunt servanda, re: (AC) Gloria wife of J. Beacom et v Architect Anthony Spiteri dated October 5, 1998.

Articles 1002 and 1003 of the Civil Code provide that:

“Where, by giving to the words of an agreement, the meaning attached to them by usage at the time of the agreement, the terms of such agreement are clear, there shall be no room for interpretation.’

“Where the literal meaning differs from the common intention of the parties as clearly evidenced by the whole of the agreement, preference shall be given to the intention of the parties.’’

If a contract was clear, there was no room for interpretation: Anthony Spiteri v Alfred Borg (PA) (RCP) dated November 30, 2000.

An agreement had to be understood as a whole. A clause in a contract had to be read in the context of the entire agreement: PL John Privitera noe v PL Ivo Galea et (5) dated May 11, 1988.

It had to be construed objectively, in its ordinary sense: J. Zammit v Michael Zammit Tabone et noe (App) dated February 28, 1997.

The court noted that in the circumstances the contract of insurance covered the period between October 26, 2002, and October 25, 2003, and was still valid at the time of the flooding incident.

Trade contents were defined as: “Plant and machinery; stock in trade; all other stock and goods in trust; office equipment; all other contents,’’ and included ‘property of the insured’ as well that “held in the care, custody and control of the insured while contained on the (insured) premises”.

The insurance company argued in its defence that under the policy, it was not responsible for damages caused by force majeure to the property belonging to third parties.

Public liability insurance: “The cover afforded by a public liability policy is normally an indemnity against legal liability to members of the general public as distinct from employees of the assured or members of his family or household.’’ (Halsbury’s Laws of England vol. 22 paragraph 710)

It was not in dispute that the insurance policy covered losses to Cutajar’s property in a storm, tempest or flood. This comprised all trade contents belonging to the assured on, for whom he was responsible in or on the premises.

Section 5 of the policy, entitled Public Liability, stipulated that: “The company will indemnify the insured against all sums which the insured shall become legally liable to pass as compensation… in respect of…(2) accidental loss of or damage to any property occurring in connection with the business.’’

Public liability insurance provided indemnity to the assured for damages paid by the assured to third parties, in respect of which he was legally responsible.

In order to insure property, a person had to have an ‘insurable interest’ – he need not be the owner. “Where a person by contract of otherwise is responsible for the safe custody of property; his potential liability to the true owner in such a case may be the foundation in whole or in part, of his having an insurable interest up to the full value of the property.’

“There was an insurable interest if the assured may be said to benefit by the continued existence of the property or life insured and will suffer a loss by reason of its damage or destruction.’’

Cutajar was impeded from recovering the full value of the damages suffered. The effect of this clause was the assured assumed the risk for the difference in the value declared and the real value of the insured object

If the assured had an insurable interest, he could insure the property.

The policy covered liability in respect of which the assured was legally responsible. This was the basis of public liability policy.

The court had no doubt that Cutajar compensated his customers in good faith and honestly, but this was not sufficient for the insurance company.

Contract of deposit: the depositary was not responsible for force majeure, unless he failed to return the thing, when requested.

He was only liable on the basis of fault. For it to be deemed that the thing deposited was lost for reasons of force majeure, it had to be shown that the depositary had taken all necessary and reasonable steps for the thing held in deposit to be kept in safety.

The court had no doubt that the flooding which caused the damage could qualify as an event of force majeure, in respect of which Cutajar could not be held liable to his customers for losses suffered by them.

Under insurance and average: The insurance policy, under the heading Trade Contents, stipulated that “each sum insured is declared to be subject to average, that is to say that if the property insured hereby at the time of any destruction, damage or loss be collectively of greater value than the sum insured thereon, then the insured shall be considered as being his own insurer for the difference and shall bear the ratable share of the loss accordingly.’’

By virtue of this clause, Cutajar was impeded from recovering the full value of the damages suffered. The effect of this clause was that the assured assumed the risk for the difference in the value declared and the real value of the insured object.

The assured was his own insurer for the difference and as a consequence the assured was to bear a ratable portion of the loss. The insurance company accepted Cutajar’s receipts and calculated the adjustment on the basis of these receipts, (Lm4,150).

The court said that the system of calculating average was not contested. Cutajar only disputed the application of average and this court had no reason to discard the calculations of adjustment which were made by the insurance.

For these reasons, on October 7, 2013, the court gave judgment by accepting Cutajar’s request limitedly. It held the insurance company to be only responsible to indemnify Cutajar €9,668 under the insurance policy, and condemned it to pay this amount, with legal interests from April 26, 2004, the date of the judicial letter up to the date of payment.

Dr Karl Grech Orr is a partner at Ganado Advocates.