Castellain v Preston
A contract of fire insurance on property is a contract of indemnity only, so an insurer who has paid the vendor is entitled to the benefit of the purchase price later received from the buyer.
Facts
Mr Rayner agreed to sell his house to Mr Preston and others, and insured it against fire. Before completion, the house was damaged by fire, and Mr Rayner's insurers paid him for the damage. The buyers then completed the purchase and paid the full price, without any reduction for the fire damage. The insurers sued Mr Rayner to recover the amount they had paid, arguing that he had suffered no loss because he had received the full price.
Legal principle
The Court of Appeal held that the insurers were entitled to recover the amount they had paid. Brett LJ said that the very foundation of every rule which has been applied to insurance law is that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that the assured shall be fully indemnified but shall never be more than fully indemnified. The insurer, on paying the loss, is entitled to be placed in the position of the assured, and to have the benefit of every right of the assured by which the loss may be diminished. Mr Rayner had been fully indemnified by the purchase price, so he had to account to the insurers.
Related cases on coverage, causation, claims and subrogation
- Agapitos v Agnew (The Aegeon) [2002] EWCA Civ 247, [2003] QB 556
- Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1, [2021] AC 649
- Galloway v Guardian Royal Exchange (UK) Ltd [1999] Lloyd's Rep IR 209
- Global Process Systems Inc v Syarikat Takaful Malaysia Berhad (The Cendor Mopu) [2011] UKSC 5
- Gray v Barr [1971] 2 QB 554
- Lexington Insurance Co v AGF Insurance Ltd [2009] UKHL 40, [2010] 1 AC 180
- Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350
- Lord Napier and Ettrick v Hunter [1993] AC 713
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