Legal issues following major damage to your premises

BT handled over 33 million 999 calls last year, of which a significant number would have led to the emergency services attending business premises. An emergency can arise from many foreseen and unforeseen situations, the most common being fire, flood, explosions, vehicle impact and spillages.

Serious damage to business premises can inflict long term harm on a business. It may even affect other businesses, for example a fire at a chemical plant in the Midlands in 2021 forced the evacuation of a neighbouring covid vaccine laboratory.

The nature of your business and the nature of the incident will determine how quickly you can resume normal business. But with timely advice and assistance from an experienced and knowledgeable lawyer, the harm can be substantially minimised.

Planning for emergencies

Section 8 of the Management of Health and Safety at Work Regulations 1999 requires a business owner to have made plans for procedures, in the event of an emergency, to save lives.

If your business needs to store dangerous substances, your business also needs to comply with the Dangerous Substances (Notification and Marking of Sites) Regulations 1990.

Emergencies plans should be kept under regular review. Our solicitors will help you understand the regulatory framework for your industry, and we can provide advice on statutory compliance in planning for emergencies.

Business continuity planning

Ensuring the safety of employees and making the premises safe is only stage one.

You also need to consider whether the is business safe, and how it can survive the damage caused by the emergency. It is vitally important to have a disaster recovery plan that is up to date and ready to be implemented.

Notifying the insurers should be part of the emergency plan, as should notifying the landlord if you are a tenant.

We are able to advise you on the terms of your insurance policies and your lease if appropriate, and any implications for assessing the consequential costs to your business.

Investigations

A key feature of the investigation of a serious emergency will be the line of questioning from the insurers. If there is a criminal investigation, typically for  a breach of the Health and Safety at Work Act etc 1974, there will be overlap in the line of questioning and the extent to which the insurer will want to wait for the outcome of the criminal investigation for the determination of the facts.

Such investigations can be nerve-racking for everyone involved, and it can be helpful for a solicitor to attend and support directors and staff during any investigations that may involve interviews under caution by the police or the Health and Safety Executive.

Collecting and preserving the evidence

You will need to collect as much evidence as possible to support your insurance claims.

In regard to the property damage, CCTV recordings and photographs of the property before and afterwards will be helpful. Take care to maintain an accurate record of expenditure on any urgent and essential repairs to make the property safe, or other costs necessary to mitigate the losses.

You should expect to produce an inventory of goods and materials and the work in progress that was lost. Have any materials been damaged or destroyed that are subject to a retention of title by suppliers?

Calculating the value of lost business is also complex, so you will need evidence of future sales in the order book. If you had plans for expansion and investment into the business, can you back this up with documentary evidence, such as board minutes?

Collecting and preserving evidence is vital. We have the knowledge and experience to work with a team of experts to analyse the evidence and maximise the recovery of your losses in presenting a claim to the insurers.

Recovering losses

Identifying the fullest extent of the losses is essential in seeking recovery of the total cost of the damage and lost production for the future. More contentious is the analysis of the loss of production, business interruption and consequential loss of profits.

The insurer will employ a loss adjuster who will investigate the claim on its behalf to establish the cause of any loss and to determine whether it is covered by your insurance policy. The scope of the insurance policy and the extent of the loss are often disputed by the insured, so it pays to employ an independent loss assessor. Sometimes the nature of the damage is very specialised, and the loss assessor will need to put together a team of experts.

In many situations there will be an urgent need to replace buildings, equipment, and plant, but that is not always the case. There has been a recent judgment from the Court of Appeal arising from an insurance dispute following a fire that highlights the need to identify the fullest extent of the losses.

The facts in the case of Endurance Corporate Capital v Sartex Quilts and Textiles [2020] EWCA Civ 308 involved a fire that seriously damaged the insured’s premises. The insured made a claim under its policy for material damage and business interruption. Although liability was accepted by the insurer, the criteria for assessing the value of the damage was disputed.

Under the terms of the policy, the insured was entitled to an indemnity on a reinstatement basis, but only if reinstatement had commenced and proceeded without unreasonable delay and that costs of reinstatement had been incurred. However, the insured had not commenced any works to reinstate the premises, and no costs had been incurred. Although there was no disagreement that the reinstatement works conditions had not been met, the issue was as to the criteria determining whether the indemnity should be on a reinstatement basis or market value basis.

After taking all the facts and arguments into consideration presented by the respective legal teams, the Court of Appeal decided that the insured had an entitlement to be compensated on a reinstatement basis, even though the reinstatement did not have to be the same as had been destroyed. The court did not establish any fundamental principle for the basis of assessing loss because it acknowledged that every case would have its own unique facts.

We can help

If you are thinking ahead and would like expert input to your disaster planning, or if you need advice following a particular incident, then we have a team of lawyers who can help.

For further information, please contact Neil Largan or Aoife Hennessy in our Dispute Resolution team on 01904 624185.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.