Fire is an ever-present threat to occupiers of commercial property and, all too often, they only discover after the ash has settled that they are under-insured. In one such case, however, the High Court came to the aid of a gifts retailer which lost millions after its warehouse premises went up in flames.

The retailer occupied part of a warehouse owned by a logistics company. Following the blaze, it lost many millions of pounds in sales and had to spend over £2 million on fitting out new premises. It duly claimed on its commercial combined insurance policy, which included business interruption cover.

Unfortunately, however, the sum insured under the business interruption cover was based on a forecast of gross profits of £24.9 million over a two-year period. Given the terms of the policy, the correct figure should have been more like £33 million. The retailer was, as a result, under-insured and recovered only 74 per cent of its losses from its insurer – £9.25 million instead of £12.17 million.

In seeking to make up that shortfall, the retailer launched proceedings against the insurance broker through which it had purchased the policy. It alleged that, had the broker given proper advice, it would have been fully insured. The broker had, amongst other things, provided the retailer with a misleading explanation of how it should go about calculating the sum insured.

Ruling on the matter, the Court found that the broker had, in more than one respect, breached the duty of reasonable care it owed to the retailer. However, the retailer had itself been careless in failing to apply a reasonable methodology when forecasting future gross profits. On that basis, the retailer's damages were reduced by 20 per cent. Its award came to £2,336,842.