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Earlier this year Judge Coulson had to decide Tonkin and Another vs UK Insurance – a claim by homeowners against their insurer. To any homeowner, the facts of this case are a nightmare, and the result was a serious defeat for the claimants. It’s little comfort to them, but the judge set out some guidelines that may assist anyone unfortunate enough to find themselves in the same position.

The bare bones of the story are as follows. In 2002 a fire destroyed the claimants’ home. Both the house and its contents were insured by the defendant. Amazingly, by 2006 the house had not been rebuilt and the claimants were engaged in a bitter dispute with their insurer over the cost of reinstatement.

Here is a sample of what went on. The claimants alleged that the insurer had wrongly delayed paying the claim. At one stage they secretly recorded a meeting with the company. They also referred the matter to the financial ombudsman.

The insurer then wrongly repudiated liability, and at the trial it alleged fraud, an allegation that the judge rejected. The dispute seems to have been bedevilled with mistrust and antagonism.

A central issue was a disagreement as to the correct value of the claim. The insurer’s obligation was to pay the cost of reinstatement. The claimants’ obligation was to provide the insurers with proper information as to that cost. The insurers complained that the claimants had failed to do this. Result: stalemate.

The judge set out some guidelines as to the proper approach for reinstatement claims. If ever you have to make such a claim, it would be as well to bear them in mind.

The insurer’s estimate ofthe cost of reinstatementwas considerably lowerthan that of the claimants. Result: stalemate

He said an insured in this position has a number of options, which he identified. In option one, the insured decides to reinstate the destroyed property to a condition that mirrors what was there before. A detailed specification or bills of quantities with drawings should be prepared and agreed with the insurers, with budget costs.

In option two, the insured decides to incorporate minor changes to what was there. These should be clearly identified to the insurer at the outset.

In option three, the insured decides to make significant changes to what was there before. It is even more important in this option that the changes are identified and agreed, again with detailed drawings, specification and/or bills of quantities. It is essential in options two and three that the parties are able to identify what either party is to pay for.

What the insured must not do is to go for option two (minor changes) or option three (significant changes) then try to persuade the insurer that they have really chosen option one, or sit back and wait for the insurer to spot the improvements and changes. The judge said it was never acceptable to be less than open with an insurer.

The judge found that the claimants had sought to introduce changes to what had been there before the fire, but without telling the insurers. This was an approach that left it to the insurers to identify changes and improvements, and was wrong in principle. He found the insurer’s sceptical response to the claim to have been justified. The outcome was that not only did the claimants not have a rebuilt house by the time of trial, but they also lost the case. They were ordered to pay costs. What is more, the judge ordered costs to be on an indemnity basis, describing the claimants’ behaviour as unreasonable.