In the courts: High Court saves tenants from insurance nightmare

The High Court delivered judgment last month in Fresca-Judd v Golovina, a test case raising important questions on tenants’ liability for damage to property.

The background

Ms Golovina entered into a lease of a four-bedroom property in Wiltshire at a rent of £2,800 per month with Ms. Fresca-Judd.

The terms of the lease obliged

  • (a) the tenant to leave the heating on when away from the property and
  • (b) the landlord to insure the property against damage.

The parties had also added a clause into the standard form contract providing that the tenant would compensate the landlord in the event that fire damage afflicted the property.

In December 2010, Ms Golovina left the property for two weeks. While she was away, pipes in the property froze and burst, causing £128,000 of damage. The landlord was fully compensated by the insurer of the building, NFU Mutual.

However, the insurer commenced a subrogated claim against Ms Golovina, seeking reimbursement of the monies they had paid to the landlord. The insurer alleged that Ms Golovina, in breach of the terms of her lease, had turned the heating off when she left the property, which meant that the water in the pipes froze over.

While Ms Golovina was adamant that she had left the heating on, a plumber’s record stated that when he attended the property immediately after the flood being discovered, the heating system was turned off. Further, the estate agent’s record referenced a telephone call with the tenant’s partner, who allegedly stated that they had turned the heating off before leaving.

The issues

The pertinent issues to be considered were:

  • whether the insurer was entitled to bring a subrogated claim against the tenant; and
  • whether, on the balance of probabilities, the tenant had turned off the heating and was therefore liable for the damage.

On the first point, the court held that where a landlord takes out an insurance policy for the benefit of the landlord and the tenant, the landlord could only be compensated by the insurer and could not pursue the tenant. In this case, the clauses in the lease demonstrated a common intention that the insurance policy would benefit both landlord and tenant, even where the tenant was responsible for the damage.

This was particularly so because the parties had included an additional term as to the consequences of damage caused by fire, which was consistent with the intention that all other damage would be covered by the insurance policy; it had been argued that the rent might have been lower had the insurance not been for the benefit of the tenant as well.

This conclusion was found to align with the requirement of reasonableness and with public policy: parties to short-term leases would expect that insured risks would be covered by the landlord’s insurance policy; if the insurer could pursue a tenant under a subrogated claim, tenants would require their own insurance to cover the same risks. (Mark Rowlands v Berni Inns Ltd [1986] QB 211 applied).

On the second issue, the court found that the landlord had not succeeded in proving that the heating system had been switched off by Ms Golovina, and it remained possible that the heating had simply failed.

Why’s it important?

This decision is highly significant in what it did not do. A ruling in favour of the insurance company would have placed tenants across the country at risk of claims for losses that they would have expected to be covered by their landlord’s insurance policy.

Had the claimant succeeded, this would have necessitated the prudent tenant taking out their own insurance policy in respect of their rented property, and could have spelt financial ruin for tenants who had caused damage to a property by their negligence in the absence of separate insurance cover.

While this no doubt would have been welcome news for the insurance industry, it would have placed a considerable additional financial burden on a generation of renters. As for landlords, it remains to be seen whether this decision will lead to an increase in insurance premiums paid by landlords.

The case was believed to be the first of its kind in a residential context; that might suggest that the insurance industry had been charging lower premiums in the expectation that they may be able to recover the costs of payouts to landlords where damage results from negligence on the part of a tenant.

However, while this decision is significant, it is clear that the decision turned on the terms of the lease, which were taken to be strong indicators of to the parties’ intentions. The door therefore remains open for future cases to be brought based on similar factual matrices, but with more opaque lease provisions.

Katrina Mather is a barrister at Hardwicke Chambers. Read more from Hardwicke here.