Zimbabwe insurer ordered to rebuild burnt factory

In a landmark ruling that could significantly influence the handling of insurance disputes in Zimbabwe, the High Court has ordered Alliance Insurance Company (Private) Limited to reconstruct a factory destroyed by fire, compelling the insurer to honour its obligations under a US$24 million policy.

Justice Takuva delivered the judgment last Wednesday, affirming the right of an insured party to demand specific performance once an insurer elects to reinstate or rebuild damaged property.

The court ordered Alliance Insurance to rebuild the factory located on Stand 3991 Salisbury Township, also known as 14 Plymouth Road, Southerton, Harare, within six months from the date of the order.

The property belongs to Paramount Exports (Private) Limited, a garment manufacturing company. The factory was gutted by fire on December 4, 2023, resulting in extensive damage to the building, machinery and stock.

Following the blaze, Alliance Insurance acknowledged liability under the policy and opted to reconstruct the premises. However, after months of delays and disagreements over foundational cracks and incomplete architectural drawings, the insurer sought to withdraw from the rebuilding process and instead offered a cash settlement.

Paramount Exports rejected the proposed US$3.9 million payout, arguing that it was grossly inadequate compared to an estimated US$15 million required for full reconstruction, as assessed by independent experts.

In his ruling, Justice Takuva dismissed the insurer's attempt to substitute monetary compensation for reconstruction, emphasising that the election to rebuild was binding.

"Contracts of indemnity often give the insurer the option of paying the amount of the insured's loss in cash, reinstating, or replacing the property insured. Once the insurer has made its election, it cannot change its mind," the judge said, citing principles rooted in Roman-Dutch law.

The court considered three key issues: whether Alliance Insurance had fulfilled its contractual obligations, whether Paramount Exports was entitled to compel reconstruction, and whether the insurer could rely on an arbitration clause to stay court proceedings.

Justice Takuva ruled that the insurer had failed to perform in accordance with its election to rebuild and could not evade judicial scrutiny by invoking arbitration.

The court further found that Paramount Exports had acted reasonably in commissioning independent foundation tests and engaging the City of Harare over safety and compliance concerns.

"These steps were necessary to ensure proper reconstruction," the judge observed, rejecting the insurer's claim that the company's actions had caused delays.

He concluded that Alliance Insurance remained liable for the consequences of its failure to perform adequately, stating that alleged deficiencies in foundational work did not absolve the insurer of its contractual responsibilities.

The ruling is expected to set a significant precedent in insurance law, particularly in reinforcing the principle that insurers are bound by their election once made under indemnity contracts.