Insurer Justified in Refusing Indemnity for MisrepresentationPark Square Barristers
Dalecroft Properties Limited v Underwriters  EWHC 1263
Last month I discussed the Court of Appeal decision in Ashfaq v International Insurance Company of Hannover PLC  EWCA Civ 357 in which the insurers were held to be entitled to avoid a commercial landlord policy on grounds of non-disclosure of pending criminal proceedings. The Courts again considered avoidance for misrepresentation and non-disclosure in this latest case heard by Judge Slater in the Queens Bench Division.
The owners of a mixed commercial and residential premises claimed for an indemnity under an insurance policy following a fire. When providing information to obtain the original insurance in August 2007 the claimant had indicated that the property was in good condition and had never been subject to malicious acts or vandalism. In October 2007, a fire inspection revealed that the premises were in a very poor state of repair and there were complaints about disturbances from acts of vandalism. In June 2008, the local authority issued an emergency prohibition order (EPO) requiring the immediate evacuation of the residential parts of the property. In July 2008, a police officer was attacked at the property while investigating a reported flood. In August 2008, the claimant provided the same information as in 2007 to obtain a renewal of the policy, except for stating that the residential units had become vacant in preparation for refurbishment. A new policy was issued. In November 2008, that was replaced by a further policy to incorporate various amendments. In 2009, the property was destroyed by fire. The defendant underwriters sought to avoid the policy on the grounds of misrepresentation as to the condition of the property and non-disclosure of the EPO as the true reason for the vacancy of the residential units. They asserted that the policy in issue was that of August 2008, since the November policy purely gave effect to amendments to that policy. The claimants sought to rely on the November policy as the one in force at the date of the fire, claiming that it had replaced the August policy.
It was held that;
- Prior to the coming into force of the Insurance Act 2015 the Marine Insurance Act 1906 applied to all types of insurance. Under the 1906 Act, a disclosure obligation arose in full on each renewal of the contract so that the insured was required to disclose matters which ought to have been disclosed at its inception or at an earlier renewal where those facts remained relevant to the new policy and were unknown to the insurer.
- It was quite likely that, by July 2008, the claimant had intended to carry out some refurbishment works. Therefore, it was not misleading to say that the units remained vacant in July for the purposes of refurbishment. However, some of the most relevant circumstances that gave rise to the EPO still existed at the August renewal date. In particular, there remained a significantly increased risk of fire. Those were plainly matters of which a prudent insurer would wish to be informed. Therefore, the failure to disclose the EPO deprived the defendants of the opportunity of setting a deadline by which the defects had to be remedied. It was also arguable that the fact that an EPO had been made was indicative of the insured’s attitude to maintenance and risk management. Moreover, the claimant’s unqualified statement that the property was in a good state of repair was a representation of fact which, judged in the context of the main structure of the property, was not substantially correct. It followed that the defendants were entitled to avoid the August 2008 policy.
- Malicious damage – The police officer who had been attacked was investigating a flood resulting from the theft of water pipes and tanks, which could be classed as a malicious act or vandalism within the meaning of the policy wording. It was irrelevant that the primary motive was probably theft. It was also irrelevant that the claimant was not notified of the vandalism until after the August renewal date, since the defendants’ case on that point was one of misrepresentation rather than non-disclosure. The misrepresentation was a material one and the defendants would have been acting entirely reasonably in declining renewal had they been aware of the true position.
- Avoidance of policy – An insurer was entitled to avoid the policy if it was induced by non-disclosure or misrepresentation. In the instant case, the policy in force at the date of the fire was that originally embodied in the renewal policy issued in August 2008, which was therefore the material time for considering the allegations. Although work had been done to repair the water damage by November 2008, the state of repair of the property as a whole could still not be classed as “good” by that date. There had also been further acts of vandalism between August and November. Even if the November policy was not a mere amendment but an entirely new policy, the misrepresentations and the non-disclosure of the EPO would have entitled the defendants to avoid that new policy.
Would the result have been difficult had the Deregulation Act 2015 applied
Despite the fact that the Court specifically found that the Deregulation Act 2015 did not apply, the Judge helpfully considered the position had the Court been concerned with events post-dating the coming into force of the new legislation. He held that the Claimant’s failure to make a fair presentation of the risk, as defined in the 2015 Act, meant that its claim would still have failed.
Judy Dawson has practised exclusively in insurance fraud for over 10 years and has a wealth of experience in formulating strategies against organised conspiracies. She has been consistently recognised in the Legal 500 and Chancery and Partners UK Bar Guides as one of the leading Counsel in the field; in the 2016 Chambers and Partners she was identified as one of only eight Band 1 rated motor insurance fraud Counsel in the whole of the country.