News

October 23, 2017

Fenchurch Law recognised for claims dispute expertise with tier one ranking in Legal 500

Fenchurch Law, the leading UK firm working exclusively for policyholders and brokers on complex insurance disputes, has received a tier 1 ranking in the latest Legal 500, marking an important milestone in the firm’s commitment to improving policyholder outcomes.

David Pryce, managing partner, said: “From the very launch of the firm seven years ago, our aim has been to provide insurance policyholders with access to the same levels of legal expertise and support that insurers have in dealing with complex claims disputes.

“To be recognised for both our policyholder litigation expertise and our client-focused ethos is testament to the commitment of the team to ensuring there is a level playing field in the resolution of disputes.”

“This recognition also comes in no small part thanks to the support and shared commitment of the insurance broking community to improving outcomes for policyholders. We will continue to work with them to develop our services and capabilities to reflect the evolving needs of policyholders to support their clients through complex disputes.”

Legal 500 recognised the Fenchurch Law team’s legal and policyholder litigation capabilities and expertise and its client-focused ethos. David Pryce was recognised as a leading individual in insurance litigation and partners Daniel Brooks and Amy Lacey were also rated as next generation lawyers.

October 13, 2017

Has the Enterprise Act Expanded the Duty of Fair Presentation?

For more than a century after the Marine Insurance Act of 1906, the law relating to insurance contracts was a territory into which parliament did not venture, ceding it instead to the courts. By 2015, though, Parliament was launching a full-scale invasion. The Insurance Act of that year replaced the old duty of disclosure with a new “Duty of Fair Presentation” and fundamentally reformed the remedies prescribed by law both for breach of the Duty of Fair Presentation (by introducing the concept of proportionality) and for breach of warranties.

A year later the Enterprise Act 2016 introduced a brand new right to claim damages from insurers for unreasonable delay in the payment of claims.  On the face of it, each of the two Acts creates its own seemingly unrelated code of rights, obligations and remedies with no obvious interplay or knock-on effect. However, the question arises as to whether circumstances particular to the insured, which make the insurer vulnerable to a damages action if it delays in paying claims, are circumstances which, in the wake of the Enterprise Act 2016, fall within the Duty of Fair Presentation created by the Insurance Act 2015.

Legal Ingredients of a Claim for Damages for Late Payment

In assessing whether the information encompassed within the Duty of Fair Presentation has been broadened by the Enterprise Act, one first has to consider what is needed to found a claim for late payment.

A number of ingredients must be present if an insured is to be entitled to damages for loss caused by breach of an insurer’s duty to pay claims within a reasonable period. Aside from showing it has a valid claim under the policy in the first place, that the insurer’s delay was unreasonable, that the loss for which compensation is sought was caused by the insurer’s delay and that it has taken steps to mitigate its loss, the insured also has to show that the loss suffered as a result of the delay was foreseeable or contemplated by the parties at the time the policy was entered into.

The classic case for late payment damages is likely to be a property loss – e.g. at industrial premises where, say, a particular item of machinery is crucial to production and, unless it is quickly replaced following an insured event, the insured will suffer significant loss of production or even be put out of business. To found a claim for late payment damages, such eventualities must have been forseeable as at the date the policy was entered into. The insured would have to show, for example, that it was or should have been in the contemplation of the insurer at the time the policy was taken out that production turned on the availability of a particular machine and that the insured would rely on insurance proceeds if that machine were damaged because it would not be able to finance replacement through any other means.  This means that the prospects of establishing a claim for damages will be greatly enhanced if the insured informed the insurer of these particular vulnerabilities when the policy was taken out.

Impact on the Duty of Fair Presentation

The question then arises as to whether it is simply prudent to tell the insurer about such vulnerabilities or whether the insured has a duty to do so.

The information that must be contained within the “Fair Presentation” of the risk by the insured is defined in section 7(3) of the Insurance Act 2015 as that which would “influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms”.

The “risk” in question is the risk of damage from an insured peril. In our classic case it is the risk of damage to or destruction of the insured property from insured perils. On the face of it, the importance of the property to the insured’s business or the ability of the insured to raise finance for replacement of the property if damaged has no bearing on the risk of damage from an insured peril occurring (although different considerations could well apply if the insurance had business interruption cover attached to it). These particular vulnerabilities wouldn’t seem to have any bearing on the pure underwriting decision as to the susceptibility of the insured to suffer damage from an insured peril.

What these vulnerabilities do have a bearing on is the insurer’s risk of exposure to a late payment damages claim. The key point is whether the risk of exposure to such a claim is part of the “risk” contemplated by section 7(3), so that the insured has a duty to disclose such circumstances to the insurer (rather than simply being well advised to do so in order to enhance the prospects of a claim for late payment damages should such a claim become necessary).

Until the courts look at the question there is no clear answer. On the one hand section 7(3) is ostensibly dealing purely with the insured risk. This is the risk upon which the judgment of the underwriter is exercised, be that the risk of flood, fire or storm. Since the risk of exposure to late payment damages is not an insured risk and instead one to which the insurer exposes itself by its own unreasonable delay rather than by reason of some fortuity over which neither insured nor insurer has control, there is good reason for saying that section 7(3) does not extend to circumstances relevant only to the recoverability of late payment damages.

On the other hand, section 7(3) contemplates the provision by the insured of any and all information relevant to the insurer’s willingness to provide a policy at all or, if so, on what terms. It may be that an insured with particular vulnerabilities that would set up a late payment damages claim is not the sort of insured the insurer would want to write cover for at all, making such information “material”.  Even if the insurer would still be prepared to write cover notwithstanding such knowledge it might be prompted to require a term in the policy excluding the application of the Enterprise Act (the Act allows an insurer to contract out when not insuring consumers) or a term that caps exposure to late payment damages or it might simply charge a higher premium.

Perhaps the most significant consideration is the provision in section 7(4) which defines as material “any particular concerns which led the insured to seek insurance cover for the risk”. In some cases the vulnerabilities of the insured that would be the basis for a claim for late payment damages may be precisely what led the insured to take out the insurance in the first place.

Conclusion

Certain brokers are recommending that their clients tell insurers about circumstances that would make them vulnerable if claim payments were delayed because it helps lay the foundation for any late payment damages claim that might become necessary.  In light of the uncertainty around whether such circumstances are material to the “risk” for the purposes of section 7(3) of the Insurance Act and thus encompassed by the insured’s Duty of Fair Presentation (and since insurance policies are riddled with conditionalities as it is), insureds should err on the side of caution and include information about such vulnerabilities in their presentation of the risk.

John Curran is a partner at Fenchurch Law

August 24, 2017

Make your position plain: the duty on insurers to speak out

In a judgment that will be welcomed by policyholders, the Court of Appeal has held that insurers have a duty to speak out and make their position plain in a claims handling context.

This duty has been found to arise where, in light of the circumstances known to the parties, a reasonable person would expect the other party, acting honestly and responsibly, to take steps to make its position plain.

On the facts of this case, it was unjust and unconscionable for the insurers to escape liability on the grounds of non-compliance with a condition precedent where they were aware that the policyholder thought that its obligation to comply had been effectively parked by agreement between the parties.

The case relates to an insurance claim brought by the clothing retail company Ted Baker for business interruption losses relating to goods stolen by an employee.  At first instance, the court rejected Ted Baker’s claim for indemnity under the policy on a number of grounds including for breach of a condition precedent requiring the provision of certain documentation relating to quantum.  On appeal, Ted Baker argued that an estoppel by acquiescence had arisen that precluded the insurers from relying on the condition precedent.  This was on the basis of a meeting between the parties at which the insurers’ loss adjuster had undertaken to seek instructions as to whether the cost of producing certain documents was covered under the policy, but had not done so.  The insurers knew that Ted Baker was under the impression that its obligation to produce the documentation had been parked pending a response on that issue.

The Court of Appeal agreed, finding that in light of what had passed between the parties, Ted Baker was entitled to expect that if the insurers in fact regarded the documentation as outstanding, due and unparked, then acting honestly and responsibility they had a duty to tell them.  Not to do so was misleading.  Had the insurers told Ted Baker that the documents were in fact outstanding, the court considered that they would no doubt have been supplied. However, no renewed request for the material was made and there had been no suggestion made in correspondence that the insurers considered Ted Baker to be in breach of a condition precedent entitling them to avoid liability.

This duty to speak was found to be of general application, arising in the context of commercial contracts where a reasonable man would expect a party acting honestly and responsibly to bring to his attention the fact that he was under a mistake as to the parties’ respective rights and obligations.  It is not specific to insurance contracts, and is not dependent on the duty of good faith, although the good faith nature of an insurance policy would tend to increase the likelihood of such an estoppel by silence or acquiescence arising.

Nor does the duty to speak require any dishonesty, bad faith or an intention to mislead.  On the facts of this case there was no suggestion that the insurers had deliberately kept quiet or sought in some way to hoodwink the policyholder.  However, Ted Baker’s mistaken understanding was not one that had arisen in a vacuum but in the context of specific circumstances whereby it was common ground that a response from the loss adjuster was awaited.  As such, it was reasonable to expect the insurers to say if they required the documentation to be provided in the interim and that any failure to provide it would be fatal to the claim.

The Court of Appeal was clear that, generally speaking, an insurer is under no duty to warn an insured as to the need to comply with policy conditions, and that position has not changed.  However, the articulation by the court of the existence of this duty to speak may make it easier for a policyholder to establish an estoppel in the appropriate factual circumstances, particularly as there is no need to demonstrate reliance on an unequivocal representation which would be necessary to found other types of estoppel or waiver.

In a year which has also seen the introduction of damages for late payment of insurance claims, it is clear that insurers need to pay attention to their systems and processes for ensuring that claims are handled transparently, fairly and promptly – which is good news for policyholders.

See Ted Baker v AXA [2017] EWCA Civ 4097.

Joanna Grant is a Partner at Fenchurch Law

August 22, 2017

BAE Systems Pension Funds – v – RSA

Third Parties (Rights against Insurers) Act 2010

An analysis of the first judgment on the Third Parties (Rights against Insurers) Act 2010 (‘the Act’)

BAE Systems Pension Funds Trustees Limited (‘the Claimant’) brought proceedings against 4 Defendants following the construction of a large warehouse. The damages sought exceeded £10 million.

Protective proceedings were issued against the Defendants on 24 August 2016. In February 2017, the third Defendant, Twintec Limited (‘Twintec’), went into administration, and a few weeks later Twintec’s solicitors revealed that it was insured by RSA. The Claimant accordingly applied to join RSA to the claim.

RSA resisted the application on the grounds that:

  1. They were not in fact liable to indemnify Twintec for the claim;
  2. The policy and any dispute as to coverage was subject to French law and must be determined by arbitration or by the French courts.

 

The First Ground

It was uncontroversial that Twintec had become a ‘relevant person’ under section 1 of the Act i.e. it had incurred a liability to the Claimant, and had become insolvent in one of the ways specified by the Act.

Section 2 entitled the Claimant to bring proceedings directly against RSA seeking a declaration as to Twintec’s liability and/or a declaration as to RSA’s potential liability to the Claimant.

RSA argued, somewhat ambitiously, that Twintec was not entitled to indemnity because of an exclusion for pre-existing circumstances, and, if there was thus no cover, section 2 was not engaged.

The Judge, Mrs Justice O’Farrell DBE, found that Section 2 was engaged even where there was a dispute as to coverage. This did not require the Claimant to establish that there was a relevant insurance policy which necessarily responded to the loss – all that was needed was for the Claimant to make a claim that there was such a policy.

RSA argued that a number of difficulties could arise if Section 2 was engaged where cover was disputed. In particular, they suggested that this could pave the way for any insurer to be joined to an action, or possibly an insurer who had provided cover for a previous irrelevant period. The Judge gave short shift to this point, and stated that the Court, in these circumstances, could simply strike out those proceedings as having no prospect of success. The Judge’s decision was obviously right. Were it otherwise, the 2010 Act would not avail a Claimant where an insurer had denied indemnity.

RSA also suggested that there was an irreconcilable conceptual difficulty insofar as they would be faced with defending a claim for a declaration, when, in their view, the Claimant did not have the right to step into Twintec’s shoes. Again the Judge was unpersuaded, and found that it was entirely a matter for RSA as to the submissions they wished to make in response to the Claimant’s claim (and whether they wished to take any substantive part in the proceedings at all).

The Second Ground

The policy contained two dispute resolution clauses. The first clause provided for any dispute between the parties to be referred to the French courts and “shall be subject exclusively to French legislation”.

The second clause provided that, in the event of a dispute regarding the activation of cover, the parties agreed to refer their disputes to two arbitrators chosen by each party.

The claimant argued that the coverage dispute was caught by neither of the clauses. RSA, by contrast, argued that the coverage dispute was caught by both clauses.

The Judge was satisfied that the coverage dispute would be covered by one or other of the clauses i.e. it should be decided by either the French courts, or by arbitration. It did not, however, affect her finding as to whether section 2 was engaged.

The Result

The Judge granted the Claimant’s application to join RSA to the Claim, and, somewhat predictably, made it clear that in order to engage section 2 of the Act, a Claimant need not establish, as a pre-condition, that there is valid coverage. Were it otherwise the case, insurers would have carte blanche to reject any claims made against insolvent insureds.

Alexander Rosenfield is an associate at Fenchurch Law

August 10, 2017

Not Too Slender a Thread – Supreme Court decision in MT Højgaard v E.ON

The Supreme Court has upheld an appeal concerning liability to comply with fitness for purpose obligations in a design and build contract, in a case with significant ramifications for policyholders involved in construction projects. The judgment highlights the difficulties which arise when accepted industry practices are exposed as inadequate and reinforces the importance of precise drafting of contract terms, and associated policy wordings, given the literal interpretation likely to be applied notwithstanding potentially harsh consequences for unwary contractors.

The dispute arose from a significant error in an international standard for the design of offshore wind turbines known as J101. The contractor, MT Højgaard (“MTH”), relied on J101 whilst engaged by E.ON to design, fabricate and install foundations for the Robin Rigg wind farm in the Solway Firth, Scotland. Following completion of the works, it was discovered that J101 contained an inaccuracy such that the load-bearing capacity of grouted connections had been substantially over-estimated, resulting in remedial works at a cost of €26 million.

In April 2014, the trial judge held that MTH was liable to E.ON because the foundations were not fit for purpose, in breach of a provision in the Technical Requirements section of the Employer’s Requirements in the contract which imposed an obligation that the design “shall ensure a lifetime of 20 years in every aspect without planned replacement”. This provision applied in addition to less onerous contract terms requiring MTH to exercise reasonable skill and care, and to comply with J101.

The Court of Appeal overturned that decision, concluding that the 20 year service life provision in the Technical Requirements was qualified by compliance with J101 and good industry practice, in light of the inconsistency between that provision and other contractual terms. The relevant wording tucked away in the Technical Requirements was described as “too slender a thread” upon which to hang a finding that MTH gave a warranty of 20 years life for the foundations, viewed in context of the contractual provisions as a whole and commercial implications.

In a unanimous decision, the Supreme Court ruled that MTH was liable for breach of the fitness for purpose obligations, construed either as a warranty that the foundations (1) would have a minimum service life of 20 years, or alternatively (2) be designed to last for 20 years. The court referred to UK and Canadian authorities where contractor warranties to complete works without defects were held to override any prescribed specification, noting: “it is the contractor who can be expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed”. J101 was expressed to be a minimum standard and the court was not prepared to disregard or give a different meaning to provisions of the Technical Requirements incorporated to the contract.

Construction contracts routinely incorporate schedules and technical documents with less than complete harmonisation as to intended legal standards of design and workmanship. The contract in this case was acknowledged to be of a “complex, diffuse and multi-authored” nature with many “ambiguities, infelicities and inconsistencies”. Nevertheless the court saw no reason to depart from the natural meaning of the fitness for purpose provisions, alongside MTH’s other obligations, in accordance with the prevailing approach of judicial non-interventionism that parties will be taken to mean what they say in their contracts (Arnold v Britton [2015] UKSC 36).

To avoid ambiguity, contracting parties should consider the inclusion of express provisions clarifying whether and how technical schedules are to affect overall obligations as to design and workmanship, clearly distinguishing requirements to exercise skill and care from performance warranties or guarantees of fitness for purpose. This in turn will allow policyholders to properly evaluate the risks assumed under the contract, and liaise with their insurance brokers to ensure adequate professional indemnity and all risks cover for potential liabilities.

MT Højgaard A/S (Respondent) v E.ON Climate & Renewables UK Robin Rigg East Limited and another (Appellants) [2017] UKSC 59

https://www.supremecourt.uk/cases/docs/uksc-2015-0115-judgment.pdf

Amy Lacey is a partner at Fenchurch Law

August 1, 2017

The 1930 Third Party (Rights Against Insurers) Act – still relevant for years to come

Shirley Anne Redman (suing as widow and administratix of the estate of Peter Redman) v (1) Zurich Insurance Plc (2) ESJS1 Limited

The recent decision of Mr Justice Turner in Redman v (1) Zurich Insurance (2) ESJS1 Limited confirms that the Third Party (Rights Against Insurers) Act 2010 (“the 2010 Act”) does not have retrospective effect.

As a result, a third party must still bring a claim under the 1930 Act where both the relevant insolvency and the relevant insured liability occurred before the commencement date of the 2010 Act (which is 1 August 2016).

Mrs Redman’s husband worked for a company latterly known as ESJS1 (“the Company”) between 1952 and 1982. On 5 November 2013 he died from lung cancer alleged to have been caused by exposure to asbestos during the course of his employment. On 30 January 2014 the Company was wound up and was eventually dissolved on 30 June 2016.

Mrs Redman sought to recover for her husband’s illness and death in a claim brought against the Company’s insurers, Zurich, under the Third Party Rights regime.

It is well understood that the 2010 Act has advantage over the 1930 Act in this regard. Whereas the 1930 Act requires the liability against the insured to be established (by agreement or judgment, with the latter sometimes requiring the insured first to be restored to the register followed by proceedings against it) prior to the covered claim being brought against the insurer, the 2010 Act allows a claim encompassing both liability and coverage to be made against the insurer alone.

Mrs Redman therefore sought to bring a claim under the 2010 Act. However, both the date of the Company’s insolvency and the date of the Company’s alleged liability had arisen prior to the commencement of the 2010 Act (the date of liability arising at least some thirty years prior) and the 2010 Act provides that the 1930 Act is to continue to apply in such circumstances.

As a result, the Judge struck out the claim, saying that to apply the interpretation of the Act favoured by Mrs Redman (ie, to read into the Act that the relevant date was the date that liability against the insured was established) would be tantamount to ”judicial legislation”.

Accordingly, the 1930 Act will continue to apply to those cases where the insolvency event (and the underlying liability) pre-dates 1 August 2016, with the 2010 Act applying where either event occurred thereafter. As a result, until about 2022 (when any third party liability will be time-barred) the old regime will remain relevant, and insureds, brokers and insurers will have to live with two potentially relevant regimes.

Tom Hunter is an associate at Fenchurch Law

July 21, 2017

The Good, the Bad & the Ugly: 100 cases every policyholder needs to know. #2 (The Ugly). Kosmar Villa Holidays plc

Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.

Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.

Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.

Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those are cases that can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.

At Fenchurch Law we love the insurance market. But we love policyholders just a little bit more.

#2 (The Ugly)

Kosmar Villa Holidays plc -v- Trustees of Syndicate 1243 [2008] EWCA Civ 147

The issue in Kosmar Villa Holidays plc was whether an insurer’s conduct in investigating a claim prevented it from subsequently relying on a breach of a condition precedent to avoid liability.

The policyholder, a tour operator, Kosmar, made a claim under its public liability insurance in respect of injuries suffered by an individual who was paralysed after diving into the shallow end of a swimming pool at apartments in Greece operated by Kosmar.

In breach of a condition precedent requiring it to notify the insurer immediately after the occurrence of any injury, Kosmar did not do so for a year.

Once notified, the insurer did not immediately deny liability for breach of condition precedent but sought further information about the accident.

The Court of Appeal had to consider whether in dealing with the claim in this way, without expressly reserving its position or denying liability, there had been a waiver, either by election or estoppel, that meant that the insurer was no longer able to decline indemnity because of the late notification.

The Court found that waiver by election had no application to a breach of a procedural condition precedent. However, where, through its handling of a claim, an insurer made an unequivocal representation that it accepted liability, or would not rely on a breach of a condition precedent, and where there had been detrimental reliance by the policyholder, the doctrine of estoppel would protect the policyholder.

On the facts, there had been no unequivocal communication by the insurer and insufficient reliance or detriment on the part of Kosmar. It was not therefore inequitable for the insurer to rely on Kosmar’s breach of the condition precedent to decline indemnity.

In its judgment, the Court explored the tension between an insurer’s need to have sufficient time to investigate claims and the insured’s need to know where it stands as regards policy coverage. On one hand, insurers were not to be encouraged to repudiate claims or to reserve their rights without asking questions about the claim simply to avoid being taken to have waived their rights in respect of a breach of a condition precedent. To do so would be to push insurers into an over-hasty reliance on their procedural rights. On the other hand, insurers were not entitled to give the impression that they were treating the claim as covered without running the risk of having waived their right to avoid the policy.

The message for policyholders is that, in the absence of an express communication to that effect, it is not safe to assume from conduct alone that an insurer has waived a breach of a procedural condition precedent.

July 19, 2017

Fenchurch Law continues expansion of insurance claims disputes capability with Hunter appointment

Fenchurch Law, the leading UK firm working exclusively for policyholders and brokers on complex insurance disputes, has further expanded its team of specialist claims dispute lawyers with the appointment of Tom Hunter as an associate.

Tom joins the Fenchurch Law team with experience in financial lines claims defence work and coverage issues including advising on professional indemnity, D&O, E&O and banker’s blanket bond claims. In addition to supporting clients of the firm’s financial & commercial risks practice, he will also work on coverage disputes for clients of their professional risks and construction risks practices.

Managing Partner of Fenchurch Law, David Pryce said: “Tom’s appointment continues the expansion of our coverage dispute capabilities. His experience and knowledge of the financial lines space further strengthens our ability to deliver exceptional service to policyholders and their brokers.”

Tom joins from Reynolds Porter Chamberlain (RPC) where he was an associate in their professional and financial risks group. During his time with RPC he was seconded to Arch Insurance Europe, where he worked within their third-party claims team.

July 14, 2017

Fenchurch Law receives “Gold” Award for client care experience

We’re delighted to announce that Fenchurch Law has received Investor in Customers’ Gold assessment award, recognising our commitment to client service.

Investor In Customers is an independent client experience agency which conducts client experience assessments, helps develop insights into client satisfaction, and awards annual accreditations.  This was our first assessment with them.

By measuring how well we understand and meet our clients’ needs, offer innovative and efficient service and create loyalty, Investor in Customers awarded us their highest ever first assessment score, and the sixth highest score ever awarded by IIC.  We also achieved IIC’s highest ever Net Promoter Score®.

Net Promoter Score® is a universal standard that measures the willingness of clients to recommend a company’s products or services to others, and our high score highlights how much we care about our clients’ satisfaction.

Managing Partner David Pryce commented that: “the recognition reflects how we prioritise client satisfaction at Fenchurch Law.  Improving outcomes for policyholders is our number one priority, and we are confident that the IIC assessment process will help us to improve every aspect of our service in the future”.

To learn more about the award and Investor in Customers, please visit: www.investorincustomers.com.

®Net Promoter, NPS, and Net Promoter Score are trademarks of Satmetrix Systems, Inc., Bain & Company, and Fred Reichheld

June 27, 2017

Dalecroft Properties Limited – v – Underwriters

Dalecroft Properties Limited – v – Underwriters subscribing to Certificate Number 755/BA004/2008/OIS/00000282/2008/005

[2017] EWHC 1263 (Comm)

This recent decision by the Commercial Court provides a neat recap of the applicable law pre the Insurance Act 2015, which still applies to many claims brought by policyholders today.

The Claimant, Dalecroft Properties Limited (‘Dalecroft’), owned a property in Margate (‘the property’). The property was a mixture of commercial and residential parts, and was insured with the Defendants (‘the Underwriters’).

The property was a five-storey building, and included a restaurant, a charity shop and an amusement arcade, the upper floor of which had previously been used as a discotheque (‘the disco building’).

The brief insurance history is as follows:

  1. On 1 August 2007, Tristar (the Underwriters’ Agents) issued Dalecroft with a schedule for the period 1 August 2007 – 31 July 2008 (‘certificate 001’).
  2. Shortly after, Dalecroft requested an increase to the sums insured. Accordingly, on 16 August 2007, Tristar issued Dalecroft with a new schedule marked CANCEL & REPLACE (‘certificate 002’).
  3. At the August 2008 renewal, Tristar issued Dalecroft with a schedule for the period 1 August 2008 – 31 July 2009 (‘certificate 003’).
  4. On 19 November 2008, Dalecroft’s brokers requested that “the property should be registered in the name of Dalecroft Properties Ltd’. On 20 November 2008, Tristar issued Dalecroft with a new schedule marked CANCEL & REPLACE (‘certificate 004’). The period of insurance ran from 19 November 2008 to 31 July 2009, and the premium was stated to be £0.00.
  5. On the same day, Dalecroft’s broker noted that Tristar had failed to correct Dalecroft’s name on the policy and so, on 21 November 2008, Tristar issued a further schedule marked CANCEL & REPLACE (‘certificate 005’). Again, the insured period ran from 19 November 2008 – 31 July 2009, and the premium was stated to be “£0.00.”

A fire occurred on 16 May 2009, which required the property to be demolished and rebuilt. Dalecroft then made a claim on the policy, which the Underwriters sought to avoid.

In the subsequent proceedings, Dalecroft claimed an indemnity from the Underwriters for its losses arising from the fire. The Underwriters counterclaimed for a declaration that they were entitled to avoid the policy on the grounds of misrepresentation/non-disclosure, and a breach of warranty.

In all but one of allegations of misrepresentation, Dalecroft denied that what it said was untrue. It also said the matters complained of by the Underwriters did not induce the making of the contract, as the relevant contract was not made until 2008, by which point the Underwriters had issued a revised certificate headed “Cancel and Replace.”

The issues to be decided were:

a) Which was the relevant policy?

b) Did Dalecroft misrepresent any matters to the Underwriters?

c) Were there any breaches of warranty?

d) Was the risk divisible into commercial and residential parts?

Which was the relevant policy?

Dalecroft submitted that the relevant policy was contained in certificate 005, this being the policy in force at the date of the fire.

The Underwriters, by contrast, submitted that correct policy was certificate 003 i.e. the policy issued at renewal in August 2008.

The Judge, Mr Richard Salter QC, agreed with the Underwriters. He accepted that certificates 004 and 005 were marked CANCEL & REPLACE; however, neither certificate was a new policy.

Misrepresentation/Non-Disclosure

The Underwriters relied on the following misrepresentations/non-disclosures in the August 2008 Proposal/Statement of Fact:

a) That the residential units were vacant for refurbishment;

b) That the property was in a good state of repair;

c) That the property had no flat roof;

d) That the property had not been subject to malicious acts or vandalism;

e) The non-disclosure of the fact that the property had been the subject of an Emergency Prohibition Order (‘EPO’) dated 6 June 2008.

Apart from point (a), the Underwriters made out their case in respect of each alleged misrepresentation/non-disclosure.

There was compelling evidence that the property had suffered from broken windows, leaking and drainage issues (amongst other issues). Accordingly, Dalecroft had misrepresented that the property was in a good state of repair.

As regards the status of the roof, the Judge noted the experts’ views that the flat proportion of the roof comprised 50.43% of the entire roof area. As such, the representation that there was no flat roof was also incorrect.

As to the alleged malicious acts of vandalism, the Judge found that there was a history of “continual disturbances of vandalism and drug taking”, together with at least one further specific incident where a police officer was assaulted. Therefore, this too had been misrepresented.

Finally, the Judge accepted that the EPO had been misrepresented. There was a long list of defects to the property (which significantly increased the risk of fire), and nothing to suggest that the issues had been remedied. In the circumstances, the Judge found that this was a matter about which a prudent insurer would have wished to know.

The Judge found that each of points (b) – (e) were material, and that the Underwriters had made out their case on inducement. Accordingly, Dalecroft’s claim had to fail.

Although not strictly necessary, the Judge went on to consider the remaining issues.

Were there any breaches of warranty?

The Underwriters alleged that Dalecroft breached a Commercial Unoccupancy Condition in the policy (‘the Condition’) in that it had failed to ensure that:

a) The Basement and disco building were free of combustible materials;

b) The charity’s letterbox was sealed;

c) The Charity Shop and the Basement were properly secured;

On the evidence, the Judge was satisfied that Dalecroft was in breach of the Condition. In particular, it was clear from the available photographs that there were loose combustible materials in the disco building, and that neither the charity shop nor its letterbox were secured against unauthorised entry.

Was the risk divisible into commercial and residential parts?

Dalecroft argued that the risk was divisible, and that, because the alleged misrepresentations/non-disclosures related only to the residential parts, it was entitled to an indemnity for their losses in relation to the commercial part.

The Judge disagreed. The condition broken by Dalecroft was directed at risks which jeopardised the entire property. It followed that the Underwriters were discharged from all liability.

Summary

The Underwriters, on the facts of this case, were entitled to reject all claims made against them. The Judge was keen to emphasise, however, that even if the new law had applied, Dalecroft’s claim would still have failed. In this respect, he was satisfied that Dalecroft made “no real effort” to make a fair presentation, and that Underwriters would still have declined to take on the risk.

Alexander Rosenfield is an associate at Fenchurch Law