Construction – Building contract – Insurance – Warranty – Appellant engaging builder to carry out development – Insurance cover obtained in respect of insolvency of builder during construction period – Insurance proposal form mistakenly giving name of builder’s sister company – Proposal form also containing warranty that information contained therein correct to knowledge and belief of signatory and forming basis of insurance contract – Appellant claiming on insurance policy – Whether mistake as to identity of builder rendering insurance void for breach of warranty – Appeal dismissed
In 2007, the appellant housing association took a lease of the first six floors in a building in Bedford; those floors comprised the affordable housing element in a development of flats and offices being undertaken by a group of companies through a special purpose vehicle (SPV) formed for that purpose. The SPV was the freeholder of the building and the lessor under the lease. It was also the main contractor employed by the claimant, under a construction contract in the JCT standard form with contractor’s design, to construct the proposed 51 residential units on the first six floors at a contract price of £4.6m.
As agent for the appellant, the SPV arranged insurance with the respondent insurer in respect of latent defects and against the risk of the builder becoming insolvent during the construction period. However, the insurance proposal form wrongly named the builder, not as the SPV, but as another company in the same group. The proposal form also contained a declaration, signed by the SPV, by which it warranted that the information contained in the form was correct to the best of its knowledge and belief and that the proposal and the statements made therein were to form the basis of the contract between it and the insurer. An insurance certificate was later issued containing the same mistake as to the builder’s identity.
The SPV sub-contracted most of the work to a company that later ceased work owing to financial difficulties. The SPV itself went into administration in April 2009 and was dissolved in May 2010. The appellant engaged other contractors to complete the building work and sought an indemnity from the respondents in respect of its resulting financial losses.
The respondent denied liability, contending that the misstatement of the builder’s name in the proposal form was a breach of warranty that rendered the insurance contract void. The appellant argued that the proposal was not part of the insurance contract. Dismissing the appellant’s claim, the judge held that the warranties in the proposal form had contractual effect: see [2012] EWHC 3105 (TCC); [2012] PLSCS 247. The appellant appealed.
Held: The appeal was dismissed.
(1) It was an established principle that, where a proposal form contained a “basis of contract” clause: (i) the proposal had contractual effect even if the policy contained no reference to the proposal form; and (ii) all statements in the proposal form constituted warranties on which the insurance contract was based: Condogianis v Guardian Assurance Co Ltd [1921] 2 AC 125, Dawsons Ltd v Bonnin [1922] 2 AC 413, Rozanes v Bowen (1928) 32 Ll L Rep 98, Holmes v Scottish Legal Life Assurance Society (1932) 48 TLR 306, Unipac (Scotland) Ltd v Aegon Insurance Co (UK) Ltd 1996 SLT 1197 and Kumar v AGF Insurance Ltd [1999] 1 WLR 1747 applied. Although the principle could be displaced by express words in the insurance policy, the policy in the instant case did not have that effect. The principle could not be displaced merely on the ground that the proposal form was omitted from the list of contractual documents set out in the policy. If the parties intended to deprive of contractual effect a proposal form that purported to be the basis of their contract, they had to do so clear and unequivocal language. The policy in the instant case contained no such express words. Consequently, the proposal form that the SPV has signed had contractual effect and the statements in the proposal form became warranties forming the basis of the policy. It was not necessary to decide whether those statements were absorbed into the contract of insurance or constituted collateral warranties.
(2) The insurance policy had become void by reason of the misstatement concerning the builder in the proposal form. That erroneous statement was contrary to what both the appellant and the SPV knew to be the case and was therefore was a breach of warranty, notwithstanding that it was inadvertent and there was no deliberate or conscious misrepresentation on the part of either the appellant or the SPV: Economides v Commercial Assurance Co plc [1998] QB 587 and Zeller v British Caymanian Insurance Co Ltd [2008] UKPC 4; [2008] Lloyd’s Rep IR 545 distinguished. The “basis of contract” clause could not be read down so as to mean that a misstatement had no effect if the proposer was unaware of the error: Unipac applied. The proposer had warranted, without qualification, that a particular company was going to be the builder, when in fact, to the knowledge of both the appellant and the SPV, that company would not be the builder.
(3) A condition contained in the insurance contract, stating that the policy would be voidable in the event of misrepresentation, misdescription, error, omission or non-disclosure by the policyholder with intention to defraud, did not mean that the policy was voidable only in such circumstances. The condition was not a limiting provision restricting the insurer’s right of avoidance to cases where the policyholder intended to defraud; instead, it conferred additional express rights on the insurer. It did not cut down the insurer’s general right to avoid for misrepresentation, nor did it restrict either the warranties or the “basis of contract” clause in the proposal form.
(4) Moreover, it was a contractual term between the appellant and the respondent that the company named as the builder should be and remain the builder. The respondent was providing cover against the risks of insolvency or defective work on the part of that identified builder and were not providing cover in respect of the defaults of any other builder that the appellant might choose to substitute. Accordingly, even if the insurance contract were not void, the policy would not apply in respect of defective work performed by the SPV or in respect of the SPV’s insolvency.
James Leabeater (instructed by Winckworth Sherwood LLP) appeared for the appellant; Richard Sage (instructed by Norton Rose Fulbright LLP) appeared for the respondent.
Sally Dobson, barrister
Genesis Housing Association Ltd v Liberty Syndicate Management Ltd
Construction – Building contract – Insurance – Warranty – Appellant engaging builder to carry out development – Insurance cover obtained in respect of insolvency of builder during construction period – Insurance proposal form mistakenly giving name of builder’s sister company – Proposal form also containing warranty that information contained therein correct to knowledge and belief of signatory and forming basis of insurance contract – Appellant claiming on insurance policy – Whether mistake as to identity of builder rendering insurance void for breach of warranty – Appeal dismissedIn 2007, the appellant housing association took a lease of the first six floors in a building in Bedford; those floors comprised the affordable housing element in a development of flats and offices being undertaken by a group of companies through a special purpose vehicle (SPV) formed for that purpose. The SPV was the freeholder of the building and the lessor under the lease. It was also the main contractor employed by the claimant, under a construction contract in the JCT standard form with contractor’s design, to construct the proposed 51 residential units on the first six floors at a contract price of £4.6m.As agent for the appellant, the SPV arranged insurance with the respondent insurer in respect of latent defects and against the risk of the builder becoming insolvent during the construction period. However, the insurance proposal form wrongly named the builder, not as the SPV, but as another company in the same group. The proposal form also contained a declaration, signed by the SPV, by which it warranted that the information contained in the form was correct to the best of its knowledge and belief and that the proposal and the statements made therein were to form the basis of the contract between it and the insurer. An insurance certificate was later issued containing the same mistake as to the builder’s identity.The SPV sub-contracted most of the work to a company that later ceased work owing to financial difficulties. The SPV itself went into administration in April 2009 and was dissolved in May 2010. The appellant engaged other contractors to complete the building work and sought an indemnity from the respondents in respect of its resulting financial losses.The respondent denied liability, contending that the misstatement of the builder’s name in the proposal form was a breach of warranty that rendered the insurance contract void. The appellant argued that the proposal was not part of the insurance contract. Dismissing the appellant’s claim, the judge held that the warranties in the proposal form had contractual effect: see [2012] EWHC 3105 (TCC); [2012] PLSCS 247. The appellant appealed.Held: The appeal was dismissed. (1) It was an established principle that, where a proposal form contained a “basis of contract” clause: (i) the proposal had contractual effect even if the policy contained no reference to the proposal form; and (ii) all statements in the proposal form constituted warranties on which the insurance contract was based: Condogianis v Guardian Assurance Co Ltd [1921] 2 AC 125, Dawsons Ltd v Bonnin [1922] 2 AC 413, Rozanes v Bowen (1928) 32 Ll L Rep 98, Holmes v Scottish Legal Life Assurance Society (1932) 48 TLR 306, Unipac (Scotland) Ltd v Aegon Insurance Co (UK) Ltd 1996 SLT 1197 and Kumar v AGF Insurance Ltd [1999] 1 WLR 1747 applied. Although the principle could be displaced by express words in the insurance policy, the policy in the instant case did not have that effect. The principle could not be displaced merely on the ground that the proposal form was omitted from the list of contractual documents set out in the policy. If the parties intended to deprive of contractual effect a proposal form that purported to be the basis of their contract, they had to do so clear and unequivocal language. The policy in the instant case contained no such express words. Consequently, the proposal form that the SPV has signed had contractual effect and the statements in the proposal form became warranties forming the basis of the policy. It was not necessary to decide whether those statements were absorbed into the contract of insurance or constituted collateral warranties.(2) The insurance policy had become void by reason of the misstatement concerning the builder in the proposal form. That erroneous statement was contrary to what both the appellant and the SPV knew to be the case and was therefore was a breach of warranty, notwithstanding that it was inadvertent and there was no deliberate or conscious misrepresentation on the part of either the appellant or the SPV: Economides v Commercial Assurance Co plc [1998] QB 587 and Zeller v British Caymanian Insurance Co Ltd [2008] UKPC 4; [2008] Lloyd’s Rep IR 545 distinguished. The “basis of contract” clause could not be read down so as to mean that a misstatement had no effect if the proposer was unaware of the error: Unipac applied. The proposer had warranted, without qualification, that a particular company was going to be the builder, when in fact, to the knowledge of both the appellant and the SPV, that company would not be the builder.(3) A condition contained in the insurance contract, stating that the policy would be voidable in the event of misrepresentation, misdescription, error, omission or non-disclosure by the policyholder with intention to defraud, did not mean that the policy was voidable only in such circumstances. The condition was not a limiting provision restricting the insurer’s right of avoidance to cases where the policyholder intended to defraud; instead, it conferred additional express rights on the insurer. It did not cut down the insurer’s general right to avoid for misrepresentation, nor did it restrict either the warranties or the “basis of contract” clause in the proposal form. (4) Moreover, it was a contractual term between the appellant and the respondent that the company named as the builder should be and remain the builder. The respondent was providing cover against the risks of insolvency or defective work on the part of that identified builder and were not providing cover in respect of the defaults of any other builder that the appellant might choose to substitute. Accordingly, even if the insurance contract were not void, the policy would not apply in respect of defective work performed by the SPV or in respect of the SPV’s insolvency.James Leabeater (instructed by Winckworth Sherwood LLP) appeared for the appellant; Richard Sage (instructed by Norton Rose Fulbright LLP) appeared for the respondent.Sally Dobson, barrister