Property – Insurance – Non-disclosure – Misrepresentation – Claimant owner of mixed commercial and residential premises taking out insurance policy – Claimant indicating property in good condition and never subject to malicious acts or vandalism – Claiming seeking indemnity under policy against losses resulting from fire – Defendant underwriters seeking to avoid policy on grounds of misrepresentation and non-disclosure – Whether claimant entitled to indemnity under policy – Whether defendants entitled to avoid policy – Claim dismissed – Counterclaim allowed
The claimant company was the freehold owner of a mixed commercial and residential property at 254-258, North Down Road, Margate, Kent. The property was insured with the defendant underwriters under a property owner’s policy initially taken out in July 2007 and renewed in August 2008. The policy covered a number of risks, including fire. In May 2009, the property was severely damaged by fire so that it had to be demolished and rebuilt. The claimant made a claim under the policy but the defendants purported to avoid it and tendered the return of the premium.
The claimant claimed an indemnity under the policy against its losses resulting from the fire. The defendants counterclaimed for a declaration that they were entitled to avoid the policy on the grounds of misrepresentation and/or non-disclosure and/or had been discharged from liability by breaches of warranty by the claimant. They complained, in particular, that when providing information to obtain insurance, the claimant had indicated that the property was in good condition and had never suffered malicious acts or acts of vandalism. However, a fire inspection revealed that the premises were in a very poor state of repair and there had been reports 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 and in July 2008, a police officer was attacked while investigating a reported flood at the property. A new policy was issued in August 2008 on the same information, except that the claimant stated that the residential units had become vacant in preparation for refurbishment. In November 2008, that was replaced by a further policy to incorporate various amendments.
The claimant denied all but one of the allegations of misrepresentation and said that the matters relied on by the defendants were not material and/or did not induce the making of the relevant contract of insurance. In particular, the contract was not made until November 2008 when the defendants issued a revised certificate schedule headed “Cancel and Replace”. By then the residential part of the property was unoccupied and scaffolding supporting a “tin hat” roof had been erected and most of the alleged misrepresentations and non-disclosures had become irrelevant. Alternatively, the risk was divisible and, since the alleged misrepresentations and non-disclosures related only to the residential part of the property, it was entitled to an indemnity against its losses in relation to the commercial part.
Held: The claim was dismissed. The counterclaim was allowed.
(1) The Marine Insurance Act 1906 applied to all types of insurance prior to the coming into force of the Insurance Act 2015. The obligation to disclose arose only before the contract of insurance was formed or varied. Each renewal was a new contract so the duty to disclose arose again in full at each renewal. However, the insured was required to disclose matters which ought to have been disclosed at its inception or at an earlier renewal only where those facts were still relevant to the new policy and remained unknown to the insurer. The insured need not undertake any special inquiry for the benefit of the insurer.
(2) Although the property had been vacated in June 2008 because of the EPO, it was quite likely that, by July 2008, the claimant had intended to carry out some refurbishment works in order to restore an income stream from the property. Therefore, it was not misleading to say that the units remained vacant in July for the purposes of refurbishment. However, there was no credible evidence that any of the defects in the fire precautions at the property set out in the EPO had been effectively remedied by the time of renewal of the policy. In particular, there remained a significantly increased risk of fire. Those were plainly matters of which a prudent insurer would wish to be informed. The failure to disclose the EPO deprived the defendants of the opportunity of setting a deadline by which the defects had to be remedied. A prudent insurer would wish to know that an EPO had been made because of what it would tell that insurer about the insured’s attitude to maintenance and risk management.
(3) What amounted in any particular case to a “good” state of repair had to be judged in context. In the present case, a good state of repair could not sensibly be interpreted as referring to anything other than the condition of the main structure of the property. 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 insurance as a whole and to refuse payment of any sums claimed by the claimant.
(4) In addition to the duty to disclose, a would-be insured was under a duty not to misrepresent material facts. On the evidence, the property had, at the material time, in fact been subjected to numerous malicious acts and acts of vandalism. The defendants had made out their case that the answer given in the proposal/statement of facts at the time of renewal was not substantially correct. The defendants would have been acting entirely reasonably in declining renewal had they been made aware of the correct position.
(5) The policy conditions broken by the claimant related specifically to the commercial parts of the property. However, they were expressed as a general warranty and were directed at risks (including fire) which jeopardised the entire property. In the circumstances, there were no grounds for confining the effect of the claimant’s breaches of warranty to the commercial parts only.
George Spalton (instructed by Edwin Coe LLP) appeared for the claimant; Jessica Stephens (instructed by Clyde & Co) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read transcript: Dalecroft Properties Ltd v Subscribing Underwriters
