Building contract – Insurance – Warranty – Claimant engaging builder as main contractor to carry out development – Contractor obtaining insurance cover for “insolvency of builder during construction period” under terms of contract – Contractor paying premium for guarantee cover – Proposal form wrongly identifying builder – Whether insurance contract incorporating proposal form – Whether insurance contract being void for breach of warranty – Claim dismissed
The claimant was charitable association which provided affordable or social housing. The defendant was a corporate Lloyd’s syndicate which underwrote policies for an insurance company (MD). In March 2007, planning permission was secured for the renovation and redevelopment of an office block. The freehold was transferred to a special purpose vehicle created for that particular development which, by prior arrangement, granted leases of floors 1 to 6 to the claimant to be rented on a social rent or shared ownership basis.
By a written contract in standard JCT form, the claimant, as employer, engaged TTB Ltd, as the main contractor, to design and carry out extensive alterations, refurbishments and fitting out for the development. The contract sum was £4.6 million. It was a term of the contract that TTB was to secure insurance which was to include guarantee cover in the event of TTB’s insolvency during the construction period. The proposal form identified the policy holder as the claimant but the builder was incorrectly identified as TTC rather than TTB. TTB paid the premium for the guarantee cover and an initial certificate was issued in effect by the defendant. That identified the policy holder as the claimant and the builder as TTC.
The construction work started in May 2007 and TTB sub-contracted virtually all the actual building work to a third party. Problems arose in respect of that work and TTB terminated the sub-contractor’s employment. In April 2009, administrators of TTB were appointed and it was dissolved in May 2010.
The claimant sought to claim under the insurance policy. The defendant contended that the proposal form was effectively part of the insurance contract so that breaches of any warranties contained therein rendered the contract void. Since the builder was not TTC, as stated in the proposal, but TTB, the claimant was in breach of warranty and the contract was void. The claimant argued that the proposal was not incorporated in the insurance contract but, in any event, the terms of the insurance policy prevailed.
Held: The claim was dismissed.
It was well established that in principle “basis of contract” clauses and warranties in relation to insurance were enforceable in law and not contrary to law or public policy. The enforceability would generally come about either by such clauses or warranties being incorporated within the contract of insurance or as a stand-alone warranty by the insured given to the insurer through the proposal form or other document in which the “basis of contract” expression or declaration was given. If the insured had innocently or otherwise signed a document, usually the proposal, as the basis of the insurance contract entered to be entered into, which confirmed (either to the best of the insured’s knowledge or belief or absolutely) as true the contents of that document, the insurance contract would be void or unenforceable if the contents were untrue. The contract of insurance, whether contained in the policy itself or any other documents such as the quotation or a certificate of insurance, might as a matter of construction modify, amend or even render of no or limited effect the “basis of contract” declaration or warranty. The ordinary principles of contractual interpretation applied to that exercise.
Declarations said to be true or correct to the best knowledge or belief of the declarer would often be, in the case of an individual person, reviewable by reference to the honesty of that person in making the declaration. However, in determining particularly whether a corporate organisation making a declaration as to various statements being true to the best of its knowledge and belief was wrongful, the court had to determine what it corporately was likely to have known when it made the declaration. There did not have to be dishonesty as such on the part of the organisation but, if that organisation actually knew that something said to be true on the declaration was in fact wrong, it was making a statement which was not true to the best of its knowledge or belief.
It followed that the claimant had no right of claim under the insurance because it was, albeit innocently, in breach of warranty in that the statement made by it in the proposal form to the effect that the builder was TTC was within its knowledge and belief incorrect and because such warranty was not displaced or modified materially or at all by any other terms of the insurance contract.
James Leabeater (instructed by Winckworth Sherwood LLP) appeared for the claimant; Richard Sage (instructed by CMS Cameron McKenna LLP) appeared for the defendant.
Eileen O’Grady, barrister