Business premises – Insurance – Material non-disclosure — Claimants taking out commercial property owners’ policy of insurance — Claimants failing to declare material facts to defendant insurers – Policy containing certain warranties — Claimant failing to comply with number of warranties — Claimants’ property suffering fire damage – Whether claimants entitled to indemnity under policy — Whether defendants entitled to avoid liability following claimants’ breach of warranty — Claim dismissed
The first claimant, through its subsidiaries (the old companies), Hs interests in four nightclubs and had taken out insurance policies with the defendant insurers in respect of those properties. The old companies went into administration and their business was taken over by the second, third and fourth claimants (the new companies), which were all subsidiaries of the first claimant.
Amendments were made by contract endorsement to substitute the names of the new companies as insureds in place of the old companies. The administration, the circumstances of the administration and the substitution of the new companies were not disclosed to the defendant insurers; the claimants accepted that they were material facts for the purposes of the insurance policies.
The insurance contracts contained a number of warranties. The claimants sought an indemnity from the defendants in respect of a fire in the kitchen of one of the nightclubs, issues arose as to whether: (i) the defendants had been induced by the non-disclosures in that they would not have made the same contract had they known of the matters in question; (ii) the defendants had waived the obligation to disclose by virtue of the proposal form, which asked whether a “reasonable man reading the proposal form would be justified in thinking that the insurer had restricted his right to receive all material information, and consented to the omission of the particular information in issue”; and (iii) the defendants had established and were entitled to rely on breaches of a warranty relating to frying and cooking equipment, the upgrading of the burglar alarm system by a specified date and the use of metal wheelie bins outside the premises.
Held: The claim was dismissed.
The defendants were entitled to avoid liability for material non-disclosure under the policy; even if they had not been so entitled, they were excused from liability by virtue of the claimants’ breaches of warranty.
The administration of the old companies and the fact that the new companies had taken over their business in unexplained circumstances was plainly material. It was not difficult to reach the conclusion that had those matters been disclosed to the defendants, they would not have insured the claimants. Even if an explanation had been forthcoming, they would not have made the same contract. Further, the case of waiver based on the proposal form had no substance.
There were two warranties in respect of the kitchen. The first related to the contact of the kitchen ducting with combustible materials; the experts agreed that such contact existed. The second concerned the inspection by a specialist contractor every six months; the last inspection had taken place more than six months before the fire. The issue was whether the kitchen warranty was a true warranty, breach of which allowed the defendants to deny liability under the policy. An alternative construction of such a warranty was that it was suspensory, in that the insurers’ obligation was suspended during the period of breach. Taking into account the agreed evidence of the experts as to the risk presented by the combustible materials, the warranty regarding the ducting bore materially on the risk of loss and the defendants were entitled to regard it as an important protection.
Given that the kitchens at all the four premises were a fire-risk, the warranty as to the ducting was a true warranty in respect of all of them, notwithstanding the effect of the breach of such a warranty. The breach was in respect of the premises at which the fire occurred. The obligation of six-month inspections could be interpreted as a suspensory condition but had not occurred by the time of the fire. The suspensory nature would not assist since cover would not have remained suspended at the time of the fire.
The burglar alarm warranty was a true warranty, although compliance with the risk improvement notice and the contract endorsement by an extended deadline constituted a suspensory condition. The obligations under the warranty had not been waived. The upgrade work was never carried out and the central station monitoring was not instituted so that the suspensory condition remained effective and there no insurance was in place at the date of the fire.
The claimants were not in breach with regard to the wheelie bins so as to excuse the defendants from liability. If the defendants had wanted to make a condition precedent that would have avoided the risk of fire from waste kept outside the premises, they should have specified the use of metal containers: HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ 735; [2001] 2 All ER (Comm) 39 applied.
Richard Slade QC (instructed by Thomas Cooper) appeared for the claimants; Jeremy Stuart-Smith QC and Jamie Smith (instructed by Clyde & Co LLP) appeared for the defendants.
Eileen O’Grady, barrister
