Insurance — Professional indemnity policy — Action by firm of auctioneers, surveyors, estate agents and valuers against insurers, seeking declaration as to right to indemnity in respect of claims based on valuations of agricultural land and live and dead stock — Liability under policy contested by insurers — The relevant valuations which had given rise to claims had been carried out by an elderly consultant whose ability to value had, on the evidence, declined between the date of the first valuation (in March 1982) which had been called into question, and the second and third, in April and November 1984, both of which showed a surprising increase in the amount of the valuation in comparison with the first — In denying liability insurers relied on the terms of a particular exclusion and a condition in the policy — The exclusion ruled out liability resulting from any circumstance known to the insured at the inception of the policy and likely to give rise to a claim — The circumstance alleged was the fact, said to be known to the firm, that the consultant had been furnishing some unreliable valuations — The condition relied on required the insured to give immediate notice of any claim or occurrence of which the insured might become aware which might subsequently give rise to a claim — In giving judgment, Mervyn Davies J explained the different applications of the exclusion and the condition — The exclusion was directed to eliminating claims in respect of matters arising at a time before the commencement of the current policy, which began on January 1 1985, whereas the condition was not concerned with past occurrences but with events which happened during the term of the policy — The result as regards the condition was that it did not apply to bar any of the claims, as the relevant occurrences had taken place before the commencement of the policy — The consequences as regards the exclusion depended on the fact that there was no evidence that unreliable valuations had been carried out before April 1984 — In the
No cases are
referred to in this report.
This was an
action by the plaintiffs, Tilley & Noad, a firm of auctioneers, surveyors,
estate agents and valuers, for a declaration that the defendants, Dominion
Insurance Co Ltd, were liable under a professional indemnity policy to
indemnify the firm against two claims arising from valuations.
Miss G Caws
(instructed by Burges Salmon, of Bristol) appeared on behalf of the plaintiffs;
S Tomlinson (instructed by Ince & Co) represented the defendants.
Giving
judgment, MERVYN DAVIES J said: In this action the plaintiffs claim a
declaration that the defendant insurance company is liable to indemnify them in
respect of two claims. The plaintiffs, Tilley & Noad, are a firm of
auctioneers, surveyors, estate agents and valuers long established in
Wiltshire. The defendant company, the Dominion Insurance Co Ltd, issued to the
plaintiffs a ‘Surveyors Valuers Auctioneers and Estate Agents Professional
Indemnity Policy’. The policy was signed on January 25 1983. The period of
insurance was January 1 1983 to December 31 1983. The policy was renewed for
the years 1984 and 1985. On April 4 1985 the plaintiffs were notified of a
claim made against them by West Midland Farmers (V & H) Ltd. The claim was
based on a valuation that the plaintiffs made on April 9 1984 of some farming
assets. The assets were owned by the farming partnership of HRG Parsons &
Sons. West Midland also placed reliance on an earlier valuation of the
plaintiffs dated March 22 1982. There is then a second claim. The plaintiffs
were notified of the second claim on October 25 1985. It is by the Bank of
Scotland plc. The bank bases its claim on the valuation dated March 22 1982.
The defendant company denies that it is liable to indemnify the plaintiffs in
respect of either the West Midland claim or the bank claim. The writ claims a
declaration that the defendant company is so liable.
It will be
convenient now to set out the terms of the insurance policy that are material.
A recital in the policy indicates that the plaintiff had made to the insurance
company a written proposal containing particulars which were agreed to be the
basis of the insurance contract. For present purposes one should take the proposal
form dated November 27 1984 signed R F Moody. It is a ‘Professional Indemnity
Proposal — Surveyors, Valuers, Auctioneers and Estate Agents’. It is stated
that the business is conducted under the name of ‘Tilley & Noad’. Eight or
more business addresses are then specified, and there follow the names of the
partners. They are eight in number, all having the qualification FRICS. The
proposal indicates that cover was also required for a retired partner. In the
appropriate place on the proposal form there appears ‘consultant — H K Preedy’.
Mr Preedy’s age was given as 81 and his involvement with the firm was said to
be 66 years. Leaving the proposal form and returning to the policy, there
appears below the recital I have mentioned the principal term of the policy,
which reads:
We the
Insurers agree to indemnify the Insured, in respect of loss arising from any
claim or claims which may be made against them and reported to the Insurers
during the currency of this Policy by reason of any Neglect Error or Omission
or Breach of Contract or Breach of Warranty of Authority or Breach of Trust
(committed in good faith) whenever or wherever committed or alleged to have
been committed in the conduct of the Insured’s business in the professional
capacity as stated in the Schedule by the Insured or by any person now or who
may have been heretofore or who may hereafter be in the employment of the
Insured.
There follows
a section of the policy headed ‘exclusions’. So far as now material the
exclusions read as follows:
This Policy
shall not indemnify the Insured in respect of any loss arising out of any claim
against them . . .
(c) resulting from any circumstance or occurrence
which is either:
(i) known to the Insured at the inception of this
Policy and likely to give rise to a claim against which the Insured would
otherwise be entitled to be indemnified or . . .
There follows
a section headed ‘Conditions’. The material conditions are as follows:
1 The due observance and fulfilment of the
Terms, Conditions and Endorsements of this Policy by the Insured insofar as
they relate to anything to be done or complied with by the Insured shall be
conditions precedent to any liability of the Insurers to make any payment under
this Policy.
5 The Insured shall give to the Insurers immediate
notice in writing of any claim made upon them or of any occurrence of which
they may become aware which may subsequently give rise to a claim and further
upon request shall give to the Insurers all such information and assistance as
the Insurers may reasonably require and as may be in the Insured’s power and
will in all such matters do and concur in doing all such things as the Insurers
may require and if during the subsistence of this Policy the Insured shall give
such notice then any such claim or claims which may subsequently be made
against them arising out of the said claim or occurrence shall for the purpose
of this Policy be deemed to have been made during the subsistence hereof.
9 In the event of the Insurers being at any
time entitled to avoid this Policy by reason of any inaccurate or misleading
information given by the Insured in the Proposal Form, the Insurers at their
discretion, instead of avoiding this Policy may give notice in writing to the
Insured that they regard this Policy as of full force and effect save that
there shall be excluded from the indemnity afforded hereunder any claim which
has arisen or which may arise and which is related to circumstances which ought
to have been disclosed in the Proposal Form but which were not disclosed to
Insurers.
This Policy
shall then continue in full force and effect but shall be deemed to exclude, as
if the same had been specifically endorsed, the particular claim or possible
claim referred to in the said notice. However, where the Insured can establish
to the satisfaction of the Insurers that the non-disclosure, misrepresentation
or untrue statement was innocent and free of any fraudulent conduct or intent
to deceive, there shall be indemnity to the Insured in respect of such claim
subject to the terms and conditions of this insurance being amended to such
terms and conditions that would have applied in the absence of such
non-disclosure, misrepresentation or untrue statement.
I now turn to
a statement of the principal facts. Mr H K Preedy, who has already been
mentioned, was a partner in the firm of Tilley & Noad for many, many years.
He was born in 1903 and so was 81 years old in 1984 when some events with which
this case is concerned took place. Mr Preedy has been an active auctioneer and
valuer. He conducted auctions into his mid 70s. In or about 1980 he ceased to
be a full partner. He became a consultant. The evidence of Mr Moody, a present
senior partner in the firm, was that in March 1982 Mr Preedy was capable of
doing a valuation. But unfortunately by April 1984 he was, according to Mr
Moody, not so capable.
Some
particulars of the three Preedy valuations with which this case is concerned
are as follows:
(1) All three relate to the land and live and
dead stock belonging to the Parsons’ partnership and all are written on Tilley
& Noad headed paper.
(2) The earliest in date is that dated March 22
1982. There the Parsons’ assets are shown as worth £1,489,300, being as to
£969,000 in land, £244,300 livestock and £276,000 implements etc.
(3) The second is dated April 9 1984. It shows
the assets worth £1,936,000 being as to £1,000,000 for land, £660,000 for
livestock and again £276,000 for implements. The valuation also shows a figure
of £130,000 for some land apparently held in lease, but the £130,000 has not
been included in the £1,936,000 total. Below Mr Preedy’s signature there is
typed ‘omitted from main farm valuation’. There is then typed a total of
£290,000 for milk cartoning and retail business at £220,000 plus equipment
£70,000. The handwritten deletions and figures that appear on this ‘omitted’
matter appear to relate to figures that will be seen on the third valuation.
(4) The third valuation is dated November 29
1984. It shows the same figure of £1,936,000 made up as in the second
valuation. It again refers to the land in lease at £130,000 but again does not
include that figure in any total. Thus, so far, this third valuation is the
same as the second valuation. But there then appears in the main body of the
valuation the heading ‘omitted from main farm valuation’. The milk cartoning
and retail business is then shown as worth £330,000 with the equipment again at
£70,000, making a total of £400,000. Thus, the third valuation differs from the
second in that the milk cartoning etc is advanced by the sum of £110,000.
(5) It is unclear as to when there was added to
the second valuation the total of £290,000 for milk cartoning etc. However, it
is clear that the third valuation had at all times therein the figure of
£400,000 for the milk cartoning etc.
Tilley &
Noad had since 1980 taken up professional insurance with the defendant company.
Renewal of the policy for the year beginning January 1 1985 was considered at
the end of 1984. On November 16 1984 the brokers acting for the firm — Nelson
Hurst & Marsh Ltd — sent a proposal form. On November 27 1984 the brokers’
managing director, Mr Carter, called at the firm’s offices by appointment. The
proposal form had been completed and I have already mentioned some of its
contents. Question 4 asked whether any claim had been made against the firm and
in answer 5 claims were indicated over the period 1975-1982. Question 5 was in
these terms:
5. Are any of
the Partners/Directors/Principals aware, after inquiry, (of) any claim pending
or of any circumstances existing which may give rise to any claim by or against
the firm or any of your present Partners/Directors/Principals or retired
Partners/Directors/Principals?
The answer was
‘no’. The answer ‘no’ was also given to question 13, which was whether there
was any other information in the firm’s possession material to an estimate of
the risk to be insured. The proposal form concludes with a declaration to the
effect that the statements and particulars given were true, that no information
had been withheld, and should particulars alter in any way the firm would
advise the insurers immediately. The proposal form was signed by Mr Moody. He
stated that he had given due consideration to the accuracy of the information
supplied. In due course the proposal was accepted, the premium required being
£13,750. On Friday November 23, a few days before the proposal form was signed,
Mr Moody became involved in a chapter of events that may be regarded as extending
to November 30 1984.
The events
concerned Mr Preedy and Mr H R G Parsons of the farming partnership I have
mentioned. Mr Parsons farms in Wiltshire and was a friend or acquaintance of Mr
Preedy, at any rate to the extent that they were members of the same shooting
syndicate. Mr Moody wrote a memorandum of the chapter of events I have
mentioned. The memorandum was in evidence. It was accepted as being
contemporaneous. I summarise its contents.
(1) On Friday November 23 1984 Mr Moody says he
saw Mr Parsons in an office in Chippenham Market with Mr Preedy. Mr Parsons
said the bank was ‘on his back’ and he needed to reorganise his finances. Mr
Moody said he would telephone Mr Parsons on the following Monday.
(2) On Monday November 26 1984 Mr Parsons saw Mr
Moody by appointment at the Chippenham office. Mr Parsons said that he owed the
AMC £184,000 on a first mortgage and Bank of Scotland £300,000 on a second
mortgage plus an overdraft with the same bank of £375,000. He needed more
money. Mr Moody said he would make inquiries. At the meeting Mr Parsons
produced a copy of a valuation dated April 1984 signed by Mr Preedy. This
suggested the Parsons’ assets were worth almost £2m. Mr Moody said he was
surprised the valuation was so high. Mr Moody said he would make inquiries
about raising money.
(3) On Thursday November 29 Mr Moody telephoned
Mr Parsons. It seems that Mr Moody had made little progress. Mr Parsons said
that he was to see Mr Preedy that morning. Mr Moody then spoke to Mr Preedy and
asked him not to involve himself in further valuations for Mr Parsons. Mr Moody
had then to leave his office. Later that morning he had a call from his office
informing him that Mr Preedy was retyping a valuation. Yet another call that
morning informed Mr Moody that Mr Preedy had signed a retyped valuation and
that the retyped valuation had been taken away by Mr Parsons. In the afternoon
Mr Moody saw Mr Preedy and told him that he had been ‘extremely unwise’ to
retype the valuation because he (Moody) felt it was inflated by a vast amount.
On the same afternoon Mr Moody telephoned Mr Parsons telling him of his concern
about the valuation and that he would be writing to him explaining that under
no circumstances was it to be used in an effort to obtain further credit
facilities. In the evening of the same day Mr Moody with his partner Mr Church
saw Mr Burridge, a solicitor. Mr Burridge agreed that Mr Moody had done ‘the
correct thing’ in sending a recorded letter to Mr Parsons. Mr Burridge added
that Mr Parsons should be asked to return the valuation given that day.
(4) On Friday November 30 1984 Mr Moody tried to
speak to Mr Parsons but was unable to communicate with him.
After
dictating the memorandum in so far as it contains the matters set out above, Mr
Moody says that he then went to the cattle market to attend to some other
business. The memorandum goes on in these terms:
Whilst there
an inquiry came through to reception from the Bank of Scotland asking for a
general indication of dairy cattle prices. The call was put through to me and I
spoke to a gentleman and to him I suggested that his call was prompted in
respect of their client Mr Parsons. He stated that he could not comment on
this. To his inquiry I suggested that the best dairy cattle were around £700 in
the market and that the last herd that I had sold averaged £560. I then added
that if the inquiry was connected to Mr Parsons they might like to speak to me
further about him since we have done certain valuations. A few minutes later
the gentleman from the Bank of Scotland, whose name escapes me, telephoned
again. He accepted that his call was in connection with Mr Parsons and that he
was concerned about him. He stated that he had never taken the valuations
seriously and I explained that they had been prepared by an elderly consulting
partner who was out of touch with current values and that the valuation should
not be treated seriously.
The recorded
letter sent on November 29 to Mr Parsons reads as follows:
Dear Mr
Parsons
Re:
Valuation of Assets
I was most
disturbed to see that Mr Preedy has provided you with a valuation of various
properties and farming stock which I understand is owned by you. I would like
to state that on behalf of myself and my partners that we sincerely believe
that the figures in that valuation are completely wrong and therefore we inform
you that the valuation should not be used in order to obtain credit facilities
from any source.
Mr Preedy is
now well over 80 years old and unfortunately, although a consulting partner is
no longer capable of carrying out valuations of this nature. If you require a
realistic valuation of your assets then I will be happy to arrange for this to
be done.
Mr Moody made
no mention to Mr Carter of this episode concerning the Preedy valuation dated
November 29 1984. The episode was of course incomplete when he and Carter met
on November 27, but he could have written or spoken to Carter after he knew
that Mr Parsons was in possession of an updated valuation.
The next event
to mention is that on January 19 1985 the Parsons’ partnership went into
receivership. The receiver came into possession of a copy of the valuation
dated November 29 1984. Mr Moody indicated to the receiver that the valuation
was not to be relied on, sending him a copy of the letter that had been sent to
Mr Parsons on November 29 1984. Then by February 15 1985 the receiver found in
his possession the Tilley & Noad valuation dated March 22 1982.
It seems that
Mr Moody had not until then been aware of the existence of this valuation. He
seems not to have been greatly dismayed by its discovery, since he wrote to the
receiver:
. . . I am
afraid I can find nothing to suggest that a physical valuation was carried out
on or about March 22 1982. I have spoken to Mr Preedy, who as you know is now
well into his eighties, and quite frankly he cannot recall whether he actually
visited the farm to prepare the valuation, or whether it was prepared from his
office here in Chippenham with the benefit of his past knowledge of the
properties and from stock numbers and descriptions provided by Mr Parsons.
On April 4
1985 the first claim was made. It was by solicitors acting for West Midland.
They wrote to Tilley & Noad suggesting that that firm was liable to West
Midland by reason of having given the valuation dated April 9 1984. The claim
was passed to the brokers and thence to the defendants and the defendants’
solicitors Ince & Co. On August 2 1985 West Midland’s solicitors informed
Ince & Co that West Midland had ‘called into question an earlier valuation
. . . dated March 22 1982’. Ince & Co inquired of Mr Moody about this 1982
valuation and on August 6 1985 Mr Moody stated that he had no knowledge
whatever of the valuation done by Mr Preedy on March 22 1982. There was then
correspondence and discussion between the firm, the brokers, the insurers and
Ince & Co as to whether the insurers would have to meet the West Midland
claim. Eventually, on October 24 1985 the defendant company wrote to Mr Carter
the broker saying that Dominion had decided to deny liability under condition 5
of the policy. Curiously enough it was on the next day that the second claim
(relating to the Bank of Scotland) came forward. This second claim came in a
letter dated October 25 1985 sent by Durrant Piesse to the plaintiff firm. It
complained of a loss arising to the Bank of Scotland in consequence of the
bank’s having relied on the Preedy valuation dated March 22 1982.
By December 17
1985 Ince & Co made plain to the solicitors then acting for the plaintiff
firm that the insurers were denying liability as respects both the claims in
each case in reliance on condition 5 of the
Miss Caws
appeared for the plaintiffs and Mr Tomlinson for the defendants. It was common
ground that the claims made by the plaintiffs were to be regarded as made under
a policy for the period January 1 1985-December 31 1985 and that the onus was
on the defendants to show that they were free from liability to the plaintiffs.
The defence pleads that the defendants are under no liability to the plaintiffs
by reason of exclusion (c) (i) set out above. Further or in the alternative it
is pleaded that the plaintiffs failed to give the defendants immediate notice
in writing of relevant circumstances; so that the plaintiffs were in breach of
condition 5 (see above), with a consequence that the defendants were entitled
to decline liability to indemnify.
I take first
exclusion (c) (i). Mr Tomlinson submitted that (c) (i) operated to free the
defendants from liability for both the West Midland claim and the Bank of
Scotland claim. He said that the scope of the cover given by the defendants did
not extend so as to make Dominion liable for either of those claims. The
claims, he said, resulted from a ‘circumstance’ which was ‘known to the insured
(Moody) at the inception of this policy’, that circumstance being ‘likely to
give rise to a claim against the insurers . . .’. The circumstance in question
was said to be the fact that Mr Preedy was supplying unprofessional valuations
to Mr Parsons. The fact was known to Mr Moody at the inception of the policy
and the fact was ‘likely to give rise to a claim. . .’. Mr Moody was a patently
honest witness. He did not in the least seek to evade or qualify his memorandum
of November 1984 or his letter to Mr Parsons dated November 29 1984. In
cross-examination he accepted nearly all the allegations in (a)–(g) in para 5
of the amended defence. In particular, with a qualification as to (c), he
accepted that:
(a) Mr Parsons was in financial difficulties;
(b) Mr Parsons had obtained the valuations with a
view to using them to obtain credit;
(c) he could not reliably know whether there
might not have been prepared by Mr Preedy still further valuations at different
dates, bearing in mind the long and personal relationship between Mr Parsons
and Mr Preedy, social friends of long standing; and
(d) Mr Parsons had very probably already used the
valuation of April 9 1984 in that manner, had probably used the valuation of
November 29 1984 likewise and was likely to continue so to do.
It is to be
noted that the valuations referred to in (b) are two only — those made in 1984.
While those
admissions were made, there was, as I have said, a qualification as to (c). The
qualification was — ‘it would only have been in the last 12 months or so’. As
well as that, Mr Moody’s evidence was:
(1) That Mr Preedy had not declined in his
abilities until a year or so before November 1984.
(2) In chief Mr Moody said that in March 1982 Mr
Preedy was capable of doing a valuation.
(3) In cross-examination he said that prior to
November 1983 Mr Preedy, although with faculties impaired, would not have prepared
a very bad valuation. This view is borne out by the fact that while Mr Moody
was very critical of the figure of £600,000 for cattle in the 1984 valuation
(the Parsons’ land could not support cattle of that worth) he (Mr Moody)
regarded the figure of £244,300 in 1982 as being low.
(4) Again in cross-examination Mr Moody said he
had seen another valuation (albeit unspecified) that did not differ much from
the 1982 valuation and
(5) In cross-examination he said that before
November 1984 it did not occur to him that Mr Preedy might have produced a
negligent valuation for Mr Parsons.
In the light
of these considerations I do not accept Mr Tomlinson’s formulation of
‘circumstance’. To my mind it would be more accurate to revise that formulation
to read — ‘The fact that since April 1984 Mr Preedy had been supplying
unprofessional valuations to Mr Parsons’. It is not established that
unprofessional valuations were supplied before that date because the only
valuation in evidence made before April 1984 was in March 1982 and it has by no
means been shown that Mr Preedy was then incapable of valuing; and there is no
suggestion at all of bad faith on the part of either Mr Preedy or Mr Moody.
Reading exclusion (c) (i) with in mind the ‘circumstance’ as now revised, it is
plain that there is not excluded from the policy loss to the insured arising
out of the Bank of Scotland claim. That claim is not excluded because, based as
it is on the 1982 valuation, it does not result from the circumstance that
since April 1984 Mr Preedy had been supplying unprofessional valuations.
The position
as respects the West Midland claim is not quite the same. The West Midland
claim is based not only on the 1982 valuation but also on the valuation dated
April 9 1984. In so far as the claim is based on the 1982 valuation the claim
is not excluded by (c) (i). The position there is the same as in the case of
the Bank of Scotland claim. But in so far as the West Midland claim is based on
the April 1984 valuation the claim is excluded by (c) (i) because (a) the
‘circumstance’ (as I have defined it) was known to the insured ‘at the
inception of the policy’ and (b) the ‘circumstance’ was likely to give rise to
a claim.
Of (a) there
is no doubt. As to (b), Mr Moody went a long way towards admission by his
answers in cross-examination as to (a)-(g) in para 5 of the amended defence.
For myself, reflecting on the situation at the end of November 1984 with Mr
Parsons in financial difficulties and failing to respond to Mr Moody’s request
for the return of the third valuation, there was, I think, overall, a
circumstance likely to give rise to a claim, It follows that so far as the
exclusions part of the policy is concerned I regard the plaintiffs as unable to
require indemnity from the defendants in respect of the West Midland claim in
so far as based on the April 1984 valuation; on the other hand, the plaintiffs
are entitled to require indemnity in respect of the Bank of Scotland claim, and
the West Midland claim in so far as based on the 1982 valuation.
I should say
that Mr Tomlinson referred to the duty of a prospective insured to disclose all
material facts before the inception of the policy, material facts being such
matters as would influence the judgment of a prudent underwriter in determining
whether to take the risk and, if so, on what terms. Non-disclosure, it is said,
entitles the insurer, at common law, to avoid the policy. One would suppose
that Mr Moody would before January 1985 have disclosed to Dominion the events
of November 1984. After all, he went so far as to consult his solicitor about
the third Preedy valuation. However that may be, I understood the defendants
not to have relied on the common law remedy of avoidance. The defence relies on
(c) (i) and condition 5.
I go on to
consider whether or not Dominion has a defence to both claims by virtue of
condition 5; with which is to be read condition 1, which provides that if there
is a breach of condition 5 the insurers are under no liability.
As I
understand, in considering the exclusions, the mind is directed to a time
before the date of the policy. The exclusions lay down, beforehand, those
claims that will not, during the future currency of the policy, he entertained.
On the other hand, the conditions come into operation with the execution of the
policy and look to the future in the sense that the conditions will apply as
events unfold. It is not suggested that the plaintiffs are in breach of the
first requirement to condition 5 in that they gave immediate notice in writing
of the West Midland claim and of the Bank of Scotland claim. The second
requirement of condition 5 is that there must be notice in writing ‘of any
occurrence of which they (the insured) may become aware which may subsequently
give rise to a claim.’ Mr Tomlinson said
that the plaintiffs were in breach of that requirement in that they failed to
give notice of such an occurrence. The occurrence was said to be comprised in
the events of November 1984 as disclosed in the Moody memorandum. It ought to
have been notified to Dominion, so it was said, immediately after the policy
was accepted on January 2 1985. I do not understand condition 5 to have that
effect. The words are not ‘any occurrence of which they are aware’ but
‘any occurrence of which they may become aware’. The condition, with the
element of futurity that I have mentioned, requires that the insured tell the
insurers of events that happen as the policy term proceeds.
As to events
past, those are already provided for in the exclusions part of the policy.
Accordingly, since the events of the Moody memorandum were past events, I do
not see how they can represent an occurrence of which the insured might become
aware during the currency of the policy. This result does not seem to me to be
unfair to the insurers because it is to be borne in mind that they have, as I
understand, a common law right to avoid for non-disclosure as respects past
events while the policy is in being. It follows that, in my view, condition 5
affords no defence to the defendants in respect either of the West Midland
claim or the Bank of Scotland claim.
Having given
my views on the points raised by Dominion as to (c) (i) and condition 5, I go
on to consider a point raised by the plaintiffs in the amended statement of
claim. In short the plaintiffs say that
the West Midland claim and the Bank of Scotland claim. I have already set out
condition 9 above. Any operation of condition 9 must be considered separately
as respects each of the two claims because while the West Midland claim was
made on April 4 1985, the Bank of Scotland claim was not made until October 25
1985. Events between those two dates may affect the earlier claim but not the
later claim. So I first consider condition 9 in reference to the West Midland
claim. A point to notice is that condition 9 gives to the insurers an option.
If entitled to avoid they may instead ‘give notice in writing to the insured
that they regard this policy as of full force and effect save that etc.’. So
one question is whether or not Dominion gave any such notice. The first
relevant document in the case is a letter dated August 6 1985 from Dominion’s
solicitors to Mr Moody. That letter in its third paragraph suggests to me that
the writer had condition 9 in mind. But the letter is not a condition 9 notice.
There are then some notes of telephone conversations which suggest that
Dominion on its side was considering endorsing the policy so as to exclude any
liability arising from any Preedy valuation. Mr Carter’s evidence was that an
endorsement to this effect was drafted but that Mr Harvey refused to make use
of it. On September 10 1985 there was a conversation between Mr Carter, the
broker, and Mr Harvey of Dominion. Mr Carter reported the conversation to Mr
Moody in a letter dated September 19 1985. The letter includes these words:
They
(Dominion) are denying liability under condition 5 of the policy but before
doing so formally have asked you to withdraw the claim. The Dominion have
confirmed to me that the policy would not be avoided and that if another claim
was notified that fell within the terms and conditions of the policy then it
would be dealt with accordingly.
If it is
accepted (as is alleged in the statement of claim) that Mr Carter was there
writing as the agent of Dominion it is difficult to regard that letter as a
condition 9 notice. In any event Mr Tomlinson submitted that there was no
condition 9 notice. He said that the Dominion attitude had been not to invoke
condition 9 but rather to decide not to avoid the policy for non-disclosure
while at the same time deciding to invoke condition 5 (coupled with condition
1) as grounds for not meeting the West Midland claim.
Mr Tomlinson
further submitted that, even if the letter dated September 19 1985 was a good
condition 9 notice, condition 9 would not operate to give indemnity to the
plaintiffs. This submission involves a consideration of the last sentence in
condition 9:
However,
where the insured can establish to the satisfaction of the insurers that the
non-disclosure, misrepresentation or untrue statement was innocent and free of
any fraudulent conduct or intent to deceive, there shall be indemnity to the
insured in respect of such claim subject to the terms and conditions of this
insurance being amended to such terms and conditions that would have applied in
the absence of such non-disclosure, misrepresentation or untrue statement.
While taking
no point on the words about the insured establishing that any non-disclosure
etc was innocent etc, Mr Tomlinson said that the words ‘there shall be
indemnity’ operated subject to the qualification about amendment of the policy
that then follows. But, it was said, there was no amendment in the present case
that could be contemplated because had Dominion known of what was not disclosed
in the 1984 proposal form (ie that some unreliable Parsons’ valuations were in
currency) they would have refused cover. In this connection he referred to an
internal note made by Mr Harvey on July 30 1985 when the West Midland claim was
under consideration. The note reads: ‘The record on this case is sufficiently
bad that had we known of this particular circumstance at renewal it is most
certain that we would not have considered offering renewal terms. Obviously
Ince (the solicitors) need to investigate why we were not informed of situation
in November (Mr Moody actually signed proposal!) before we take point of the
conditions precedent’. Thus, so the argument goes, one cannot apply condition 9
since there cannot be visualised any amendment of the policy that would be
appropriate; and if there is no possible amendment then the words ‘there shall
be indemnity’ can have no force. In answer, Miss Caws suggested that even if
Dominion would have refused cover nevertheless condition 9 should operate to
give indemnity with the policy then immediately amended to withdraw all cover
for the future.
I have had in
mind the matters set out above and as well the file of correspondence and other
documents (including a record of an all-parties meeting on October 10 1985)
together with the evidence of Mr Harvey and Mr Carter. To my mind the situation
is far too confused to enable me to accede to Miss Caws’ submission that
condition 9 came into operation. If condition 9 was ever in mind it is only
reasonable to suppose that one would find some more direct mention of it than
appears in the documents before me. In any event I have seen no document that
can plainly be regarded as a notice in writing within condition 9. Thus
condition 9 does not apply to the West Midland claim. If it cannot apply to
that claim, still less can it apply to the Bank of Scotland claim.
Reviewing all
the claims the position is therefore thus:
(a) The plaintiffs cannot rely on condition 9.
(b) The defendants cannot rely on condition 5.
(c) The defendants can rely on exclusion (c) (i)
in so far as any claim against the plaintiffs relies on the two 1984
valuations.
The plaintiffs
are therefore entitled to indemnity in respect of the Bank of Scotland claim.
The plaintiffs are also entitled to indemnity in respect of the West Midland
claim, but, as to this claim, only in so far as West Midland rely on the 1982
valuation. I will, if so desired, hear counsel on the form of any declaration.
