Contracts of Insurance - a failure to disclose - Unpleasant Consequences

If you are ever required to give evidence in court you will be given the option either to swear an oath or to give an affirmation that your statement and evidence will be truthful. Here are the two options.

Oath:

I swear by Almighty God that the evidence I shall give shall be the truth, the whole truth and nothing but the truth.

Affirmation:

I do solemnly, sincerely and truly declare and affirm that the evidence I shall give shall be the truth, the whole truth and nothing but the truth.

 

Insurance companies do not require an applicant to swear that its proposal form will be completely accurate and truthful but in reality they might as well. Let’s be quite clear about this, there can be very unpleasant consequences for any person or company that fails to complete an application form as accurately and truthfully as possible or fails to give a material disclosure to an insurer which might in turn affect the premium quoted. To demonstrate the point I am trying to make, take the recent judgement of the Court handed down in Brit UW Ltd v F&B Trenchless Solutions Ltd [2015] EWHC 2237.

F&B was appointed to install a micro-tunnel under a railway track in 2013. On 27 August of that year, a freight train derailed on land passing over the site in question. Subsequent investigations proved that the derailment had been caused by dips in the ground which in turn had been created by F&B’s tunnelling operations. Not surprisingly F&B faced actions from many third parties affected by the derailment. F&B notified its insurer, Brit, expecting it to provide the necessary indemnities and insurance cover and to settle the resulting claims. There was, however, to be a problem.

F&B had only contracted with Brit for insurance cover after the tunnel had been built and crucially F&B neglected to advise Brit that the tunnel was adjacent to a live railway line and that there had been previous evidence of earth settlement in the vicinity of the site.

Upon receiving notification of F&B’s claim and investigating the background, Brit refused to provide F&B with the indemnity and advised that the policy cover was void. Brit then applied to the Court for a declaration that its decision to treat the contract of insurance as void was valid. It appears that the Court had no difficulty in finding that Brit was so entitled.

The Court also decided that F&B had failed to disclose the existence of significant earth settlement and voids under the road at the site prior to entering into the Policy. In the Court’s view this information would have influenced the judgement of a prudent insurer in fixing an appropriate premium or may have inclined a prudent insurer to decline cover. 

The Court found that F&B’s broker was guilty of misrepresentation by pledging that F&B had not, nor would it be undertaking tunnelling operations near to a live railway when it knew the situation to be quite different. This was clearly a material misrepresentation which would have influenced Brit in deciding whether or not to offer cover and on what terms.

 

Finally, the Court concluded that F&B should have voluntarily disclosed that it had and continued to undertake tunnelling operations near a live railway to its insurers as this was a material fact which should have been disclosed.

In summary, Brit was fully entitled to void the insurance cover as a result of these findings.

This case serves as a stark warning to all involved in procuring contracts of insurance. It is not for the applicant to decide what facts are relevant or not to an insurer. If in doubt, don’t leave it out, tell all and leave the insurer to decide if it wishes to offer terms and on what basis. Maybe before completing the proposal form you should even consider swearing an oath or affirmation just to remind yourself how important this all is.  

Finally, it would be remiss of me not to mention that a new statute - The Insurance Act 2015 - comes into effect from August 2016. Under this new legislation it will be far harder for insurance companies to void cover unless they can show that a material non-disclosure by a policy holder was deliberate or reckless. Even then, unless the insurer can convince a Court that it would have declined cover as opposed to simply charging a higher premium, then the insurer will not be permitted to void the policy cover. 

 

Peter Vinden is a practising Arbitrator, Adjudicator, Mediator and Expert. He is Managing Director of The Vinden Partnership and can be contacted by email at pvinden@vinden.co.uk.

For similar articles please visit www.vinden.co.uk.

Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations. 

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