Back to the future? High court summarises duty of disclosure prior to the Insurance Act 2015
Dalecroft Properties Limited v Underwriters [26.05.17]
The case of Dalecroft Properties Limited v Underwriters provides a useful summary of the law relating to the duty of disclosure by insureds prior to the Insurance Act 2015, i.e. policies which incepted, renewed or were varied prior to 12 August 2016. Insurers will need to consider claims under such law for some time to come.
Whilst the law prior to the Insurance Act 2015 is considered by many to be ‘insurer-friendly’, on the facts the judge gave his view that insurers would have been entitled to avoid the policy even if considered under the Insurance Act 2015.
Following a fire in 2009 that caused severe damage to a property in Kent, the owner, Dalecroft Properties Limited (Dalecroft) brought proceedings against Underwriters after they purported to avoid a policy which covered a number of risks, including fire.
Underwriters avoided the policy on the bases of material non-disclosure and/or misrepresentation, which principally related to the description and condition of the property, for example, the property being in a ‘good’ state of repair and not having a flat roof.
Underwriters also relied on breaches of warranty, which principally related to the security of unoccupied parts of the property.
The case was considered under the law prior to the Insurance Act 2015.
The court found in favour of Underwriters, confirming that Underwriters were entitled to avoid the policy.
Dalecroft’s argument, that representations concerning the residential parts of the property meant Underwriters could not avoid cover for the commercial parts, was rejected, with the cover provided under the policy not clearly separable on the facts.
In giving judgment, the court set out a number of principles relating to the duty of disclosure as an explanation of the law prior to the Insurance Act 2015, including:
- The obligation to disclose arises before the contract of insurance is formed or varied and upon renewal. There is no general duty to inform the insurer of changes to the risk while the contract subsists.
- The duty only requires disclosure of information which the would-be-insured either knows or ought to know in the ordinary course of business. The insured need not undertake any special enquiry for the benefit of the insurer.
- The would-be-insured is obliged to disclose every material circumstance, i.e. a circumstance which would influence the judgment of a prudent insurer in fixing the premium, or determining whether to take the risk. The question whether a given fact is material is one of fact rather than law. It is not something that is settled automatically by the current practice or opinion of insurers. Rather, the decision rests on the judge’s own appraisal of the relevance of the disputed fact to the subject matter of the insurance (normally with the assistance of expert evidence).
- An insurer may only avoid a contract on the grounds of non-disclosure or of misrepresentation if:
the non-disclosure or misrepresentation induced the insurer to enter into the policy on the relevant terms (a subjective test); and if so
- that the non-disclosure or misrepresentation would have influenced the judgment of a prudent insurer in the position of
- the actual insurer (an objective test).
- Generally, a material misrepresentation or non-disclosure as to any part of the property insured meeting these tests will entitle insurers to avoid the whole policy. However, if on a true construction, the risks covered are clearly separable into distinct parts, the policy will only be voidable in respect of those risks that are affected by the misrepresentation or non-disclosure.
- The only remedy for non-disclosure is avoidance of the contract. Once avoided, the contract is treated as if it had never existed.
The judge considered Dalecroft made no real effort to make a “fair presentation of the risk”. This expression is included in the Insurance Act 2015 and requires disclosure of every material circumstance that the insured knows or ought to know; or disclosure of sufficient information to put the prudent insurer on enquiry.
In the circumstances, whilst each case will turn on its facts, this decision exemplifies the sort of misrepresentations relevant to an assessment of whether there has been a “fair presentation of risk”, such as those about the condition of the property.
Further, the judge was satisfied that Underwriters would have declined the risk, i.e. would not have entered into the contract on any terms, had a fair presentation been made.
Therefore, in similar circumstances, insurers of policies which incept after 12 August 2016 would still be entitled to avoid the policy.