Insurance: misrepresentation on renewal

In a recent case, the court held that a misrepresentation made during the policy period was implicitly repeated during the renewal process four months later. In doing so, various general points were considered by the court both in terms of insurers’ right to avoid and also regarding the duties owed by the broker where misrepresentation and non-disclosure points have been successfully taken by insurers.

The insured (Synergy) provided laundry services to the NHS. Synergy was insured for material damage and business interruption for the years 2005/06, and renewed for the years 2006/07. Following an insurers’ risk assessment in 2005, Synergy confirmed by letter that work to install an intruder alarm would be completed by the end of December. This message was conveyed in a letter written on or around 8 December 2005 but not presented to insurers until 28 December 2005. In fact, the alarm was not installed by the time of a fire in February 2007. Insurers were never informed of the failure to install the alarm at renewal in April 2006.

Insurers purported to avoid the policy for misrepresentation and non-disclosure. The court concluded, amongst other things, that:

•There were two key dates to be considered when determining whether or not there was a misrepresentation. The first was the date when the statement was received by (and therefore made to) insurers, not the date on which it was written. The second was during the renewal presentation, since a misrepresentation is actionable only if made during the negotiations for the insurance contract.
•The statement that the work to install the alarm before the end of December was made two days before that date. It was, therefore, a representation that the work was in fact underway. The work, in fact, was not;
•In this case, the misrepresentation was implicitly reiterated during the placement for the renewal since it was a statement which was material to the risk made only four months prior to the placement;
•The representation was material, and this was something which the court would have been able to find without expert evidence in support;
•Insurers were not, however, induced by the misrepresentation, since they would have written the renewal policy on the same term even if the correct position had been disclosed.

It was therefore strictly not necessary to consider the insured’s claim against the broker. But the court dealt with the points nonetheless.

Of particular interest were the comments made by the court on the broker’s duty to elicit matters which ought to be disclosed but the client may not think it necessary to mention. The court accepted that there must be limits on this duty: a broker will not be negligent if he fails to ask questions about the risk that he had no reason to ask. Likewise there are limits on the duty to explain to the insured the duty of disclosure and the consequences of failure to make full disclosure. In this case, the insured was well aware of the need to provide full disclosure of all material matters. In any event, the court concluded that any loss here was caused by internal miscommunications at the insured rather than any breach of duty on the part of the broker. As such, each of the allegations of negligence against the broker failed.

This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, please go to www.law-now.com