In Brit UW Ltd v F&B Trenchless Solutions Ltd  EWHC 2237 (Comm), Mrs Justice Carr granted a declaration that Brit UW Ltd ("Brit") had validly avoided a contractors' combined liability policy (the "Policy"). Carr J's decision that there had been material non-disclosure and misrepresentations by the insured, F&B Trenchless Solutions Ltd ("F&B") provides a reminder to policyholders of the serious consequences that can arise from failing to disclose all material information to insurers and in failing to check the accuracy of all representations made to insurers.
F&B was contracted to install a micro-tunnel underneath a railway track at a building site (the "Site") in the summer of 2013. On 27 August 2013 a freight train derailed when passing through the Site. It was established that this was the result of a severe dip in the track caused by a void in the ground underneath the track, which had developed due to F&B's tunnelling.
F&B subsequently faced several third party claims arising from losses caused by the derailment and sought indemnification from Brit under the Policy, which F&B had taken out after construction of the tunnel.
Brit avoided the policy on the basis of material non-disclosure and misrepresentation on the part of F&B and sought a declaration from the Court that it had validly avoided the Policy.
1. Material non-disclosure
Carr J found that F&B had failed to disclose the existence of a significant earth settlement and road void at the Site prior to entry into the Policy and that this information would have influenced the judgment of a prudent insurer in fixing the premium or determining whether to take the risk.
Carr J further ruled that but for the material non-disclosure Brit would not have underwritten the risk on the same terms as it did, and would have at the very least excluded the Site from the Policy.
Carr J found that a representation by F&B's broker that F&B had not conducted (and would not, during the forthcoming policy period conduct) tunnelling works under, or in close proximity to, an active railway line was false. This misrepresentation was deemed to be a material misrepresentation as tunnelling under active railway lines would attract a higher premium as it was a more hazardous activity.
Additionally, Carr J also ruled that the failure to disclose the fact that F&B had tunnelled in and near an active railway line was a material matter that ought to have been disclosed to Brit.
The material misrepresentation and the material non-disclosure were found to have induced Brit into entering the Policy as Carr J believed that Brit would have acted differently had it been told that F&B had been tunnelling under active (rather than inactive) railway lines.
Although the decision of Carr J follows established principles of law, it is particularly notable as the insurer was able to avoid the policy completely; such decisions are now uncommon. The decision should though remain a stark warning to policyholders to err on the side of caution when it comes to deciding what information should be disclosed to an insurer; an insured should be aware that it is unsafe to rely on its own subjective assessment of the importance of the information – let the insurers decide what is or is not material to the underwriting of the risk. Similarly, policyholders should ensure that representations given by brokers (as the insured's agent) are correct and the insured should have copies of such correspondence to ensure its accuracy, and if necessary, to make amendments before the policy incepts.
It should of course also be noted that the position (and success) of the insurer in the current case may have been substantially different once the Insurance Act 2015 (the "IA 2015") comes into force on 12 August 2016. Under the new Act the insurer will only be able to avoid a policy if it can show that the material non-disclosure or material misrepresentation was "deliberate or reckless" - or alternatively, if it was not "deliberate or reckless", that even if there had been no breach, it would still not have entered into the policy at all. If the insurer can only show that it would have imposed different terms or that it would have charged a higher premium (which was the current legal test applied in Brit UW Ltd), the insurer will not be entitled to avoid the contract.