The High Court (the Court) considered “deliberate” non-disclosure under an insurance policy and concluded that “deliberate” incorporates an element of dishonesty and cannot extend to an innocent but mistaken belief that information need not be disclosed.
The insured energy company owned and operated an undersea interconnector which provided a link between the electricity systems of Northern Ireland and Scotland. The interconnector was insured by the defendant insurers. The policy contained protection for the insured in that the insurer could only avoid the policy for non-disclosure if they could establish that there had been “deliberate or fraudulent non-disclosure or misrepresentation or breach” by the Insured.
In 2011, the insured suffered loss of power flow caused by failures with the interconnector and its cables and made a claim under the policy. The insurer had failed to disclose that there had been previous problems with its interconnector cables. The insurer sought to avoid the policy.
The Insurers agreed that the insured was aware of the information and aware that it was not being disclosed to insurers but held the honest but mistaken belief that it need not be disclosed. There was no question of fraud. Therefore the issue for the Court to decide was whether the disclosure had been “deliberate”. In other words, did “Deliberate non disclosure” have to contain an element of dishonesty?
One argument raised by the Insurers was that the use of “deliberate or fraudulent” suggested that dishonest acts were captured by “fraudulent” so “deliberate” was intended to mean something else and could encompass honest mistakes. Coulson J rejected this analysis and held that “deliberate” could mean something different from “fraudulent” but that it could still indicate dishonesty. He considered the situation of an insured knowing that what he said was inaccurate but believing that the inaccuracy did not matter. That would be a situation of deliberate and dishonest misrepresentation, but it would not be fraud because of the honest but mistaken belief that the inaccuracy did not matter. He held that the insured’s conduct in this case (where it knew that there had been non-disclosure but not that this was legally inadequate) did not amount to “deliberate” and so the policy could not be avoided.
This case is of interest in relation to the new Insurance Act 2015, which from 12 August 2016 will provide that insurers can only avoid a policy for breach of the duty of fair presentation if the breach was “deliberate or reckless”. Therefore, while this case turned upon a bespoke wording particular to an individual policy, the meaning of “deliberate” will be at the forefront of the parties’ minds in many disputes arising out of non-disclosure in relation to insurance contracts entered into after August. Coulson J commented that there were in his view no insurance authorities of any assistance on the construction of the term; his own judgment may now serve as a road map into what was previously uncharted territory.