The claimant, AC Ward & Son Limited (AC Ward) was the owner of a warehouse in Essex, which was left unoccupied at weekends. AC Ward obtained insurance through its brokers, Henderson Insurance Brokers Limited (the Brokers) and the insurance was underwritten by Catlin (Five) Limited (the Insurers) pursuant to a binding authority granted to AT Docherty General Underwriting Agency Limited (ADC).
Among the goods stored at the warehouse were tobacco products, which were stored in a caged mezzanine area of the warehouse, and not in a secure area in the main body of the premises. Upon learning of this fact, ADC imposed an exclusion from cover for loss caused by theft of tobacco products unless they were stored in the secure area on the ground floor (the Exclusion). Subsequently, following various surveys conducted on behalf of ADC, certain further safety requirements were requested, including the installation of further movement detectors in the mezzanine area, a guardwire surrounding the caged area and extensions to the cage itself. It was agreed that once such improvements had been made, the Exclusion would be removed. In February 2007 the Brokers communicated to ADC that these improvements had been made and as such the Exclusion was removed. The precise nature of these communcations and the extent to which the improvements were in fact made was a matter in dispute at trial.
On the weekend of 17/18 March 2007, thieves broke into the warehouse and stole tobacco products worth £432,940 stored in the caged mezzanine area of the warehouse. At the time it appeared that the guardwire was disconnected, and that a number of the motion detectors were angled upwards, such that they were not as effective as they ought to be. AC Ward then made a claim against the Insurers for an indemnity for its loss.
The Insurers denied cover on three principle grounds: (1) that the theft took place with the collusion of one of the employees and was therefore excluded under the policy; (2) that AC Ward was in breach of a protection maintenance and burglar alarm maintenance warranty in the policy; and (3) that the variation in the policy made in February 2007 which removed the Exclusion could be avoided on the grounds of misrepresentation and non-disclosure.
Mr Justice Flaux found that in relation to the Insurer's first argument, there was insufficient evidence of collusion between the thieves and the employees of the company to exclude the loss under the policy.
He also held that there was no breach of either the protection or burglar alarm maintenance warranties. This was because each warranty was only given in respect of the protection which was actually in place at the time the insurance was entered into, and both warranties were qualified in that they only related to problems with the alarm or protection of which AC Ward was reasonably aware of and which it had failed promptly to remedy. AC Ward had no way of knowing either that the guardwire had been disconnected or that the motion sensors were angled upwards. There was therefore no breach of warranty.
However, it was held that there were material misrepresentations or non-disclosures by the Brokers to ADC in that in February 2007, it was stated that all of the required improvements had been made, when they had not in fact been. The misrepresentations that additional sensors had been installed and that the guardwire covered all the walls of the cage were clearly material, and misrepresentations upon which a reasonable underwriter would rely when deciding whether or not to lift the Exclusion and upon which ADC did in fact so rely. As such, the variation made in February 2007 could be rescinded and the Exclusion remained in place at the time of the theft. Therefore, the losses would not be covered.
This case demonstrates that while the courts will often be reluctant to enforce strict compliance with warranties in insurance contracts, it will still be fatal to a claim if a broker or insured makes material misrepresentations which would affect a prudent underwriter's decisions in relation to a given risk.