A tunnelling subcontractor installed a micro-tunnel for power cables under a railway line. Ground settlement above the tunnel was greater than anticipated (or permitted by Network Rail) and a void occurred in an adjacent road. Another void under the railway line subsequently caused a train derailment. The subcontractor renewed its insurance cover during this period, but failed at the relevant time to disclose the additional settlement and the road void.
The court found that it had also represented to the insurer that it was not tunnelling under or near to an active railway line. Did this non-disclosure and misrepresentation entitle the insurer to avoid the policy?
If a prospective insured fails to disclose a material circumstance or makes a material misrepresentation, a policy can be avoided. Whether a circumstance is material is a question of fact to be determined objectively by the court from the perspective of a hypothetical prudent insurer. It does not depend on the insured's own appreciation or assessment of its potential importance and is not settled automatically by existing practice or the opinion of insurers.
The relevant question is simply whether the circumstance would have had "an effect on the mind of the insurer in weighing up the risk". A misrepresentation is similarly material if a prudent insurer would have taken the matter into account. Again it is a question of fact to be determined objectively by the court and there is no need for an insurer to prove negligence or fraud.
The court found that there had been material non-disclosure and misrepresentation, and that the insurer was therefore entitled to avoid the policy.(1)
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