In the case of Sugar Hut Group Ltd & Ors v Great Lakes Reinsurance (UK) Plc & Ors [2010] EWHC 2636 (Comm) Mr Justice Burton reaffirmed the English Court's approach to non-disclosure and breach of warranty.

The defendants provided insurance cover to the claimants in respect of four nightclubs. One of the nightclubs was damaged in a fire and the claimants duly brought a claim for their loss. The defendants argued that they were not on risk as a result of a material non-disclosure; or, in the alternative, they were not liable as a result of several breaches of warranty by the insureds. It was accepted that the claimants had failed to disclose that the nightclubs had been very recently acquired as a result of their previous owners, a sister company of the claimants, going into administration. They also failed to disclose that the alleged reason for the previous owners going into administration was that money had been siphoned from the company by the people in control of that company.

In making his decision Mr Justice Burton referred to the case of Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 which set out a two stage test for deciding whether there has been a material non-disclosure. First, it must be determined whether the information is material. The judge found that the information was plainly material. Second, the judge decided whether the non-disclosure had induced the insurers to enter into the contract or to enter into the contract on the given terms. The judge found that, had the underwriter been privy to the non-disclosed information he probably would not have entered into the contract; and, if he had, it would have certainly been on different terms. He also found that the answers given by the insureds on the proposal form would not have prompted a prudent underwriter to ask further questions; and, as a result, there was not a waiver by the insurers in respect of the non-disclosure. Consequently, the judge found that the insurers had successfully avoided the contract and were not liable to the insureds.

Despite his findings in relation to non-disclosure, Mr Justice Burton went on to consider the breaches of warranty argued in the alternative by the insurers. The insurance contract contained three warranties, the alleged breaches of which were unrelated to the fire in question. The judge found that two of the three warranties had not been complied with and as a result the cover was suspended until the breaches were remedied. As the breaches were not remedied before the fire, the insurers were not liable for the claim on the insurance. Mr Justice Burton found that the insureds were entitled to avoid the contract of insurance and that, even if they had not been so entitled, the contract would have been suspended at the time of the fire as a result of the insureds' breaches of warranty.

Insureds should remember that, as in this case, even if breaches of warranty are unrelated to a subsequent claim the cover may be suspended when calamity strikes.