Genesis Housing Association Ltd v Liberty Syndicate Management Ltd and others

[2013] EWCA Civ 1173  

Paddington Churches Housing Association was a charitable Industrial and Provident Society and part of the Genesis Housing Group which provided affordable or social housing. Liberty was a corporate Lloyd’s syndicate which until 2011 underwrote policies known as a “Premier Guarantee for Social Housing” administered exclusively by a Reading-based company, MD Insurance Services Ltd (“MD”).  

In 2007, Genesis contracted with Time and Tide (Bedford) Ltd (“TT Bedford”) to carry out the renovation to a large number of flats as part of a renovation and redevelopment project in Bedford. A term of the contract required TT Bedford to secure insurance cover for the benefit of Genesis and the future owners of the properties, which was to include cover for TT Bedford’s insolvency. The contract sum was £4.6 million.  

As such, TT Bedford approached MD seeking a policy. The proposal form was completed by an MD employee and signed by Graham Gamby (one of the two owners of TT Bedford) for and on behalf of Genesis (as agent) and TT Bedford. Time and Tide (Bedford) Ltd was incorrectly named as the builder on the proposal form as Time and Tide Construction Ltd. Whereas Time and Tide Construction Ltd was an experienced builder that had been trading for several years with a reasonable credit rating, TT Bedford was a special purpose vehicle company with no established credit rating. In addition to this mistake, the contract sum was stated to be £3.7 million (for reasons unknown). Further the Housing Association was incorrectly named as “Genesis Housing Association” rather than Paddington.  

The proposal form contained a declaration which included a “basis of contract” clause which provided that the statements made therein shall form the basis of the contract between the insured and the insurer.  

Following severe delays to the build, on 15 May 2010, TT Bedford was dissolved. Genesis sought to enforce the insolvency provision in the policy but was unsuccessful. Consequently proceedings were issued against the insurers. At first instance, Mr Justice Akenhead concluded that whilst provisions contained in a policy could negate the effect of a basis of contract clause contained in a proposal form, the wording included in the policy was not sufficient to negate the effect of that clause. However, Genesis appealed the decision to the CA.  

The CA considered three main issues. Firstly, whether the warranties in the proposal form became contractual warranties. Secondly, did Genesis warrant that TT Construction was to be the builder and thirdly, did the policy restrict the insurers’ right to avoid for misstatement in circumstances where there was intent to defraud?  

In relation to the first issue the Court found that:  

“If the parties intend to deprive of contractual effect a proposal form which purports to be the basis of their contract, they must do so by clear and unequivocal language. The policy in the present case contains no such express words.”

As such, the statements in the proposal form had contractual effect and were deemed warranties forming the basis of the policy.  

In response to the second issue, LJ Jackson found that inaccurate statements about the identity of the builder, in the proposal form completed by the claimant’s agent, had become warranties forming the basis of the policy. He confirmed that earlier authorities established the principle that, where a proposal form contains a “basis of contract” clause, the proposal form has contractual effect (even if the policy contains no reference to it), and all statements in the form constitute warranties on which the insurance contract is based.  

In regard to the third issue, condition 7 of the policy provided:  

“Misrepresentation: This Policy will be voidable in the event of misrepresentation, misdescription, error, omission or non-disclosure by the Policyholder with intention to defraud.”

Genesis argued that the effect of condition 7 was to limit the insurers’ right of avoidance to cases where the policyholder intended to defraud the insurer. LJ Jackson disagreed noting that it was not expressed to be a limiting provision. If such a result was intended, it should have been stated expressly. LJ Jackson stated:  

“In my view condition 7 of the Policy can only be read as a provision conferring additional express rights on the insurers, regardless of whether or not those express rights serve any useful purpose. It cannot be read as cutting down the insurers’ general right to avoid for misrepresentation.”

Even though Genesis had not actually been involved directly in completion of the proposal form, it was bound by the acts of its agent (TT Bedford). LJ Jackson therefore concluded that the policy was void due to the misstatement, concerning the builder, in the proposal form. As such, Genesis had no right of claim under the insurance because it was, albeit innocently, in breach of warranty because the statement made in the proposal form, that the builder was or was to be TT Construction, was to its knowledge and belief incorrect and because that warranty was not displaced or modified materially by any other terms of the insurance contract.