Anders & Kern UK Limited v CGU Insurance plc The High Court decision in Anders & Kern UK Limited v CGU Insurance plc in upholding an intruder alarm condition confirmed the courts’ reluctance to imply terms into contracts of insurance and affirmed the principle that when an insured seeks insurance, he impliedly offers to take the insurance on the insurers’ usual or standard terms.

Facts

The claimant, Anders & Kern UK Limited, was a wholesaler of audiovisual presentation equipment and home cinema systems whose premises included a warehouse. During the night on Friday 16 April 2004, there was a break-in at the warehouse, damage was done and plasma screens were stolen. The value of the claim was £195,433.

The claimant’s Managing Director, Mr Kuziw, attended the warehouse on the evening of the burglary after being notified that the BT telephone line had been cut. BT were unable to advise when an engineer would be available and Mr Kuziw felt unsafe being alone in the warehouse at night. He left at approximately 9.30pm and overnight the burglary took place. Norwich Union, the claimant’s insurers, declined cover on the basis that the Intruder Alarm Condition (IAC) in the policy required that the premises either be attended or that an intruder alarm be set and working and that since neither requirement was met on the night of the burglary, there was no liability.

The claimant’s action against Norwich Union came before Mackie HHJ in the London Mercantile Court on 7 and 8 February 2007. The claimant relied on three grounds for contending that Norwich Union were not entitled to decline cover.

1. Threats of violence

The IAC applied to theft or attempted theft involving entry into or exit from the premises by force but did not apply to theft “involving violence or threat of violence to You, Your partners, directors or employees”.

Counsel for the claimant argued that there was a “threat” of violence in this case because the phone line had already been cut by the burglars by the time Mr Kuziw attended the warehouse. The claimant argued that the ordinary meaning of the word “threat” does not require there to have been a threat by direct words or action. Norwich Union argued that for there to be a “threat” there must be some form of communication between the person threatening and the person threatened and some knowledge or perception of the threat on the part of the person threatened.

Mackie HHJ held that the natural meaning of threat of violence used with “involving” is of some words or conduct directed to the individuals specified in the clause. Therefore, the threat had to be a specific threat of which the recipient was aware.

2. Implied term

The IAC provided that a keyholder must remain at the premises unless Norwich Union agreed otherwise in writing. After the burglary the claimant’s solicitors wrote to Norwich Union and requested that written agreement be given retrospectively under the IAC for the premises to be left without a person in attendance or the Intruder Alarm System being set. Norwich Union declined to give such agreement.

The claimant argued that it was an implied term of the policy that Norwich Union’s consent could not be unreasonably withheld. An alternative implied term the claimant put forward was that a “keyholder would not be required to remain at the premises if to do so would, or if the keyholder reasonably perceived that it would, put him in personal danger”. The claimant argued that these terms should be implied into the policy in order to give effect to the principle of utmost good faith underlying every contract of insurance.

The judge applied the 2001 Court of Appeal decision in Gan v Tai Ping (Nos 2 and 3). He held that the correct test was whether any withholding of approval by insurers had taken place in good faith after consideration of the facts giving rise to the particular claim and not with reference to considerations wholly extraneous to the subject matter of the policy. On the facts there was nothing to suggest that Norwich Union had not acted in good faith after consideration of the facts or that it had regard to any irrelevant considerations and therefore, there had been no breach of the implied term. In any event, the judge did not consider that Norwich Union had acted unreasonably in refusing consent. Norwich Union argued that the personal safety term should not be implied because (i) in general, terms will not be implied into a written contract as detailed and complete as the policy; and (ii) the terms were unnecessary to give business efficacy, as the policy worked without them; and (iii) either of the suggested implied terms would contradict the allocation of risk explicitly set out in the policy and introduce uncertainty; and (iv) terms are not implied merely because it might be reasonable to do so.

Mackie HHJ found that there was no basis for implying the personal safety term. The allocation of risk in the policy was clear: if the alarm did not comply with the requirements of the IAC, cover would only remain in place if a responsible person remained at the premises. This did not mean that there was an obligation on an individual to face personal danger. It meant that if that person leaves, the risk of burglary is borne by the company, not the insurer. Further, any implied term had to be implied when the date the contract was entered into and not at the date of the burglary. Mackie HHJ thought it unlikely that Norwich Union would have agreed to that term at the date of entry into the contract.

3. Incorporation

The claimant also argued that the IAC was never incorporated into the policy. The IAC was in the section of the policy headed “Additional Conditions” which apply only if stated in the Schedule. The words “Intruder Alarm Conditions” were listed under the “Additional Conditions Applicable” in the Schedule. However, the claimant relied on the fact that the quotation for the insurance stated only that it was subject to normal terms and conditions and that a specimen policy wording was available on request. The claimant argued that even if the IAC is said to be one of Norwich Union’s normal terms and conditions, the specimen policy wording was simply a long form pre-printed policy and it would not have been clear from this, without the Schedule, which Additional Conditions apply.

Mackie HHJ rejected this argument on the basis that the claimant agreed to the policy either knowing that there were standard terms but not checking them or learning what those terms were but still deciding to go ahead. Norwich Union relied on the well-established principle that the parties are not required to have reached separate agreement on all the terms of the insurance, apart from the essentials, in order that a contract be held to exist and it will be assumed that when an insured seeks insurance cover he impliedly offers to take the insurance on the insurer’s usual or standard terms of cover. The judge agree with that contention.

Further, it was clear that the claimant’s broker was aware that the policy would contain a clause such as the IAC and the claimant’s Company Secretary would have been aware had she questioned the broker.

The judge also rejected a further argument by the claimant that the IAC was so onerous and exceptional in its provisions that it cannot be incorporated by a mere reference because specific and particular notice was required. There was nothing to show that this type of clause is particularly unreasonable or onerous.

Conclusion

Mackie HHJ gave judgment for Norwich Union, holding that they were entitled to decline cover due to the claimant’s failure to comply with the IAC. The judge expressed regret at the harsh practical effect of the decision and whilst he found in favour of Norwich Union, he commented (obiter) that the IAC was not drawn to the claimant’s attention as prominently as insurers often bring important clauses to the attention of their insureds. He also criticised Norwich Union for the fact that, although they had carried out a risk assessment when assuming the risk, that assessment had not identified various measures which they either imposed later as a requirement for continued cover or suggested during the course of the litigation. Nevertheless, insurers can take heart from the decision which demonstrates the court’s continuing reluctance to imply terms into contracts of insurance and has re-affirmed the principle that an insured’s proposal is presumed to be on the basis of the insurer’s standard terms.