Whether you are a owner or an occupier of premises, whether they be retail or not, a recent Court of Appeal judgment involving a wholesaler has highlighted the importance to insured’s of disclosing all material facts, not just when taking out a policy (as is generally well known), but also throughout the term of the policy.
In Ansari v New India Assurance Limited , the Court of Appeal held that turning off an automatic sprinkler system for an indefinite period amounted to a material change and consequently the insurer was able to avoid liability under the buildings insurance policy. A harsh decision, but this shows the importance of any occupier to keep the owner, or their insurer, informed of actions they may take or changes in circumstances at the premises which may have an adverse affect on the insurance of the premises.
On the proposal form, the claimant, Ansari, described their business as "wholesaling kitchenware" and also stated that the premises were protected by an automatic sprinkler system. After a fire, insurers discovered that the sprinkler system had been turned off and that they had been storing a quantity of goods not falling within what is the general understanding of kitchenware (i.e. mini motorbikes!).
The insurance policy contained a provision such that:
"This insurance shall cease to be in force if there is a material alteration to the premises or business or any material change in the facts stated in the proposal form…".
The essence of the policy provision is that, if the circumstances have altered to take the risk outside what was within the contemplation of the parties when the insurance contract was made, the insurer ceases to be liable.
The meaning of "material" was considerably scrutinised by the court who distinguished between material circumstances relied on by the insurer to assess risk before the policy was created and material change of circumstance that might have affected the level of risk during the insurance period. It also considered whether a temporary change of facts would be material.
The court accepted that a temporary change would not necessarily amount to a material change of facts for the purposes of the policy. In the case of the sprinkler system, the insurer must have at least contemplated that from time to time the system might be temporarily out of action (for maintenance/ repairs).
A short period out of service for reasons of that kind would not in the view of the court mean that the premises ceased to be protected. How long the system was out of action, and the reason for it, are likely to be key issues. Undue delay by the insured in carrying out repairs may well mean that the period is no longer considered to be temporary. However, the implication is that the insured need not inform the insurer of any temporary suspension of the system.
The case highlights the importance of complying with an obligation to inform insurers of any material change in circumstances. This will clearly apply where the premises are refurbished, sub-let, assigned extended or indeed, as in this case, some other “material” fact changes. Of course this principle applies to any policy of insurance be that Buildings, Latent Defects, Contractor’s All Risks, Professional Indemnity, Public Liability, Employer’s liability etc.
What is material will of course depend on the facts though insured’s are well advised to disclose anything which they might consider material in order to satisfy the policy requirements. Insured’s will not be penalised for disclosing immaterial facts though, as can be seen from the above, a failure to disclose that which may later found to be material may be fatal to any resulting claim.
There are obviously lessons to be learnt from this case given the financial impact on the wholesaler of not being insured in this instance.
Taking one example if you are a tenant occupying premises under a full repairing and insuring lease it is usual for the Landlord to insure but you should have processes in place to check what information the insurer has about your occupation and whether these are still relevant.
Any changes to the premises or the use may well be material so you should ensure that the insurer is aware of them before it is too late.