A non-disclosure clause in an insurance policy provided as follows:
“Notwithstanding any other provisions of this policy:
(a) the Insurers agree not to terminate, repudiate, rescind or avoid this insurance as against any Insured, or any cover or valid claim under it, nor to claim damages or any other remedy against any Insured or any agent of any Insured, on the grounds that the risk or claim was not adequately disclosed, or that it was in any way misrepresented, or increased, or that any term, condition or warranty was breached, or on the ground of negligence, unless deliberate or fraudulent non-disclosure or misrepresentation or breach by that Insured is established in relation thereto;”
Mr Justice Coulson had to decide what the words “deliberate or fraudulent non-disclosure” meant. Did the reference to “deliberate … non-disclosure” mean that the contract could be avoided in circumstances where Mutual Energy had honestly but mistakenly decided not to disclose a particular document or fact (the Insurers’ case); or did it mean that avoidance was only available if there had been a deliberate decision not to disclose a particular document or fact which Mutual Energy knew was material, such that its non-disclosure involved an element of dishonesty?
On Mutual Energy’s interpretation, the meaning of the clause imported an element of dishonesty: that the relevant person knew that a particular document or fact should be disclosed to the Insurers and deliberately failed to disclose it. Insurers argued that deliberate must be given a separate and distinct meaning from “fraudulent”, and that, because it is fraudulent non-disclosure, it would involve the element of dishonesty. On the Insurers’ view, “deliberate … non-disclosure” must encompass an honest but mistaken decision not to disclose a document or fact.
The Judge noted that conduct can be deliberate and dishonest, but not fraudulent. A breach of contract could be deliberate and made in the knowledge that it is a breach, but it may not be fraudulent. The remedy may be different, depending on which it is. Further, a representation may be dishonest but, if there is no intention to deceive or no intention that the misrepresentation be acted upon, then it is not fraudulent.
The Judge also considered the clauses from a business common sense point of view. There was a strong risk here that Mutual Energy could be punished for undertaking a rigorous disclosure exercise because they had made an honest mistake in the non-disclosure of one material document; but they would not be penalised if they had failed to go about the disclosure exercise properly, failed to consider the document in question (or indeed any documents), and simply failed to disclose the file. It could not be right that Mutual Energy should be in a worse position because they had made an honest mistake, as opposed to an inadvertent error.
The Insurers’ interpretation produced a wholly unbusinesslike result and so the Judge concluded that “deliberate or fraudulent non-disclosure” meant a deliberate decision not to disclose something which the Insured knows should be disclosed, and does not extend to an honest mistake.