Brit UW Limited v F&B Trenchless Solution Limited 
On 31 July 2015, the Honourable Mrs Justice Carr in the English Commercial Court declared that Brit UW Limited (“Brit”) had validly avoided a policy it issued to F&B Trenchless Solutions Limited (“FBTS”).
FBTS was a specialist tunnelling sub-contractor and was sub-contracted to construct a new concrete micro-tunnel under a railway level-crossing. When tendering for the tunnelling project, FBST stated in its proposal to the main contractor that the railway track settlement was estimated to be 2-4mm (Network Rail’s maximum permitted settlement being 5mm). FBTS undertook the construction of the tunnel between 11 June 2013 and 9 July 2013. On 9 July 2013 FBTS’ managing director was informed that there had been 11-12mm of track settlement above FBTS’ micro-tunnel. By 17 July 2013 FBTS were aware that track settlement had increased to 15-18mm. By 8 August 2013 a void in the road leading on to the level-crossing had also been discovered.
During this time FBTS was seeking to renew its contractors’ combined liability policy. It had previously been insured with Novae, but that policy expired on 14 August 2013. FBTS’ insurance brokers had provided Brit with details of the risk to be insured. The submission described FBTS’ trade as “Tunnelling Contractor and Civil Engineering” and, under the heading “Rail works”, stated the following: “ – av 4 times per year max – no lines active, controlled by Network Rail, working on rail for drainage and cables, no installation of train lines…”. This statement contained the misrepresentation alleged by Brit, namely that FBTS did not (and would not in future) carry out tunnelling works on active lines.
After being uninsured for 5 days FBTS concluded a contractors’ combined liability policy with Brit on 19 August 2013 (“Policy”). The Policy provided cover for public liability, employers' liability and product liability. Shortly afterwards, on 27 August 2013, a freight train derailed when passing over the tunnel which FBTS had constructed under the level-crossing, and damage was sustained to the track and the wagons. The Rail Accident Investigation Board found that the derailment had been caused by the void under the railway line and that the void had been caused by over-mining of the ground during the tunnelling.
FBTS subsequently sought an indemnity under the Policy. Following its investigations, Brit sought to avoid the Policy by a letter dated 21 January 2014, alleging non-disclosure. Brit then applied to the Commercial Court for a declaration that it had validly avoided the Policy. Brit’s application alleged that FBTS had failed to disclose material facts, including the increasing amount of track settlement at the site and the void in the road, both of which had manifested themselves prior to inception of the Policy. Brit also alleged that FBTS had misrepresented that it did not carry out tunnelling works on railway lines that were active.
The Commercial Court’s Decision
The Commercial Court held as follows:
- Material non-disclosure
- FBTS owed a duty to disclose to Brit (prior to inception of the Policy) all material facts known to FBTS or which ought to have been known to FBTS in the ordinary course of its business. A fact is material if it would influence the judgement of a prudent insurer in fixing the premium or in determining if he will take the risk. The judge concluded that the increases in track settlement and the void under the road were material matters which should have been disclosed to Brit.
- The judge noted that the central flaw in much of FBTS’ defence was to overlook the objective nature of the test for materiality; in particular, FBTS’ own opinion of the significance or otherwise of the earth settlement and the road void did not determine materiality.
- The judge found that FBTS had represented to Brit that it would not be involved in tunnelling works under or in close proximity to an active railway line. Since FBTS had tunnelled under an active railway line, FBTS had clearly misrepresented the position to Brit. In addition, the misrepresentation was material because an underwriter would be likely to consider that tunnelling under active railway lines would attract a higher excess or premium than if the tunnelling was taking place under inactive lines.
- The judge also held that FBTS’ material non-disclosure and misrepresentation had induced Brit to underwrite the Policy on the basis that it did.
- FBTS argued that Brit had affirmed the Policy because there had been a 4-5 month delay between the presentation of the claim and Brit’s eventual avoidance of the Policy. The judge found that a period of 4-5 months to carry out investigations, take legal advice and make the decision to avoid was not unreasonable.
- The judge also held that Brit had not affirmed the Policy by failing to prevent FBTS’ brokers from issuing policy documentation to FBTS when this had not been authorised by Brit and was perhaps not even known to Brit at the time. At that time Brit did not know that it had a legal right to avoid the Policy. Neither was there any affirmation by Brit issuing an endorsement on 12 September 2013 which was cancelled a few days later.
- Finally, the fact that specific “reservation of rights” language had not been used by Brit at a meeting with FBTS was also immaterial, because Brit had clearly communicated to FBTS at the meeting that it might not be providing cover because of FBTS’ material non-disclosure.
The Commercial Court’s decision seems eminently sensible and should serve as a welcome reminder that insureds must disclose all material facts to insurers when entering into a policy of insurance or face the potential consequences of their failure to do so.
The decision also reaffirms that insurers may take a reasonable amount of time to conduct their investigations before conveying their decision on policy coverage to the insured.
Furthermore, just because an insurer does not immediately impose a reservation of rights (for fear of destabilising its relationship with the insured prior to any investigations being conducted) does not mean that the insurer is affirming the policy. Notwithstanding this decision, we believe that any reservations of rights should be imposed as a matter of prudence as soon as an insurer is in a position to do so.
Obviously, each case is dependent on its own facts and policy language, so we should not read too much into this decision, but it clear that in appropriate circumstances the Courts are still willing to uphold an insurer’s right to avoid.