The Court of Appeal has, in its recent judgment in Zurich Insurance Plc v Niramax Group Ltd  EWCA Civ 590, addressed important issues of non-disclosure and inducement that were addressed at first instance in the Commercial Court by Cockerill J in Niramax Group Ltd v Zurich Insurance Plc  EWHC 535 (Comm) which we blogged here. The dispute relates to a claim brought by Niramax Group Ltd (“Niramax”) against Zurich Insurance plc (“Zurich”) challenging Zurich’s failure to pay out on a claim for fire damage to a recycling facility.
Niramax, a waste management operator, held insurance policies with Zurich covering plant and machinery (the “P&M policy”). It also had separate buildings insurance coverage with a different insurer. This buildings policy required Niramax to satisfy certain risk mitigation conditions, such as CCTV installation, by a stipulated date; Niramax failed to do so, triggering further special terms.
When Niramax’s P&M policy with Zurich came up for renewal in 2014, it did not disclose its failure to satisfy the conditions imposed on it in its buildings insurance policy. Unaware of this non-compliance, Zurich renewed the policy and subsequently, in 2015, expanded coverage under it to include a new multi-million pound sorting machine known as the ‘Eggersman’ plant.
Three months later, the Eggersman plant was destroyed by fire, and Niramax claimed for losses totalling £4.5 million under the P&M policy. However, Zurich rejected the claim and sought to avoid the P&M policy on the basis of Niramax’s non-disclosure of its failure to satisfy the conditions included in the buildings policy (it should be noted that the contracts in question were entered into before 12 August 2016, such that the Insurance Act 2015 did not apply). Zurich argued that these facts were material and, had they been disclosed, decisions relating to both the 2014 renewal and the addition of the Eggersman plant to the policy in 2015 would have been referred to a particular senior Zurich underwriter, Mr Penny, who would have proposed a different set of terms or refused coverage altogether.
The Judge found that the case on avoidance was not made out in respect of the original policy; but that there had been an actionable non-disclosure in relation to the Eggersman plant extension. The net effect of this was that Niramax succeeded in relation to about 10% of the claim relating to the loss of older (non-Eggersman) equipment, with the increased premium charged for inclusion of the Eggersman plant to be repaid by Zurich.
On inducement, the Judge found for Zurich. Had disclosure been made, the policy would have been referred to Mr Penny, who would have renewed the policy but he would not have extended the policy to include the Eggersman plant. Zurich appealed on that part of the claim on which Niramax had succeeded, as regards the consequences if the disclosure been made at renewal in 2014, asserting that the Judge was wrong to hold that inducement had not been established, having found that an additional premium would have been charged to correct a prior mistake in undercharging of premium, as a result of which the terms of the insurance would not have been the same. This argument had two limbs: inducement was established as a matter of law on the Judge’s findings, because the premium would have been higher had the disclosure been made; alternatively, the Judge was wrong to conclude on the evidence that Mr Penny would only have charged an increased premium in an amount which corrected the mistake in its calculation.
The Court of Appeal had little hesitation in concluding, following both authority and principle, that in order for non-disclosure to induce an underwriter to write the insurance on less onerous terms than would have been imposed if disclosure had been made, the non-disclosure must have been an efficient cause of the difference in terms. If that test of causation was not fulfilled, it was not sufficient merely to establish that the less onerous terms would not have been imposed but for the non-disclosure. On the facts, the Judge was correct to conclude that there was no inducement; and there was no evidential basis for submitting that the Judge ought to have found the non-disclosure causative independently of any question of correcting a mistake.