The consequences of a failure to disclose material information to insurers
6 January 2016
The recent case of Brit UW Limited v F&B Trenchless Solutions Limited serves as a reminder of the serious consequences that can arise from making false representations and failing to disclose material information to insurers.
F&B was sub-contracted to build a micro-tunnel to carry power cables under a railway line and level crossing.
Following the completion of the works on 9 July 2013, it was discovered that the tracks had settled by much more than estimated in the contract and that a void had appeared in the road.
On 19 August 2013, F&B took out a new public liability insurance policy with Brit. However, the increased settlement of the tracks was not disclosed, nor was the fact that F&B had been operating on active railway lines.
On 27 August 2013, a freight train de-railed when passing through the site due to the severe dip caused by the increased settlement.
Brit sought to avoid the policy on the grounds of material non-disclosure and misrepresentation.
The Court found that Brit had validly avoided the policy on both grounds as, had the proper disclosures and representations been made, Brit would have underwritten the policy on different terms.
The decision should serve as a useful reminder to contractors of their disclosure obligations in respect to insurance policies.
It is important to disclose all information that would have a material effect on an insurer when deciding whether to underwrite the policy or setting the level of the premium.
It is also important to note that if this case had been decided once the Insurance Act 2015 comes into force (which is due to happen in August 2016), the insurer may not have been able to avoid the policy.
Under this Act, insurers will only be able to avoid policies where the insured’s breach of disclosure has been deliberate or reckless or where they can prove that they would not have written the policy at all.
If the insurers would simply have written the policy on different terms (for example, a higher premium or excess), the Act treats the policy as if it had been entered into on those terms.
The insurer can therefore reduce its pay-out to reflect the higher level of premium or excess it would have charged but it cannot avoid the policy altogether.
This article was written by James Worthington; it originally featured in Construction News and is reproduced here with kind permission.
For further information, please contact James on +44 (0)20 7427 1070 or email@example.com.