Zurich Insurance PLC v Niramax Group Limited, Court of Appeal
Summary
The Court of Appeal has clarified the position regarding inducement in cases of non-disclosure in contracts pre-dating the Insurance Act 2015. See our Commentary below for a discussion of the current position.
It has held that in cases of non-disclosure, it is not enough for an insurer to establish that "less onerous" terms would have been imposed "but for" the non-disclosure; instead, an insurer has to show that the non-disclosure was an "efficient cause" of the difference in terms.
Factual Background
In December 2015, waste collection and recycling company Niramax Group Limited suffered a fire at its main premises in Hartlepool. The fire destroyed various items of mobile plant and a fixed shredding machine. The mobile plant was insured by Zurich under a mobile plant insurance policy renewed on 14 December 2014 (the Policy). The risk was underwritten by a junior employee at Zurich, who applied a "commoditised and streamlined" process when calculating the premium, and made errors when entering data for the process. The fixed shredding machine was insured with Zurich under an extension to the Policy added on 5 September 2015.
Niramax also had property insurance with a separate insurer, Millennium Insurance (the Millennium property cover). Millennium had imposed a number of risk requirements, which Niramax had failed to meet. By October 2014, Millennium imposed special terms on the Millennium property cover requiring Niramax to self-insure 35% of the value of any loss and to bear the first £250,000 of any loss. At the time of renewal of the Policy, in December 2014, the outstanding risk requirements had been met, but the special terms to the Millennium property cover remained in place.
When Niramax sought to make a claim under the Policy, Zurich declined the claim on the basis that there had been a non-disclosure of material facts. By the time Niramax's claim was brought to trial, the main allegation of non-disclosure related to Niramax's failure to comply with the risk requirements attached to the Millennium property cover.
Comment
This case relates to a contract pre-dating the Insurance Act 2015. Would the same approach would be taken for insurance contracts covered by the Act?
Under the Insurance Act 2015, policyholders have an obligation to "make to the insurer a fair presentation of the risk" (s.3(1)).
In respect of breaches of this duty, the Insurance Act 2015, provides that "The insurer has a remedy against the insured for a breach of the duty of fair presentation only if the insurer shows that, but for the breach, the insurer - (a) would not have entered into the contract of insurance at all, or (b) would have done so on different terms" (s.8(1), emphasis added).
At first glance, it appears that under the new statutory regime, the "but for" test may be enough for insurers to claim a remedy for breach of disclosure duties.
This suggests that remedies for breaches of duties of disclosure in insurance contracts pre- and post-dating the Insurance Act 2015 might be subject to different rules regarding causation.
However, the stated principle behind the finding in this case was that "if a non-disclosure has not had any influential effect on the mind of the insurer, in the sense that if disclosed it would not have played any part in his underwriting judgment, there is no connection at all between the wrongdoing of the assured and the terms on which the insurance is written by the insurer. It is difficult to see any justification for affording the insurer a windfall remedy in such circumstances."
It seems likely that the Courts would wish to apply this principle equally in cases of insurance contracts to which the Insurance Act 2015 applies. It will be interesting to see the approach that the Courts will take to this provision in due course.
