James v CGU Insurance Plc & Anor

In insurance cases, non-disclosure may be material where it bears on moral hazard, even if it does not concern the operation of the insured peril. A proposal form’s failure to ask a specific question does not necessarily prevent such non-disclosure from being material, particularly where the undisclosed conduct indicates dishonesty or financial impropriety. A general insurance practice statement directed to private insurance may not apply to commercial insurance and does not displace the moral-hazard principle.

The claimant, a motor dealer and repairer, sought permission to appeal from the decision of Mr Justice Moore-Bick in the Queen’s Bench Division (Commercial Court). His insurers had repudiated liability for a fire loss on grounds of deliberate causation and non-disclosure. The judge rejected the allegation that the claimant had started the fire, but held that the insurers were entitled to avoid the policy because of four material non-disclosures, including undisclosed conduct concerning breakdown warranties and disputes with tax authorities.

The application raised whether undisclosed matters were material despite the absence of specific questions in the proposal form, whether a statement of general insurance practice assisted the claimant, and whether the findings concerning the warranties showed only administrative incompetence rather than moral hazard.

1. Permission refused. The proposed appeal had no reasonable prospect of success, and the application was dismissed.
2. The trial judge had correctly directed himself that non-disclosure required objective materiality and a causal connection with the making of the contract. He was entitled to rely on the underwriter’s evidence that the undisclosed matters would have affected the renewal decision.
3. The claimant’s deliberate failure to process many breakdown warranties and account for associated paperwork and premiums was capable of demonstrating moral hazard. Matters bearing on moral hazard may be material even when they are not directly relevant to the operation of the insured peril. Mere incompetence would not necessarily be material, but the judge had found deliberate withholding and was entitled to treat it as relevant to financial probity.
4. The statement of general insurance practice applied only to insurance undertaken in a private capacity. The policy’s statement that it “may” apply was not unequivocal. The provision concerning clear questions in proposal forms did not address moral hazard, for which specific questions may be difficult to formulate.
5. Mance LJ added that moral hazard concerning financial probity was especially relevant to a combined policy covering fire and business interruption, since the latter necessarily involved financial investigation.

• Court of Appeal (Civil Division): Permission to appeal from the decision of Mr Justice Moore-Bick dated 17 October 2001 was refused. The application was dismissed.