Ansari v New India Assurance Ltd.

An insurance condition referring to a material change in the facts stated in a proposal form may operate on the answers given in the form, not merely on the proposer’s belief that those answers were true when made. A working sprinkler system may be a material fact concerning the insured premises. Its subsequent disablement can materially alter the subject matter and risk insured, rather than merely increase the chance of the insured peril occurring. An insurer may rely on such a condition where the insured knew of the change. A non-invalidation clause protecting an innocent freeholder does not assist an insured who had the relevant knowledge.

The claimant owned commercial premises let to a tenant and insured them under a commercial property owners’ policy. The proposal form stated that the premises were protected by an automatic sprinkler system and described the tenant’s business as kitchenware wholesaling. After a fire, the insurer discovered that the sprinkler system had been disabled and that the tenant stored a wider range of goods, including scooters and motorbikes.

The insurer refused indemnity, relying principally on a policy condition terminating cover upon a material change in the facts stated in the proposal form. The claimant relied on the policy’s non-invalidation clause and argued that the condition should be construed narrowly, following Kausar v Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep IR 154. The central issues were the meaning of “facts stated”, the materiality of the change, and the claimant’s knowledge of the disabled sprinkler system.

1. Construction of General Condition 2. The “facts stated” included the answers to the questions in the proposal form. They were not confined to the declaration that the claimant believed the particulars to be true when made. The condition was intended to address later changes in the facts on which the insurer assessed the risk.
2. Material change. The sprinkler system was plainly relevant to the insurer’s assessment of the risk. Its disablement constituted a material alteration in the nature of the insured subject matter and a material change in the facts stated in the proposal form. General Condition 2 therefore terminated cover from the time the system was switched off.
3. Authorities. The approach in Kausar v Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep IR 154, concerning a narrowly construed clause directed to an increase in the risk of damage, did not govern a differently worded condition directed to a material change in stated facts. The materiality and inducement principles discussed in Pan Atlantic Insurance Co Ltd v Pine Top Ltd [1995] 1 AC 501 did not prevent the express contractual condition from operating. The principle concerning representations or warranties as to future conditions in Hussain v Brown [1996] 1 Lloyd’s L.R. 627 did not prevent an insurer from requiring notification of a subsequent material change.
4. Knowledge and non-invalidation. On the evidence, the claimant knew before the fire that the sprinklers were defective and had been switched off. He therefore could not rely on the non-invalidation clause, which protected a freeholder against acts or neglect increasing the risk without his knowledge or authority.
5. Disposition. The policy cover had terminated before the fire. The insurer was entitled to refuse indemnity, and the action was dismissed.