Laker Vent Engineering Ltd v Templeton Insurance Ltd

For legal expenses insurance, ordinary differences arising during a complex construction contract are not necessarily material circumstances requiring disclosure. They become material where, viewed objectively, they show a real risk of escalation to formal dispute resolution beyond the risk ordinarily inherent in such contracts.

An insurer seeking avoidance must also prove that the non-disclosure induced the actual underwriter to contract on the agreed terms. There is no presumption of inducement.

Where a claims notification clause applies to circumstances likely to give rise to a defined construction claim, likelihood is assessed objectively. If the definition presupposes repeated written rejection of a claim, notification is required only when adjudication, arbitration or litigation is likely to be needed.

Laker Vent Engineering Ltd held a claims-made legal expenses policy issued by Templeton Insurance Ltd. After renewal, Laker sought indemnity for legal expenses arising from an arbitration concerning construction work. Templeton avoided the policy for alleged non-disclosure of an escalating contractual dispute and alternatively denied liability for failure to notify circumstances immediately under clause 6.1.

HHJ Hegarty QC, sitting in the Liverpool Mercantile Court, rejected both defences and declared that Templeton was obliged to indemnify Laker up to £245,000. Templeton appealed, without challenging the judge’s primary findings of fact.

The principal questions were whether the pre-renewal differences constituted a material circumstance, whether any non-disclosure induced renewal, and whether the policy required earlier notification of circumstances likely to give rise to a defined “Construction Claim”.

1. Appeal dismissed. Aikens LJ, with whom Richards and Jacob LJJ agreed, upheld the rejection of both the non-disclosure and notification defences.

2. Under section 18 of the Marine Insurance Act 1906, materiality was a question of fact. The trial judge had rationally held that a prudent legal expenses underwriter would regard a contractual relationship as material where its features, viewed objectively, demonstrated a real risk of escalation to formal dispute resolution beyond the risk ordinarily inherent in a complex construction contract. The parties’ pre-renewal differences remained reasonably amicable and constructive. The judge’s evaluation was not plainly or obviously wrong.

3. Even assuming material non-disclosure, Templeton had not proved inducement. An insurer must establish on the balance of probabilities that the non-disclosure was an effective cause of entering the contract on the agreed terms. There is no legal presumption of inducement, although it may sometimes be inferred. Templeton called neither the actual underwriter nor another employee materially involved in renewal, and produced no evidence of its general underwriting practice. The court could not speculate about how its underwriters would have responded.

4. Clause 6.1 required notification when the assured became aware of a cause, event or circumstance which had given, or was more likely than not to give, rise to a Construction Claim. Because clause 1.5 required an application for payment or asserted defence to have been rejected in writing at least twice, notification was required only when adjudication, arbitration or litigation was likely to be needed. Requiring notification earlier would fail to give effect to that definition.

5. Whether known circumstances had given or were likely to give rise to a Construction Claim was an objective question. The approach in HLB Kidsons [2009] 1 Lloyd’s Rep 8 supported that construction. On the facts found, formal dispute resolution was not likely before renewal. The notification defence therefore failed.

1. Court of Appeal (Civil Division): By [2009] EWCA Civ 62, unanimously dismissed Templeton’s appeal and upheld the declarations in favour of Laker Vent Engineering Ltd.

2. High Court, Queen’s Bench Division, Mercantile Court at Liverpool: HHJ Hegarty QC rejected Templeton’s non-disclosure and notification defences and declared that it was bound to indemnify Laker for relevant legal expenses and adverse costs up to £245,000. The judge refused permission to appeal; Stanley Burnton LJ subsequently granted permission on a paper application.