Persimmon Homes Ltd & Anor v Great Lakes Reinsurance (UK) Plc

In ATE insurance, the insured’s underlying factual case remains material. The relevant question is whether there was a fair presentation of the overall risk, including the truthfulness of the evidence and the possibility that the claim would fail. Material misrepresentation or non-disclosure may induce cover where it affects both the merits of the claim and moral hazard. Subsequent disclosure does not retrospectively rewrite the risk or establish that the insurer would have accepted it initially. Waiver requires actual knowledge of the facts giving rise to avoidance and an unequivocal, informed election to affirm. Contractual provisions may independently exclude cover where there has been misrepresentation, material non-disclosure or failure to provide a complete and truthful account. A claim founded on systemic dishonesty could not be maintained.

Persimmon, having succeeded in underlying proceedings brought by CPH, sought payment under an ATE policy issued by Great Lakes. CPH had subsequently been wound up, and Persimmon proceeded under section 1 of the Third Parties (Rights Against Insurers) Act 1930.

The underwriters had avoided the policy for material misrepresentation and non-disclosure, including dishonest evidence, fabricated documents, financial difficulties and the bankruptcy of Bernard Tracey. Persimmon argued that the matters were immaterial in the ATE context, that the underwriters had not been induced, and that they had waived avoidance or were estopped from relying on it. The central issues were whether the claim was fraudulent, whether the undisclosed matters induced the policy, and whether the underwriters had affirmed cover.

1. Claim dismissed. The short answer was that the underlying claim had been advanced dishonestly. The trial judge’s findings showed systemic dishonesty, including lies by Bernard and Paul Tracey and the manufacture of documents. The claim had been inflated and pursued on a basis known to be false. Persimmon accepted that this established inducement and defeated waiver.
2. The court rejected the proposed special approach to ATE insurance under which the factual account of the underlying events would be immaterial and only the legal team’s risk assessment would matter. The concession was rightly made as a matter of law in Al-Koronky v Time-Life Entertainment Group [2006] EWCA Civ 1123. The relevant inquiry was the overall fair presentation of the risk.
3. Even assuming that the Traceys genuinely believed in the claim, the pleaded misrepresentations and non-disclosures were material. They concealed financial distress, dishonest statements, a false document, a retrospective note, and an untruthful account of the August and December meetings. The matters went to the risk of failure and to moral hazard. The underwriters’ later, piecemeal knowledge did not show what decision would have been made on full disclosure at inception.
4. The absence of the original underwriter as a witness did not prevent proof of inducement. The risk went to the heart of the proposal, and the evidence of the underwriting manager and technical manager established that full disclosure would have prevented acceptance on the relevant terms. The court also rejected the allegation of negligent underwriting.
5. Waiver required actual knowledge of the facts founding avoidance and an unequivocal communication objectively demonstrating an informed choice to affirm. The communications relied on did not satisfy that test. The contractual exclusion for misrepresentation or material non-disclosure and the condition requiring a complete and truthful account independently entitled the underwriters to reject the claim. Estoppel also failed for want of an unequivocal representation and reliance.