Synergy Health (UK) Ltd v CGU Insurance Plc (t/a Norwich Union) & Ors

In commercial insurance, a statement made before renewal may be impliedly repeated at renewal where it concerns a material feature of the risk and remains uncorrected. A statement made shortly before renewal that work will be completed may carry an implied representation that the work is already under way. Waiver of disclosure depends on whether a reasonable person would construe the insurer’s questions or declaration as restricting the right to receive other material information. That question arises only after a fair presentation of the risk. Avoidance also requires proof that the underwriter was induced to contract on the relevant terms.

The claimant insured a group of laundry businesses under a commercial policy written by the first four defendants and placed through the fifth defendant brokers. After a fire at the claimant’s Dunstable premises, the insurers sought to avoid the policy for material misrepresentation or non-disclosure concerning an intruder alarm which had not been installed.

The claimant sought an indemnity for material damage and business interruption loss. It also claimed damages from the brokers in the alternative, alleging failures concerning disclosure advice, risk improvements, renewal enquiries and the policy wording. The court determined the validity of the policy, the alternative broker claim, contributory negligence, quantum and interest.

1. The statement that the alarm would be completed by the end of December was assessed when communicated to the insurers, not when drafted. Sent on 28 December, with only two working days remaining, it represented that installation was under way and nearly complete. That representation was false and material.
2. A material misrepresentation made four months before renewal was impliedly repeated at renewal because it concerned a material feature of the risk and had not been corrected. The insurers therefore established misrepresentation at renewal.
3. The declaration concerning moral hazard and previous declinature did not waive disclosure of other material facts. Waiver required a fair presentation of the risk, which had not been made. The insurers were not put on inquiry merely because the standard alarm specification had not been supplied. The relevant renewal terms did not become contractual warranties.
4. Avoidance still required proof that the responsible underwriter would not have renewed on the same terms with fair disclosure. The court approached the underwriter’s hypothetical evidence cautiously. The insurers had treated the insured as a good risk, had repeatedly dealt with risk improvements without contractual conditions, and had shown flexibility to retain the account. Inducement was not proved.
5. The policy remained valid and the insurers were liable to indemnify the claimant. Some breaches of the brokers’ duties were established, but none caused loss. The relevant failure resulted from the insured’s internal communication breakdown.
6. For business interruption, necessary and reasonable expenditure could in principle remain recoverable beyond the indemnity period. On the evidence, the additional machinery maintenance costs were limited to £85,000. Savings in depreciation were deductible because the policy provided an indemnity, not a recovery exceeding the loss.
7. Interest was awarded at 1% above base rate from 1 April 2007.