Sugar Hut Group Ltd & Ors v Great Lakes Reinsurance (UK) Plc & Ors

In insurance disputes, material non-disclosure requires proof both that the undisclosed circumstance would influence a prudent insurer and that it induced the insurer to enter the contract on the relevant terms. A proposal form does not waive disclosure merely because it asks about limited matters, particularly where it repeatedly requires disclosure of all material facts. An insurance term described as a warranty must be construed in context. It may be a true warranty, discharging the insurer from liability upon breach, or a suspensory condition. The court should consider whether the term goes to the risk, materially bears on the risk of loss, and whether damages would be an inadequate remedy. A condition precedent must be expressed with sufficient clarity. Ambiguity in a waste-storage condition was resolved against the insurers where the policy specified metal skips but did not specify metal containers.

The claimants sought indemnity under a policy arranged by the defendants for four nightclubs, after fire destroyed the Brentwood premises. The defendants sought to avoid the policy for non-disclosure of the administration of three predecessor companies, their financial difficulties, and the substitution of new companies. They also relied on alleged breaches of kitchen and burglar-alarm warranties, risk-improvement requirements, and a waste condition precedent.

The trial concerned liability only. The court determined whether the non-disclosure induced the insurers and whether the proposal form waived disclosure, whether the kitchen and burglar-alarm provisions were true warranties or suspensory conditions, and whether the wheelie-bin arrangement breached the waste condition precedent.

1. Non-disclosure. The two-stage test in [1995] 1 AC 501 applied: the defendants had to establish materiality and inducement. The administration of the predecessor companies, their financial difficulties, and the substitution of new companies were plainly material at the stages of the original placement, the endorsement changing the insured, and completion of the proposal form. The evidence established that the defendants would not have entered the same contract, and would probably not have insured the risk on the same terms, had the facts been disclosed.
2. Waiver. The proposal form did not restrict the insurers’ right to receive material information. Its questions about trading names did not cover the true facts through the answers given. The repeated declaration requiring disclosure of all material facts was inconsistent with waiver. The defendants were therefore entitled to avoid the policy for non-disclosure.
3. Kitchen warranty. The court considered the approach in [2001] Lloyd’s Rep IR 596 CA. The kitchen-ducting term materially concerned the risk of loss, protected against a significant fire hazard, and was a true warranty. Contact between the ducting and combustible materials constituted breach. The six-month inspection obligation required an inspection every six months from the previous inspection, not merely at a point calculated from inception. It had not been complied with by the fire. Although that obligation could have been construed as suspensory, the breach remained operative at the date of loss.
4. Burglar alarm. The installed remote alarm was not a Central Monitoring Station Alarm. The burglar-alarm requirement was a true warranty. The later risk-improvement notice and Contract Endorsement 8 did not waive it, but created a suspensory extension of time for upgrading the system. The upgrade was never completed, so cover remained suspended when the fire occurred.
5. Waste condition precedent. The use of high-density plastic wheelie bins did not breach the condition precedent. The policy expressly required metal skips but did not require the lidded and lockable containers to be metal. The provision was ambiguous and could have been drafted clearly if metal containers were intended. Judgment was therefore given for the defendants on the non-disclosure and warranty grounds, but not on the wheelie-bin ground.