Zurich Insurance PLC v Niramax Group Ltd

For an insurer to avoid an insurance contract for material non-disclosure, the non-disclosure must be an effective cause of the insurer writing the contract on the terms agreed. A bare but-for connection is insufficient, although it will ordinarily be necessary. The non-disclosure must have influenced the underwriting judgment. Where cheaper terms resulted solely from an unrelated underwriting error, the insurer cannot establish inducement merely because disclosure would have prevented that error. An appellate court should not disturb factual findings about hypothetical underwriting unless the conclusion was not reasonably open on the evidence.

Niramax’s waste-recycling premises suffered a fire. Zurich declined cover, alleging non-disclosure of risk requirements imposed by another insurer and related special terms. Cockerill J held that the non-disclosure was material but did not induce the December 2014 renewal of the mobile-plant policy; Zurich would have renewed, subject only to correcting an unrelated pricing error. The claim therefore succeeded for the mobile plant but failed for the Eggersmann plant added in September 2015. Zurich appealed the mobile-plant decision, arguing that it would have refused renewal or charged a higher premium. Niramax’s Respondent’s Notice challenged the evidential basis for the alleged higher premium. The central issues were the proper causation test for inducement and the scope for appellate interference with factual findings.

1. Appeal dismissed. The Court of Appeal unanimously upheld the result reached by Cockerill J. On a fair reading of the judgment, disclosure would have led Mr Penny to renew on the same terms, apart from correcting the mistaken use of a 2.25% rate instead of 6%. Any resulting increase would have been unrelated to the non-disclosure. Zurich’s new argument that the non-disclosed facts themselves would have caused a higher premium was not within the permission to appeal and, in any event, misread the judge’s findings.
2. The applicable causation test was established through Pan Atlantic Insurance Ltd v Pine Top Ltd [1995] 1 AC 501, Edgington v Fitzmaurice (1885) 29 Ch D 459, St Paul Fire & Marine Insurance (UK) Ltd v McConnell Dowel Constructors Ltd [1995] 2 Lloyd’s Rep 116 and Assicurazioni Generali SpA v Arab Insurance Group [2002] EWCA Civ 1642. The insurer must prove that the non-disclosure was an effective or efficient cause of entering the contract on the terms written. It need not be the sole cause. The but-for formulation is a minimum requirement, not an equivalent substitute for effective causation. An exceptional case may satisfy effective causation without satisfying a but-for test, as discussed in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1.
3. Applying that test, Zurich’s premium process was formulaic and based on the amount insured, the nature of the trade and claims history. The undisclosed risk-management matters had no independent influence on the pricing decision. The cheaper renewal resulted from Ms Jones’s pricing error, not from the non-disclosure. The non-disclosure merely created an opportunity for the error and therefore was not an effective cause of the different terms.
4. The finding about what Mr Penny would have done was a question of fact. Applying the appellate restraint described in Fage UK Ltd v Chobani Ltd [2014] EWCA Civ 5 and Assetco Plc v Grant Thornton UK LLP [2020] EWCA Civ 1151, there was no proper basis for interference. The opaque relationship between the rating inputs and the final premium also meant that any higher premium was speculative and unsupported by evidence.

• Court of Appeal (Civil Division). Zurich’s appeal was dismissed. The judgment of the High Court was upheld in substance.
• High Court, Commercial Court. Cockerill J held that the claim succeeded for the mobile plant but failed for the Eggersmann plant: [2020] EWHC 535 (Comm).