Synergy Health (UK) Limited v CGU Insurance plc (t/a Norwich Union) and others
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The insured was part of a group of companies providing laundry and related services to the NHS. On 3rd February 2007, a fire damaged one of its laundries. It claimed on its insurance but insurers sought to avoid the policy for material misrepresentation and non-disclosure concerning an intruder alarm.
In September 2005, a survey of the premises carried out on insurers’ behalf noted the absence of an intruder alarm. A risk improvement report sent via the broker to the insured later that month specified that an alarm conforming to certain standards was to be installed: "Implementation by 15th November and already in hand."
At the top of the risk improvement report, it stated:
"Implementation of risk improvements is considered essential and completion should be within the timescales indicated when completed."
After some chasing by insurers on this and other outstanding risk improvements, the insured wrote a letter to the broker dated 13th December 2005 stating: "Intruder alarm. This will be completed by end of December". The letter was forwarded to insurers by email on 28th December.
In fact, the quotations obtained by the insured had not been followed up and, for various reasons, the matter did not progress. Nothing had been done by the time the policy was renewed on 30th April 2006 or before the fire in February 2007.
Insurers said the letter was a misrepresentation which was never withdrawn or corrected before renewal. This was either a continuing material misrepresentation or a material misrepresentation that was impliedly repeated at renewal. Alternatively there had been a material non-disclosure of the fact that no intruder alarm had been installed. In either case, the underwriter had been induced to renew the policy.
The insured argued the statement was a representation as to future intentions. Under section 20(5) of the Marine Insurance Act 1906, a representation as to expectation or belief is true if it is made in good faith. The insured said the statement reflected the insured's honest expectations.
The judge thought the underwriter had been entirely justified in understanding the statement to mean that the work was already underway and would be completed by the end of the month – which, by the time he saw the letter, was only two days away.
This was simply not true. Consequently, a misrepresentation was made on 28th December 2005, the day the letter was received. Where a material misrepresentation is made to insurers some months before renewal and is not subsequently corrected, the misrepresentation is implicitly repeated at renewal.
Although the judge concluded the misrepresentation was inadvertent and that, had the insured realised the true position, it would have corrected the statement and taken steps to install the alarm straight away, nevertheless the lack of an alarm was material.
But had insurers shown that the misrepresentation induced the underwriter to renew the policy on the terms he did? The judge concluded they had not.
Insurers said that, had they known the truth, they would have made it a condition of cover that the alarm be installed within a tight timescale. But this was not borne out by the evidence. On previous occasions when the insured had been slow to complete risk improvements at other premises, insurers had been prepared to extend deadlines without imposing any contractual conditions.
The judge did not believe insurers would have adopted a different attitude in this case if the true position had been disclosed before renewal. Insurers were not entitled to avoid the policy.
Having reached this conclusion, it was unnecessary to rule on the insured's other arguments. The judge, however, commented that a declaration signed by the insured at renewal that stated certain facts relating to moral hazard were true (e.g. that none of the directors had previous convictions) did not mean insurers had waived their right to disclosure of any other material facts.
The question was whether, on a true construction of the declaration, a reasonable person would be justified in thinking that insurers had restricted their right to receive all other material information - including the failure to install an intruder alarm at the premises. The judge was satisfied no reasonable person would read the declaration in that way.
This was not the usual sort of misrepresentation where a statement is made during pre-contract negotiations. Here the judge decided the earlier misstatement had been impliedly repeated at renewal because of the insured's failure to correct it.
The case also illustrates that, while materiality depends on what would influence a hypothetical prudent insurer, the second part of the test - inducement - often boils down to the reality of the relationship between insurer and insured.
In this case, the past history of the parties showed that, although the insured was often slow in implementing risk improvements, there was no question of its refusing to do so. Overall, insurers considered the insured to be a well-run business and a good insured. The judge did not accept that, had they known the alarm had not been installed, insurers would have responded differently than on other occasions.