Following a fire at its Dunstable premises, Synergy, a company which provided laundry and related services to the NHS, made a claim for both material damage and business interruption losses under its Combined Commercial Policy for the year 30 April 2005 to 29 April 2006, which had been underwritten on behalf of the insurers (the First to Fourth Defendants) by underwriting agents Fusion and placed by the Fifth Defendant brokers. However, the insurers declined the claim and sought to avoid the contract for an alleged misrepresentation that was made and never withdrawn or corrected prior to renewal, or alternatively, for material non-disclosure. The alleged misrepresentation arose from the fact that, on 28 December 2005, the brokers forwarded to Fusion a letter from Synergy, which dealt with various outstanding risk improvements to various premises, and stated, in respect of premises at Dunstable, “Intruder Alarm. This will be completed by end December.” In fact, the relevant work had not even commenced, and due to a breakdown in communication, the alarm was never installed prior to the fire. Synergy accordingly commenced proceedings against both the insurers, seeking an indemnity under the policy, and against the broker for damages for breach of duty if (contrary to Synergy’s primary case) the insurers were entitled to avoid the contract of insurance.
Flaux J observed that while in most cases, it is of little or no significance whether there has been a non-disclosure or a misrepresentation, the reason why the distinction mattered in the present case was that Synergy and the brokers contended first that, on analysis, there was no misrepresentation on renewal and that therefore insurers’ case was one of non-disclosure or nothing, and second, that any non-disclosure was waived by virtue of the insurers requiring and receiving the so-called Declaration of Material Facts (which related to moral hazard and previous declinature) which Synergy had completed. In respect of the first of these matters, Flaux J found that a misrepresentation of fact had been made to insurers on 28 December 2005, four months prior to renewal, about a matter that was material to the risk and to its renewal, and that by not subsequently correcting it at renewal, Synergy had implicitly repeated that misrepresentation at renewal.
Since his Lordship had found that there was a material misrepresentation at renewal, it was not strictly necessary to consider Synergy’s case of waiver of non-disclosure, nevertheless he considered Synergy’s submissions, in case the decision was appealed. Here, Flaux J also agreed with insurers, finding that the answer to the question whether, on a true construction of the Declaration, a reasonable man reading the document would be justified in thinking that the insurers had restricted their right to receive all other material information, was ‘No’. His Lordship found that while, by requiring the Declaration to be completed, the insurers waived any further disclosure of other matters not the subject of express declaration, which related to the issue of moral hazard, there was nothing in the wording of the Declaration to suggest that the insurers only required disclosure of matters concerned with moral hazard and declinature and were waiving disclosure of other facts material to the risk generally.
However, Flaux J found that the insurers’ case fell down on the question of inducement, namely whether the Fusion underwriters who wrote the risk would have done so on precisely the same terms had disclosure been made of all material circumstances. It emerged during cross-examination that the chief underwriter, Mr Garbutt’s, evidence in chief did not address what his reaction would have been if the true factual position, of a series of errors rather than anything deliberate, as to why the alarm had not been installed prior to renewal, had been disclosed to him. While Mr Garbutt maintained that even if the explanation had been an innocent one (as indeed it was), he would have agreed cover subject to the alarm being installed in a tight timescale, Flaux J found that, though genuinely held, there was a distinct lack of independent evidence to support Mr Garbutt’s position. First, Mr Garbutt clearly viewed Synergy as a well-managed risk, and Fusion had never before imposed a contractual condition on Synergy that a risk improvement be completed; second, the evidence suggested that Fusion would not have wanted to do anything that might endanger the prospect of retaining the Synergy account; third, Mr Garbutt’s agreement to renew the policy in April 2007, notwithstanding the allegations of misrepresentation and non-disclosure, was somewhat inconsistent with his assertion that if the true position had been disclosed to him prior to the 2006 renewal, he would have imposed a contractual condition.
His Lordship concluded that for those reasons, the insurers were not entitled to avoid the insurance and Synergy was entitled to an indemnity under the policy. In view of the finding that the policy responded to Synergy’s claim, the claim against the broker therefore did not arise. Nevertheless Flaux J proceeded to deal with it, since it had been fully argued and in case the decision was appealed. His Lordship found that there was no causative breach of duty by the brokers. Relying on the decision of Steel J in Jones & Environcom v MS Plc [2010] EWHC 759 (Comm), Synergy had sought to argue that the brokers had failed to give oral advice to the relevant Synergy personnel concerning the effect of any non-disclosure or misrepresentation. However, Flaux J said that he did not read that judgment as laying down that it was an immutable requirement, in order to comply with their duty, that brokers should have given such oral advice. Whether a failure to give oral advice is a breach of duty would depend on the circumstances, and here it was clear that the relevant Synergy personnel were well aware of the need to comply with the duty of disclosure and the consequences of not doing so.
The broker’s fall back position (which did not arise) was that any loss Synergy suffered was caused by its own contributory negligence. Synergy had relied on cases such as Bollom v Byas Mosley [2000] Lloyd’s Rep IR 136, in which the courts have set their faces against accepting a defence of contributory negligence where the defendant’s duty is to protect the claimant against the very damage that has occurred. However, Flaux J agreed with the brokers that the approach in these cases had to be tempered in light of the decision of the Court of Appeal in Sahib Foods v Paskin Kyriakes Sands [2003] EWCA Civ 1832, in which the Court endorsed the approach of the High Court of Australia in Astley v Austrust Limited (1999) 161 ALR 155 that, even in such cases, there is no rule of law that contributory negligence is not available as a defence. In any event, the present case did not fall within that category, since Synergy was never relying on the brokers to relieve it from the consequences of its own internal breakdown in communications. His Lordship concluded that Synergy was at fault in a number of distinct respects; had it been necessary to apportion blame and make a deduction from Synergy’s damages for its own contributory negligence, his Lordship would have made a deduction of 90%.
A further question which arose, as to the quantum of Synergy’s business interruption claim, was the extent to which depreciation of the industrial washing machines at Dunstable, not deducted as a consequence of the fire, should be brought into account as a saving, reducing the amount of indemnity to which Synergy was entitled under the policy. On this issue, Flaux J preferred the submissions of the defendants (who had instructed a joint accounting expert), concluding that Synergy had to deduct from its business interruption claim the savings it had made in respect of depreciation. If Synergy did not give credit for the ‘cessation of depreciation’ for the period until new machines were installed and depreciation resumed in subsequent accounting periods, Synergy would recover an indemnity for more than its actual loss in respect of business interruption. This was because any indemnity under the business interruption section of the policy was calculated by reference to gross profit, and had the fire not occurred, Synergy could not have earned its gross profit without having the use of the machines, in respect of which a sum for depreciation would be deducted from the gross profit in each accounting period.
[2010] EWHC 2583 (Comm)
