The Commercial Court’s recent decision in the case of Brit UW Limited and F&B Trenchless Solutions Limited serves as useful reminder that parties must disclose all material facts to their insurers when entering into a policy of insurance or face potentially disastrous consequences.
F&B was a specialist tunnelling contractor and was subcontracted to construct a new micro-tunnel for cables underneath a level crossing in 2013. In August 2013, a freight train derailed when passing over the level crossing. Investigations revealed that the derailment was as a result of a severe dip in the track caused by a void in the ground underneath which had developed due to F&B’s tunnelling activities.
Immediately prior to the incident, F&B had taken out a contractors’ combined liability policy with Brit. However, it did not disclose that it had discovered the existence of significant earth settlement and road void at the site where it was carrying out the works and it wrongly stated that when the policy was taken out it was not carrying out tunnelling works near any active railway lines.
The contractor brought a claim against F&B for the losses it suffered as a result of the derailment and F&B, in turn, sought an indemnity under its policy. However, Brit avoided the policy on the basis of material non-disclosure and misrepresentation on the part of F&B and sought a declaration from the Court that it had done so validly.
The Court found that F&B’s failure to disclose the information would have influenced the judgment of the insurer in fixing the premium or determining whether to take on the risk and ruled that, but for this, Brit would not have underwritten the risk on the same terms as it did. The Court also found that the representation by F&B that it would not be conducting tunnelling works near an active railway line during the period of the policy was false. This was deemed to be a material misrepresentation as that more hazardous activity would attract a higher premium.
The Court therefore decided that there had been material non-disclosure and material misrepresentation which had induced Brit to provide F&B with indemnity on the terms that it did. As such, it declared that Brit was entitled to avoid the policy.
The claim against F&B was for more than £3m. This case is a stark warning to policyholders that they should err on the side of caution and disclose all relevant information to the insurer and let it decide what is or is not material to the underwriting of the risk. Since an insurance contract is one of “good faith” and there is an ongoing duty of full disclosure, it is also advisable that any material matters or developments during the currency of the policy are fully disclosed.