Avoidance For Material Non-Diclosure: Niramax Group Limited V Zurich Insurance Plc [2020] EWHC 535 (Comm)

• Published date: 30 July 2020
• Subject Matter: Corporate/Commercial Law, Insurance, Litigation, Mediation & Arbitration, Compliance, Contracts and Commercial Law, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: 4 New Square Chambers
• Author: John Williams

In Niramax Group Limited v Zurich Insurance Plc [2020] EWHC 535 (Comm) the High Court considered the principles applicable to cases of avoidance for material non-disclosure, in a claim by a policyholder against its insurers. All counsel were from 4 New Square. The insured was represented by Ben Elkington QC and Ben Smiley, and insurers were represented by Graham Eklund QC and Carl Troman. The Court's decision is considered by John Williams of 4 New Square.

The facts

Niramax collected and recycled waste. Its main premises (the recycling facility) were located at Thomlinson Road, Hartlepool. Niramax also processed tyres at sites on Tofts Road, Hartlepool, and ran a waste transfer station in the nearby town of Washington ("the Washington Site"). Prior to 2007, part of this waste processing business was run by SWS - a separate subsidiary of Niramax's parent company, "NHL". Niramax purchased the business of SWS in 2007, and from then on ran the business across all four sites.

SWS and Niramax held a suite of insurance policies with Zurich, which covered a variety of risks relating to its plant and machinery. One was a contractor's plant policy ("the Policy"), which provided all risks cover for mobile plant. The policy originally incepted in 2006, and was renewed thereafter, up to and including the 2014-15 policy year. Niramax placed buildings cover separately with a variety of underwriters.

Significantly for the purposes of Niramax's claim, in 2015 it placed an order for the Eggersmann plant; which was due to arrive before the end of the 2015 policy year. Niramax requested that Zurich extend the Policy to cover the Eggersmann plant. Zurich was reluctant (for reasons discussed further below). However, after a lengthy back and forth between Zurich's underwriting team and Niramax's broker, a Mr Sweeney, Zurich agreed to extend the Policy to cover the Eggersmann plant from September 2015 until the renewal date of the Policy in mid-December - on the payment of an additional premium of '32,782.62.

On 4 December 2015, a fire broke out in the engine compartment of a "grabber" at the Thomlinson Road site. This was extinguished promptly - but staff failed to notice that burning embers had spread to a neighbouring building, which housed the Eggersmann plant. It was destroyed, along with other items of machinery.

Niramax made a claim under the Policy which, at trial, was valued at around '4.5 million. The majority of this claim related to the loss of the Eggersmann plant, which it valued at around '4.3 million. Zurich refused to pay, and stated that it was entitled to avoid the Policy for material non-disclosure and misrepresentation. Niramax then brought proceedings in the High Court.

Niramax's buildings insurance

Zurich's primary defence at trial was that there had been material non-disclosure of facts relating to Niramax's buildings cover.

For the 2010/11 policy year, Niramax's buildings cover was placed with Paladin, which subsequently withdrew from the market. From 2011 to 2014, cover was placed through a Lloyd's broker (Mr Smith) with a variety of underwriters. For the 2014/15 year, Niramax's underwriters did not offer renewal terms, and Mr Sweeney sought quotes from Mr Smith, and "Recyclesure" - a company specialising in recycling industry risks. Recyclesure provided the more competitive quote, for a policy with Millennium Insurance ("Millennium"), and this was accepted by Niramax.

Millennium's quote was subject to survey, which took place in February 2014. Mr Sweeney was subsequently sent a report detailing a number of "risk requirements". Three risk requirements (an automatic fire detection system, CCTV cameras and hot-spot checking procedures) related to the Washington Road site. Seven risk requirements related to Thomlinson Road - one of which was: "3 x fixed Shredders within Black Sand Building: It is necessary to protect shredders by means of an automatic Fire Suppression System. Timescale: within 30 days of survey (by 16 March 14)".

Throughout 2014 Direct Insurance (on behalf of Millennium) sent chasers to Mr Sweeney asking for updates on the installation of the fire suppression system at Thomlinson Road. This culminated in Millennium imposing special terms on 22 October 2014: the excess under the Millennium Policy was increased to '250,000 per claim, and Niramax was required to self-insure for 35% of the balance of any loss. Notwithstanding this, no fire suppression system was installed before the end of the policy year.

In December 2014, Niramax sought a renewal quote from Millennium, and a number of other placing brokers, including Mr Smith. Millennium offered renewal terms on the basis of an installation of fire suppression systems at Thomlinson Road, but did not offer cover for Washington Road. A quotation was also provided by Aspen via Mr Smith. Niramax completed proposal forms for Aspen, which included a denial by Niramax that it had ever been subject to special terms imposed by an insurer. This was plainly incorrect, given the history of the Millennium policy.

The Aspen quote was...