Construction Professionals: Disclosure To Insurers

A recent case gives guidance on what constitutes

circumstances that construction professionals should disclose

to insurers at renewal.

A Mechanical and Electrical Sub Contractor, LVE, did not

disclose problems it was having with its contractor to its

legal expenses insurer, Templeton, at renewal. Shortly after

renewal, it did notify the problems as a potential claim.

Templeton denied cover as it claimed that (a) LVE failed to

disclose material circumstances known at renewal and (b) LVE

failed to comply with the claims notification procedure - a

breach of condition precedent under the policy entitling

Templeton to decline an indemnity.

HHJ Hegarty QC, in finding against Templeton, and deciding

that LVE was entitled to cover, held:

By the date of renewal of LVE's policy, the

relationship between LVE and the contractor had not

deteriorated to the stage where it was properly to be

regarded as a material circumstance that was likely to give

rise to a claim, which would have required notification to

Templeton

A formal claim would have appeared 'likely' if

discussions and correspondence had indicated that the

differences between the parties would lead either to

adjudication, arbitration or litigation

A threat from the main contractor to 'replace'

LVE as sub-contractor did not, on these facts, constitute a

material circumstance that would be likely to lead to a

claim

Complex construction contracts inevitably give rise to

disputes as to the progress of works, sums due to the

contractor and quality of the work. This project was no

different, and discussions to resolve such disputes between

the contractor and LVE on the project in question appeared to

be amicable and constructive

An insurer is presumed to be aware of the general risk

that construction contracts may give rise to disputes and

differences between contracting parties. Therefore, something

more serious is required before a particular problem is to be

regarded as a material circumstance that must be disclosed at

the time of initial proposal or renewal. Otherwise insurers

must expect to be bombarded with notifications on every

single construction issue

A letter from the contractor to LVE after renewal, which

said, "unless we are able to reach mutual agreement,

this will have to be referred to arbitration in accordance

with the contract", did constitute a material

circumstance that should be disclosed to insurers.

The court therefore took a pragmatic and sensible view of

what should and...