Insurance - Proof Required To Establish Pre-Contractual Misrepresentation/Non-Disclosure

In a recent decision, the Court of Appeal has confirmed once

again that an insurer needs to produce evidence of materiality and

inducement in order to avoid a policy for non-disclosure.

It is well established that an insurer needs to show both

materiality and inducement to allow it to avoid an insurance

contract for pre-contractual misrepresentation or non-disclosure. A

matter is material if it would have influenced the mind of the

hypothetical "prudent insurer". Inducement is established

if the actual underwriter would not have written the risk, or would

have done so on different terms, if he had been aware of the true

position.

This means that to show materiality, evidence from an expert

underwriter will be helpful and may be determinative. To establish

inducement the key question is what would the actual underwriter

have done? There have been attempts - some successful - to show

inducement without calling the actual underwriter to give evidence.

One example which has in some cases been successful is where the

insurer is one of many on a slip and the other underwriters give

evidence of inducement. Further, in some cases, it will be pretty

obvious that an underwriter was induced given the misrepresentation

or non-disclosure in question. But the starting point has to be:

what is the actual underwriter's evidence? If a statement from

him is not served, there is a risk that the court will be unable to

find that the insurer was induced.

In this particular case, the insurer provided legal expenses as

part of a constructors' protection policy. The insured did not

disclose ongoing discussions with other parties to the construction

works regarding delays with those works. The insurer alleged that

this was material and that it was induced. The insurer called

expert evidence from an underwriter with little experience of

either construction insurance or of legal expenses insurance. The

Court of Appeal had little difficulty in upholding the first

instance decision that the insurer had not shown materiality.

In addition, the insurer did not call any evidence from the

actual underwriter. The judge at first instance concluded that the

insurer had not shown that he was induced. The Court of Appeal

agreed.

The court also considered a claims notification clause under

which it was a condition precedent to liability that the insured

has given immediate notice in writing as soon as it is aware of

"any cause, event or circumstance which has given or is likely

...