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Non-disclosure and misrepresentation relating to railway works

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The defendant insured in Brit v F&B Trenchless Solutions (F&B) was a specialist tunnelling sub-contractor. It took out employers’ liability, product liability and public liability insurance for its work of building micro-tunnels for cables underground railway tracks. The insurance was provided on the basis that the works would lead to ground settlement of between 2-4mm and that they would at no point take place underneath an active railway.

Before contracting with the insurer, however, the insured knew of an actual ground settlement of up to 15-18mm and the appearance of a visible void in the ground in the vicinity of the works. The insured was also undertaking works under an active railway line.  

Eight days after the insurance contract incepted, a freight train derailed when passing over a level-crossing above the insured’s tunnelling. The derailment was determined to have been caused by severe settlement of the railway tracks as a result of the insured’s works. The main contractor filed a claim against F&B which in turn attempted to claim an indemnity from its insurer. The insurer sought a declaration that it had validly avoided the policy on the grounds of non-disclosure and misrepresentation. 

The decision

The Judge held that the increased settlement and undertaking of works under active railways were material; they were “matters which would clearly influence the judgement of a prudent insurer”. The Judge also held that the actual underwriter had been induced by the non-disclosure and misrepresentation to enter into the contract, accepting the underwriter’s evidence that, had he been told about the settlement and the void in the lead up to writing the risk, he would have excluded the site from the policy. The insurer had, therefore, validly avoided the policy.

How the case might have been decided under the Insurance Act 2015

It is unlikely that the findings on materiality and inducement would have been any different. As to materiality, the Judge found that the “central flaw” in much of F&B’s defence was to overlook the objective nature of the test for materiality. For example, F&B argued that its preliminary view was that the tunnelling was not the cause of the void and thus the fact of the void was not material for disclosure. The Judge noted that F&B’s own opinion, while relevant, did not relieve the appearance of the void of materiality for underwriting purposes. Under the new Act, the ‘prudent insurer’ test of materiality has been retained.

Equally, on inducement, under the new Act just as now, if the insurer is to have a remedy for breach of the duty to make a fair presentation, it must show that the underwriter would have done something different had he or she received a fair presentation. In this case the underwriter was able to overcome that evidential hurdle.

In terms of a remedy, however, the underwriter’s evidence seems to have been that he would have written the policy but he would have excluded the site. In those circumstances, under the Act the policy would have been rewritten with the appropriate exclusion. Accordingly, F&B would not have been able to make a recovery for this loss but would have retained coverage for any other losses in the policy period. The underwriter, meanwhile, would have retained the premium. 

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