In Regent Insurance v King’s Property Development the appeal court confirmed that when dealing with avoidance of a policy for material non-disclosure:
- The test for materiality is objective taken from the view of the reasonable person in the insurer’s position.
- The test for inducement is subjective taken from the view of the particular insurer.
- The court remarked that it would be difficult for an insured to argue that there was no inducement if the non-disclosure is material.
- Where an insured fails to make a proper disclosure the failure of the insurer to conduct a survey does not excuse the non-disclosure.
The insured did not disclose that its building was occupied by a tenant which manufactured truck and trailer bodies using highly flammable materials. A fire broke out with its origin in the very course of this manufacturing.
The insured argued that it had made sufficient disclosure because if the insurer had examined its records and prior correspondence it would have discovered that the business on the property had previously been described as “property developer/suppliers of bedding goods” and that, in one early e-mail, the building on the property had been described as both offices and a warehouse. The court was not satisfied that this adequately described the risk at all.
The insured’s estoppel argument was that the insurer issued the policy despite not having done the survey requested by the insured. This, the insured argued, lulled it into a false sense of security. Had it known that the survey had not been done, and that cover would not have been issued if the survey had been done, it would have attempted to obtain insurance from another company. The estoppel argument was cut down in its infancy, however, because the evidence established that the insured knew that the survey had not been done prior to the policy being issued.
Even had the insured not known, the court pointed out that the only representation made to the insured was that the cover had been extended on the terms of the policy. Those terms included the right of the insurer to avoid liability if the insured was guilty of a material non-disclosure which induced the contract. There was no representation that the insurer would not rely on this right if a non-disclosure came to light.