A UK court has found that an insurer is entitled to avoid a policy where the insured had misrepresented the state of repair of the insured property and failed to disclose malicious acts and vandalism which had the effect of increasing the risk of fire in the property.
The insured, a mixed commercial and residential property owner, sought an indemnity under its property policy following a fire at the insured premises.
Insurers avoided the policy on the basis of material non-disclosure and misrepresentation and tendered a refund of the premiums.
In finding for the insurers, the court restated the UK principles relating to the duty of utmost good faith in insurance contracts and the obligation of the insured to disclose information relevant to the insurers’ assessment of risk namely:
- The obligation to disclose arises at the time of entering into the insurance contract and on each renewal.
- There is no duty to disclose facts which should have been disclosed at inception of the policy if those facts are no longer relevant to the renewed policy.
- The facts disclosed must be material to the assessment of risk.
The insured had, as a fact, stated that the property was in good condition and had never been subjected to malicious acts or vandalism. A fire inspection revealed that the premises were in a very poor state of repair and there were complaints about disturbances from acts of vandalism where intruders had removed tanks and piping in order to steal them. A local authority had, prior to the fire, issued an emergency prohibition order requiring the immediate evacuation of the residential part of the property. Not surprisingly, the court said these were matters of which an insurer would wish to be informed.
The court said the question of what is material is ‘not…something that is settled automatically by the current practice or opinion of insurers. Rather the decision rests on the judge’s own appraisal of the relevance of the disputed fact to the subject-matter of the insurance’.
What is the South African position?
The South African law position is governed by Section 53 of the Short-term Insurance Act 1998 which limits an insurer’s right to reject claims based on non-disclosure to instances where the non-disclosure ‘is likely to have materially affected the assessment of risk’.
The aim behind this provision is to protect insureds against claims rejection by insurers based on negligible or trivial or irrelevant non-disclosures.
The test for materiality is one of ‘a reasonable, prudent person’ i.e. would such a person consider that the information constituting the non-disclosure should have been disclosed so as to enable the insurer to form its own view concerning the effect of the information on the assessment of the risk or the premium charged. The test is an objective one. On that test, the insured’s claim would have failed on the above facts.
The case is Dalecroft Properties v Underwriters.