The UK court of appeal refused to avoid a mobile plant policy plus extension on the grounds of non-disclosure of risk-related information because the lower premium was the result of the insurer’s underwriting practices and their own mistake not of the non-disclosure.

The insured was in the business of waste collection and waste recycling and insured a number of items of mobile plant and a fixed shredding machine.

The insured failed to disclose that they had not installed fire suppression equipment for building housing the fixed shredder required by their property insurer on another policy which had resulted in that insurer imposing special self-insurance terms and a higher excess.

The defendant insurers treated the insurance as commoditised and streamlined as a cost-saving exercise.  There was no proposal form.  There were only three inputs for a calculation of premium, namely the amount of the cover, the nature of the trade, and the claims experience.  The matter was given to a junior underwriter who made a mistake as to the rate.  The insurer said that, if the disclosure had been made, the underwriting would have been done by their head underwriter in the engineering risk division and the proper premium would have been imposed instead of the mistakenly reduced premium.  They claimed therefore that the non-disclosure had induced them to issue the policy at the lower premium.

The court found that the non-disclosure did not induce the underwriter to write the insurance on less favourable terms.  The mistake was made by the junior underwriter and was not the result of the failure by the insured to disclose matters relevant to its risk management.  The mistake of the insurer was the sole cause of the policy being written more cheaply than it would have been by the senior underwriter.  The court applied the ‘but for’ test of causation and held that it was the junior underwriter’s mistake which was the sole efficient cause of the policy being written more cheaply.  The insurer was not entitled to avoid the policy.

South African insurance laws also require inducement in the sense that the non-disclosure must be “such as to be likely to have materially affected the assessment of the risk under the policy concerned”.  On these facts the same decision would be arrived at in a South African court.

[Zurich Insurance Plc v Niramax Group Limited [2021] EWCA Civ 590]