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This case throws
up an interesting analysis of the way in which a prospective insured
at the proposal stage should treat allegations made against it, including
accusations of fraud or dishonesty in which they had an honest belief
or extrinsic evidence of their innocence. It also provides a useful
recap on the current principles concerning inducement.
This was an appeal
to Mr Justice Tugendhat sitting in the High Court from the Central London
County Court, following judgement at first instance that the Claimant
insured had not been guilty of non-disclosure of material facts and
that therefore the policy of insurance had not been validly avoided.
Meisels owned a
portfolio of some 48 properties. The Defendant insurer Norwich Union,
provided cover for perils commonly insured by building insurance, including
fire and flood. In the course of a claim made under the policy, part
of which was alleged to be false and fraudulent, the insurers discovered
various facts relating, amongst other things, to allegations concerning
Inland Revenue assessments and Meisels' failure to file returns. These
facts had not been disclosed. They sought to avoid the policy.
At first instance,
Norwich Union submitted that, even if Meisels was able to rely on evidence
of its innocence, the mere fact that an allegation had been made of
such things, should have been disclosed. In doing so, the insurer relied
on the leading Judgment of Waller J in North Star v Sphere Drake
[2006] 1 Lloyd's Report IR519. Norwich Union said that this was
authority for the proposition that, where there is information concerning
an allegation of dishonesty or of other criminal conduct, which would
on its face be material and disclosable, then the obligation to disclose
subsisted except where there was exculpatory material which, as Waller
J said, was "such as to prove beyond peradventure that the allegation
is false".
It was submitted
by the insurer that in this case, therefore, where the insured was in
dispute with the Inland Revenue and proceedings had been issued by the
Revenue to recover unpaid tax, it was irrelevant that Meisels had evidence
that the assessment was demonstrably incorrect. It was argued that the
assessment and the proceedings brought to enforce it were plainly material
and should have been disclosed.
Meisels submitted
this was wrong. It said that North Star does not support such a broad
proposition.
Tugendhat J agreed
with Meisel. The position was not clear cut, particularly where there
were allegations of dishonesty. He analysed Waller's Judgment and came
to the conclusion that it must be possible to have a situation where
it is so clear that there is nothing in an allegation that the allegation
does not need disclosing. There may be justifications for considering
information to be immaterial if for example, the allegation is old or
is of dishonesty which is not sufficiently serious. There was, in essence,
room for a test of proportionality, having regard to the nature of the
risk and the moral hazard under consideration.
Tugandhat J then
also provided a helpful recap of the principles of inducement necessary
for an
insurer to execute
a valid avoidance of a policy:-
1 In order to be
entitled to avoid, an insurer must prove on the balance of probabilities
that he was induced to enter into the contract by a material non-disclosure;
2 There is no presumption of law to that effect;
3 The facts may, however, be such that it is to be inferred that he
was so induced even in the absence of evidence from him; and
4 In order to prove inducement, the insurer must show that the non-disclosure
was an effective cause of his entering into the contract on the terms
on which he did. He need not show that it was the sole effective cause
of his doing so.
As an adjunct, Tugandhat J was asked to find that the first instance
Judge's findings of fact were wrong. He did not do so, commenting that
the Trial Judge was peculiarly well placed to
assess the evidence and make the findings he did.
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