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Before:
THE MASTER OF THE ROLLS (LORD DYSON)
LORD JUSTICE JACKSON
and
LADY JUSTICE GLOSTER
____________________
Between:
Appellant/
Claimant
Respondents/Defendants
16. The proposal form stated that additional insurance was required to cover the risk of insolvency of
the builder during construction. There was unfortunately one incorrect statement in the proposal
form. The name of the builder was shown as TT Construction. That was wrong. The building
contractor was, in fact, to be TT Bedford.
17. I should also mention that, on the copy of the proposal form before the court, the contract cost is
shown as 4.6 million crossed out with 3.7 million substituted. The judge held that this
amendment was made in MD's offices some time after Mr Gamby had signed the document.
Therefore this apparent misstatement in respect of the contract cost is of no significance.
18. Immediately above Mr Gamby's signature, there is the following paragraph:
"Declaration by the Insured
I/we declare that to the best of my/our knowledge and belief, the information I/we have
given is correct and complete in every detail and I/we have not withheld any material
fact.
I/we understanding that the signing of this form does not bind us to effecting insurance
under the Premier Guarantee for Social Housing scheme but agree that should a
contract be completed for a New Development or Housing Unit that this proposal and
the statements made therein shall form the basis of the contract between me/us and the
Insurer."
I shall refer to this paragraph in the proposal form as "the declaration".
19. Having received the signed proposal form, Mr Johnson made further investigations on behalf of the
insurers. In particular, he obtained a Dunn & Bradstreet report on TT Construction, dated 13th April
2007. This showed that the company was well established and represented a lower than average risk
of business failure.
20. On 16th April 2007 MD prepared and sent to TT Bedford a quotation for Premier insurance. By this
quotation the insurers offered ten years cover in respect of latent defects together with cover against
the risk of the builder's insolvency during construction, for a total premium of 26,550. The insured
was shown as the housing association and/or the future owners of each housing unit. The builder
was shown as TT Construction.
21. I shall refer to this document as "the quotation". The quotation stated that the total sum insured
would be 4.6 million. The quotation was expressly subject to the wording of the policy which
insurers proffered. The quotation stated that, in order to proceed, the housing association should
send a cheque for the premium to MD. The insurers would then issue the policy and an initial
certificate (as required by section 2I of the policy) which they would send to the housing
association.
22. On the judge's findings of fact Mr Galliers received a copy of the quotation on or before 1st May
2007. Genesis decided to accept the quotation. Accordingly TT Bedford acting on behalf of Genesis
sent a cheque for the premium to MD.
23. On 8th May 2007 the insurers issued the policy in respect of the development at Telecom House,
together with the initial certificate. The initial certificate identified TT Construction as the builder.
24. Section 1 of the policy provides:
"1. INFORMATION
The Policyholder is requested to read the Policy and Certificates. These are important
documents. If any information is not clear please contact the Scheme Administrator.
This Policy consists of:
1. INFORMATION on the Premier Guarantee for Social Housing;
2. DEFINITIONS detailing all Definitions applicable to the Policy;
3. INSURING AGREEMENT giving precise details of the cover, subject to variation
by Endorsement;
4. ADDITIONAL EXTENSIONS detailing automatic extensions in cover to the Policy;
5. EXCLUSIONS detailing exclusions that apply to the whole Policy;
6. CONDITIONS defining the terms that apply to the whole Policy;
7. FINANCIAL LIMITS detailing the maximum the Underwriter will pay in the event
of a claim under the Policy, subject to the Indexation Clause detailed in Condition 5 of
the Policy;
8. ENDORSEMENTS detailing the optional extensions to cover that the Policyholder
may have selected prior to work commencing under the Building Contract.
This Policy sets out the insurance cover provided by the Premier Guarantee for Social
Housing.
This insurance cover is subject to a number of definitions, conditions, exclusions and
financial limits as detailed in the Policy.
.
Unless otherwise stated on the Initial and Final Certificates, The Premier Guarantee for
Social Housing provides Policyholders with protection in the following ways:
Each Housing Unit is insured for a period of 10 years from the date of issue of the
Certificate of Approval against the risk of Major Damage, ingress of water through the
Waterproof Envelope, a defect in the drains or a danger to health and safety caused by a
defect in chimneys or flues. See Section 3.1 for details.
."
25. Section 2A of the policy defines the builder as follows:
"The person or company with whom the Policyholder has contracted to erect or
refurbish the New Development(s)."
26. Section 2G of the policy defines the final certificate as follows:
"The Certificate issued by the Underwriter to signify acceptance of each New
Development or if required each Housing Unit for insurance hereunder following issue
of the Certificate of Approval by the Site Audit Surveyor."
27. Section 2I of the policy defines the initial certificate as follows:
"The Certificate issued by the Underwriter signifying their agreement to the provision
of the Insurance cover set out in this Policy subject to the receipt of a Certificate of
Approval for each New Development."
28. Section 6 of the policy sets out the conditions of the policy. Condition 7 reads as follows:
"Misrepresentation
This Policy will be voidable in the event of misrepresentation, misdescription, error,
omission or non-disclosure by the Policyholder with intention to defraud."
29. Section 8 of the policy provides that the limit of the insurers' liability for insolvency of the builder
during the building period is 10% of the contract price.
30. After completion of the formalities the building project proceeded. TT Bedford sub-contracted all
or virtually all of the construction work to a company called 3Sixty Construction Ltd ("3Sixty").
31. All went well for the first one and half years. 3Sixty completed much of the work and the standard
of finish was good. Unfortunately both 3Sixty and TT Bedford then encountered financial
difficulties.
32. 3Sixty reduced its labour force on site during February 2009. During March 2009 3Sixty became
insolvent and ceased work altogether. On 7th April 2009 TT Bedford terminated 3Sixty's subcontract.
33. In the same month TT Bedford became insolvent. On 23rd April 2009 administrators of TT Bedford
were appointed. This was at the instigation of Anglo Irish Asset Finance Plc, which held a floating
charge over the assets of TT Bedford. By that time TT Construction was also in administration.
34. In those circumstances Genesis engaged other contractors to complete the building work at Telecom
House. Inevitably Genesis suffered financial losses as a result of the insolvency of TT Bedford and
the need to bring in other contractors. Genesis sought an indemnity from the insurers in respect of
these losses.
35. The insurers denied that they had any liability under the policy. The parties were unable to resolve
their differences in correspondence. Accordingly Genesis commenced the present proceedings.
Part 3. The present proceedings
36. By a claim form issued in the Technology and Construction Court in London on 23rd December
2011 Genesis claimed an indemnity from the insurers in respect of losses suffered following the
insolvency of TT Bedford. Genesis accepted that its claim was limited to 460,000 under section 8
of the policy.
37. The insurers served a defence denying liability on a number of grounds, but only one of those
grounds is now material. This is that Genesis or its agent misstated the name of the builder in the
proposal form. It is said that this constituted a breach of warranty, as a result of which the policy
was or became void. Further or alternatively, the insurers contend that the policy does not respond
to losses arising from the default of a builder who is different from the building contractor named in
the proposal form and in the initial certificate.
38. The action was tried before Mr Justice Akenhead on 29th October 2012. There was little dispute as
to the facts. The single witness called by each party could add little to what appeared in the
contemporaneous documents. As can be seen from the transcript, most of the time during the one
iv) Genesis' rights to recover under the policy were not dependent upon TT Construction being the
builder
44. Genesis also challenges the judge's finding that the quotation was a contractual document. Although
I have reservations about this part of the judge's decision, it is unnecessary to decide the point and
we have not heard full argument upon it. The finding that the quotation was a contractual document
plays no part in the judge's overall reasoning and conclusions: see paragraphs 39 and 40 above.
45. Grounds of appeal (i) to (iii) are alternative arguments, each intended to establish that the insurers
were not entitled to avoid the policy or to avoid liability by reason of misstatement in the proposal
form. Ground (iv) proceeds on the assumption that the policy remained in force in 2009. It is argued
that Genesis was entitled to the benefits of cover under section 1 in respect of latent defects and
under section 8 in respect of the builder's insolvency, despite the change of building contractor.
46. All of the arguments which Mr James Leabeater deployed in support of Genesis' appeal can
conveniently be grouped under the rubric of those four headings.
47. The insurers served a respondents' notice on 18th December 2012. Paragraph 1 of the respondents'
notice asserts that there was a further breach of warranty by Genesis. This was the statement in the
proposal form that the contract cost was 3.7 million, not 4.6 million.
48. This assertion involves a challenge to the judge's finding of fact, referred to in paragraph 17 above.
That finding of fact was open to the judge on the evidence. It cannot be challenged in this court. I
therefore reject paragraph 1 of the respondents' notice.
49. I must now return to Genesis' grounds of appeal. I shall address the issues in the order set out
above, starting with the effect of the statements in the proposal form.
Part 5. Did the statements in the proposal form become contractual warranties?
50. In answering this question in the affirmative the judge relied upon a line of authorities stretching
back over a century, concerning the effect of a "basis of contract" clause. These are Condogianis v
Guardian Assurance Company Ltd [1921] 2 AC 125, Dawsons Ltd v Bonnin [1922] 2 AC 413,
Rozanes v Bowen (1928) 32 L1.L.Rep 98, Holmes v Scottish Legal Life Assurance Society (1932)
48 TLR 306, Unipac (Scotland) Ltd v Aegon Insurance Co (UK) 1996 SLT 1197 and Kumar v AGF
Insurance Ltd [1999] 1 WLR 1747. It should be noted that there are nineteenth century authorities
to similar effect.
51. In Condogianis the appellant incorrectly answered a question in the proposal form concerning
previous claims. The proposal form contained a declaration that it was "the basis of the contract".
The Privy Council upheld the decision of the High Court of Australia that the appellant could not
recover on the policy. Lord Shaw stated that it was irrelevant whether the untruth occurred through
inadvertence (as opposed to fraud) and whether or not it was material. If the parties had agreed that
the warranty was the basis of the contract of insurance, the court would so treat it. He cited a series
of nineteenth century authorities in support of that proposition.
52. The House of Lords applied the same principle in Dawsons, but expressed some regret at the harsh
consequences of the rule.
53. In Rozanes a Parisian jeweller insured his premises against theft with Lloyd's underwriters.
Unknown to the plaintiff, his agent gave incorrect answers to questions in the proposal form about
previous losses. The proposal form, although not referred to in the insurance policy, contained a
"basis of contract" clause. It was established at trial that there was no dishonesty on the part of the
plaintiff, who had given full details of his previous losses to the Lloyd's broker acting as his agent.
Nevertheless both Wright J and the Court of Appeal held that the policy was void by reason of the
knowledge and belief did not qualify the "basis of contract" provision in the second sentence.
72. Let me now draw the threads together. For the reasons set out above, the proposer in this case
warranted, without qualification, that TT Construction would be the builder. In fact, to the
knowledge of both Genesis and TT Bedford, TT Construction was not going to be the builder. My
answer to the question posed in Part 6 of this judgment is yes.
73. I must now turn to the third ground of appeal, which concerns the effect of condition 7 of the policy.
Part 7. Did condition 7 restrict the insurers' right to avoid for misstatement to circumstances where
there was intent to defraud?
74. I have set out condition 7 of the policy in Part 2 above.
75. Mr Leabeater contends that the effect of condition 7 is to limit the insurers' right of avoidance to
cases where the policyholder intended to defraud. He submits that, if the condition does not have
this effect, it adds nothing to the terms of the policy. If condition 7 had been omitted, self-evidently
the policy would be voidable in the event of fraudulent misstatement or non-disclosure.
76. Like the judge, I do not accept this argument. Condition 7 is not expressed to be a limiting
provision. It does not say that the policy will be voidable only in the circumstances there mentioned.
It would be remarkable if the parties were agreeing to cut down the insurers' normal right of redress
to the substantial extent that Genesis now asserts. If the parties really intended to achieve such an
unusual result, they should and would have said so expressly.
77. The argument that condition 7 adds nothing to the policy is not a strong one. As Thomas J observed
in Kumar at 1756 F, it is not uncommon to find surplusage in a contract of insurance.
78. In my view condition 7 of the policy can only be read as a provision conferring additional express
rights on the insurers, regardless of whether or not those express rights serve any useful purpose. It
cannot be read as cutting down the insurers' general right to avoid for misrepresentation. Nor can
condition 7 be read as restricting either the warranties or the "basis of contract" clause in the
proposal form.
79. My conclusion in this regard is in line with Holmes, a decision summarised in Part 5 above. The
insurance contract in that case contained a provision to the same effect as our condition 7. Swift J
rejected the contention that this restricted the insurers' right to avoid for misstatements made in a
proposal form purporting to be the basis of the contract.
80. In the result therefore I reject Genesis' case in relation to condition 7. My answer to the question
posed in Part 7 of this judgment is no.
81. It follows from the analysis so far that, simply by reason of the misstatement concerning the builder
in the proposal form, the policy issued by the insurers was or became void. I agree with the decision
of the judge in that regard. That is enough to dispose of this appeal.
82. Nevertheless a number of other issues have been debated, including the significance of the initial
certificate and whether the contract of insurance is limited to a specific builder. I shall address these
issues briefly under the rubric of the fourth ground of appeal.
Part 8. Was Genesis' right to recover dependent upon TT Construction being the builder?
83. On the 8th May 2007 MD on behalf of the insurers issued their initial certificate. Under the
provisions of section 2I of the policy the effect of this certificate was to signify insurers' agreement
to provide the specified insurance cover. The initial certificate identifies TT Construction as the
builder.
84. Mr Leabeater concedes that the initial certificate was a contractual document. In my view, by reason
of both the proposal form and the initial certificate, it was a contractual term between Genesis and
the insurers that TT Construction should be and remain the builder. The insurers were providing
cover against the risks of insolvency or defective work on the part of an identified builder. They
were not providing cover in respect of the defaults of any other builder whom Genesis may choose
to substitute. That would be an open-ended risk, which the insurers did not accept.
85. I therefore consider that section 1 of the policy does not apply in respect of defective work
performed by TT Bedford. Furthermore section 8 of the policy does not provide cover in respect of
the insolvency of TT Bedford.
86. My answer to the question posed in Part 8 of this judgment is yes.
Part 9. Conclusion
87. For the reasons set out in Parts 5, 6 and 7 above I conclude that the insurance policy in this case
either was or became void by reason of the breach of warranty in the proposal form.
88. It follows that the insurers have no continuing liability to Genesis under the terms of the policy.
Therefore the present claim must fail. Furthermore Genesis is not entitled to the issue of a final
certificate under the provisions of section 2G of the policy.
89. Therefore, even if the insurance policy were still in force, it would not respond in the circumstances
of this case. The builder who is the subject of the insurance is not the contractor who was engaged
by Genesis to carry out the work.
90. Accordingly, if my Lord and my Lady agree, this appeal is dismissed.
Lady Justice Gloster:
91. I agree that this appeal must be dismissed for the reasons given by Lord Justice Jackson.
The Master of the Rolls:
92. I also agree that this appeal must be dismissed for the reasons given by Lord Justice Jackson.
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