A failure to disclose the true nature and extent of a risk can render insurance policies not worth the paper they are written on. In one case which proved the point, a tunnelling contractor which was facing multi-million-pound claims in the wake of a train derailment had its insurance declared void by the High Court.
The derailment of a freight train laden with diesel was said to have resulted from land subsidence caused by the company’s tunnelling work beneath the track. The extent of the claims faced by the company as a result of the accident had yet to be fully quantified but included £2.67 million in respect of remedial works.
The company’s insurers refused to indemnify it against those losses on the basis that it had failed to disclose the subsidence problem as it developed. The company was also said to have incorrectly asserted when entering into the policy that it did not work under or in close proximity to active railway lines.
In upholding those arguments, the Court found that the insurers were entitled to avoid the policy on grounds of both material non-disclosure and misrepresentation. The company’s plea that the insurers had, by their subsequent conduct, reaffirmed their obligations under the policy was rejected.