In a stern reminder that the greatest care is always required in filling out insurance proposal forms, a social housing association’s insurance cover in respect of a £4.6 million construction project was not worth the paper it was written on after it misidentified the building company that was carrying out the work.
In insuring the project, the housing association had taken out optional cover against the possibility of its building contractor becoming insolvent. In the proposal form, it named the relevant contractor as a company that had a satisfactory trading record and, according to its accounts, a net worth in excess of £360,000.
However, the company that in fact carried out the work - although part of the same group as the contractor identified on the form - was in fact a single purpose vehicle that had been established to carry through the project. The mistake emerged after the housing association made a claim under the policy and the insurers, a Lloyd’s of London syndicate, sought to avoid liability.
In deciding whether to extend cover against the risk of insolvency, the insurers had carried out financial checks on the company identified on the form and had relied upon that information in the preparation of its premium quotation. On that basis, the High Court found that the policy had been invalidated by the mistake.
In dismissing the housing association’s challenge to that decision, the Court of Appeal noted that it was a term of the insurance contract that the company named on the form was, and would remain, the contractor engaged on the project. The insurers were providing cover against the risk of insolvency of the identified builder and not any other builder whom the housing association might choose to substitute.
Observing that that would have been an open-ended risk, which the insurers had not accepted, the Court found that the policy either was, or became, void by reason of the breach of warranty in the proposal form. In those circumstances, the housing association was covered neither against the risk of the contractor’s insolvency nor in respect of any defects in the work carried out.
Genesis Housing Association Limited v Liberty Syndicate Management Limited for and on behalf of Liberty Syndicate 4472 at Lloyd’s. Case Number: A1/2012/3170