Dalecroft Properties Limited – v – Underwriters

Dalecroft Properties Limited – v – Underwriters subscribing to Certificate Number 755/BA004/2008/OIS/00000282/2008/005

[2017] EWHC 1263 (Comm)

This recent decision by the Commercial Court provides a neat recap of the applicable law pre the Insurance Act 2015, which still applies to many claims brought by policyholders today.

The Claimant, Dalecroft Properties Limited (‘Dalecroft’), owned a property in Margate (‘the property’). The property was a mixture of commercial and residential parts, and was insured with the Defendants (‘the Underwriters’).

The property was a five-storey building, and included a restaurant, a charity shop and an amusement arcade, the upper floor of which had previously been used as a discotheque (‘the disco building’).

The brief insurance history is as follows:

1. On 1 August 2007, Tristar (the Underwriters’ Agents) issued Dalecroft with a schedule for the period 1 August 2007 – 31 July 2008 (‘certificate 001’).
2. Shortly after, Dalecroft requested an increase to the sums insured. Accordingly, on 16 August 2007, Tristar issued Dalecroft with a new schedule marked CANCEL & REPLACE (‘certificate 002’).
3. At the August 2008 renewal, Tristar issued Dalecroft with a schedule for the period 1 August 2008 – 31 July 2009 (‘certificate 003’).
4. On 19 November 2008, Dalecroft’s brokers requested that “the property should be registered in the name of Dalecroft Properties Ltd’. On 20 November 2008, Tristar issued Dalecroft with a new schedule marked CANCEL & REPLACE (‘certificate 004’). The period of insurance ran from 19 November 2008 to 31 July 2009, and the premium was stated to be £0.00.
5. On the same day, Dalecroft’s broker noted that Tristar had failed to correct Dalecroft’s name on the policy and so, on 21 November 2008, Tristar issued a further schedule marked CANCEL & REPLACE (‘certificate 005’). Again, the insured period ran from 19 November 2008 – 31 July 2009, and the premium was stated to be “£0.00.”

A fire occurred on 16 May 2009, which required the property to be demolished and rebuilt. Dalecroft then made a claim on the policy, which the Underwriters sought to avoid.

In the subsequent proceedings, Dalecroft claimed an indemnity from the Underwriters for its losses arising from the fire. The Underwriters counterclaimed for a declaration that they were entitled to avoid the policy on the grounds of misrepresentation/non-disclosure, and a breach of warranty.

In all but one of allegations of misrepresentation, Dalecroft denied that what it said was untrue. It also said the matters complained of by the Underwriters did not induce the making of the contract, as the relevant contract was not made until 2008, by which point the Underwriters had issued a revised certificate headed “Cancel and Replace.”

The issues to be decided were:

a) Which was the relevant policy?

b) Did Dalecroft misrepresent any matters to the Underwriters?

c) Were there any breaches of warranty?

d) Was the risk divisible into commercial and residential parts?

Which was the relevant policy?

Dalecroft submitted that the relevant policy was contained in certificate 005, this being the policy in force at the date of the fire.

The Underwriters, by contrast, submitted that correct policy was certificate 003 i.e. the policy issued at renewal in August 2008.

The Judge, Mr Richard Salter QC, agreed with the Underwriters. He accepted that certificates 004 and 005 were marked CANCEL & REPLACE; however, neither certificate was a new policy.

Misrepresentation/Non-Disclosure

The Underwriters relied on the following misrepresentations/non-disclosures in the August 2008 Proposal/Statement of Fact:

a) That the residential units were vacant for refurbishment;

b) That the property was in a good state of repair;

c) That the property had no flat roof;

d) That the property had not been subject to malicious acts or vandalism;

e) The non-disclosure of the fact that the property had been the subject of an Emergency Prohibition Order (‘EPO’) dated 6 June 2008.

Apart from point (a), the Underwriters made out their case in respect of each alleged misrepresentation/non-disclosure.

There was compelling evidence that the property had suffered from broken windows, leaking and drainage issues (amongst other issues). Accordingly, Dalecroft had misrepresented that the property was in a good state of repair.

As regards the status of the roof, the Judge noted the experts’ views that the flat proportion of the roof comprised 50.43% of the entire roof area. As such, the representation that there was no flat roof was also incorrect.

As to the alleged malicious acts of vandalism, the Judge found that there was a history of “continual disturbances of vandalism and drug taking”, together with at least one further specific incident where a police officer was assaulted. Therefore, this too had been misrepresented.

Finally, the Judge accepted that the EPO had been misrepresented. There was a long list of defects to the property (which significantly increased the risk of fire), and nothing to suggest that the issues had been remedied. In the circumstances, the Judge found that this was a matter about which a prudent insurer would have wished to know.

The Judge found that each of points (b) – (e) were material, and that the Underwriters had made out their case on inducement. Accordingly, Dalecroft’s claim had to fail.

Although not strictly necessary, the Judge went on to consider the remaining issues.

Were there any breaches of warranty?

The Underwriters alleged that Dalecroft breached a Commercial Unoccupancy Condition in the policy (‘the Condition’) in that it had failed to ensure that:

a) The Basement and disco building were free of combustible materials;

b) The charity’s letterbox was sealed;

c) The Charity Shop and the Basement were properly secured;

On the evidence, the Judge was satisfied that Dalecroft was in breach of the Condition. In particular, it was clear from the available photographs that there were loose combustible materials in the disco building, and that neither the charity shop nor its letterbox were secured against unauthorised entry.

Was the risk divisible into commercial and residential parts?

Dalecroft argued that the risk was divisible, and that, because the alleged misrepresentations/non-disclosures related only to the residential parts, it was entitled to an indemnity for their losses in relation to the commercial part.

The Judge disagreed. The condition broken by Dalecroft was directed at risks which jeopardised the entire property. It followed that the Underwriters were discharged from all liability.

Summary

The Underwriters, on the facts of this case, were entitled to reject all claims made against them. The Judge was keen to emphasise, however, that even if the new law had applied, Dalecroft’s claim would still have failed. In this respect, he was satisfied that Dalecroft made “no real effort” to make a fair presentation, and that Underwriters would still have declined to take on the risk.

Alexander Rosenfield is an associate at Fenchurch Law