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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Manor Park Homebuilders Ltd -v- AIG Europe [Ireland] Ltd [2008] IEHC 174 (13 June 2008) URL: http://www.bailii.org/ie/cases/IEHC/2008/H174.html Cite as: [2008] IEHC 174, [2009] 1 ILRM 190 |
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Judgment Title: Manor Park Homebuilders Ltd -v- AIG Europe [Ireland] Ltd Composition of Court: Judgment by: McMahon J. Status of Judgment: Approved |
Neutral Citation Number: [2008] IEHC 174 THE HIGH COURT 2004 No. 1119 P BETWEEN MANOR PARK HOMEBUILDERS LIMITED PLAINTIFFS AND AIG EUROPE (IRELAND) LIMITED DEFENDANT JUDGMENT of Mr. Justice Bryan McMahon delivered the 13th day of June, 2008 Background Ongar Stud Farm, Clonee, County Dublin was purchased by the plaintiff company for the purposes of development. There were some hundred and sixty-five acres in the farm and it was proposed to build several hundred houses of varying sizes on the land. Ongar House (hereinafter “the House”), was a period house, located in the centre of the farm and was a listed building and a protected structure under the Planning Acts. As such, any changes to its structure or use were subject to strict restrictions. The developer’s plan was that Ongar House would be the focal point of this new “village”, and that it might eventually be run as a restaurant or public house. When the plaintiff company took over the property in 2000, the former owners still resided in the house, but when they eventually moved out, the plaintiff set up the site office for the development in the House. The plaintiff caused a burglar alarm to be installed in the House in August, 2000. In April 2001, the plaintiffs ceased to use the House as their site office and relocated these offices in porta-cabins near the work in progress. This meant that Ongar House was vacant from that time on. To secure the property and to discourage intruders, the plaintiff, with the consent of Fingal County Council, the planning authority, contracted to have steel shutters placed on all the outside doors and windows of the House. This work was done by Sitetex Security Services Ltd. in around March, 2001. Some time later, one of these shutters was interfered with in an attempt to force an entry and it was decided at that time, again with the consent of the planning authority, that to make the House more secure, all the ground floor shutters would be replaced and these openings would be “bricked up” with concrete blocks from the outside. This work was completed on the 9th of November, 2001. Until the 30th of April, 2002, the House was insured under an “All Risks” policy with the Royal and SunAlliance but as the property was vacant from 2001, the insurers showed some reluctance in renewing the policy and the plaintiff's brokers, Coyle Hamilton, sought other quotes in the market. Because the house was unoccupied, getting appropriate insurance became somewhat more difficult. Eventually, a contract for “Fire Only” cover was signed with AIG, the defendant, on the 3rd of May, 2002. The House was extensively damaged by fire on the night of the 14th/15th of September, 2002. The insurer repudiated the contract on the 28th of November 2002, and the plaintiff issued these proceedings claiming various declaratory reliefs as well as damages for breach of contract. The Insurance Contract It is common case that a contract of insurance was entered into between the plaintiff and the defendant insurer on the 3rd of May, 2002. To establish what the terms of the contract were, however, it is necessary to outline the history of the negotiations that took place from about the middle of April 2002, to the date when agreement was finally reached on the 3rd of May, 2002. As already mentioned, the existing insurer was Royal and SunAlliance and Paul Colgan, broker, from Coyle Hamilton, acting for the plaintiff, contacted them, as the existing insurer, in the middle of April 2002, regarding renewal. Because the House was now vacant, Royal and SunAlliance suspended renewal terms and carried out a survey of the property on the 25th of April, 2002, and wrote to Mr. Colgan enclosing part of the survey. Copies of these documents are reproduced here:- “CONFIDENTIAL Insured: Manor Park Home Builders
Policy No: SA13549675 Date of Visit: 25 April 2002 Loss Prevention Programme
The purpose of this Loss Prevention Programme is to assist in minimising the possibility of loss from the risks referred to herein and it does not imply that no other hazardous conditions exist. The implementation of any measures is the responsibility of the Proposer or Insured and Royal & SunAlliance accepts no liability howsoever arising out of the Programme. The liability of Royal & SunAlliance is limited to the cover it provides under the policies effected on the property or risk concerned. Please contact us if further information is required or if you feel we help in any way.
Requirements
02.01 Security
(b) the light timber door leading to the boiler room be replaced with steel door/surround or alternatively the gap to be bricked up. (c) double leaf timber gates (to rear leading into yard area) be secured using good quality bolt/close shackle padlock.
Clive Groarke Royal and SunAlliance also communicated its new terms to Mr. Colgan by e-mail on the 30th April, 2002. It is necessary also to produce this e-mail in full:-
Sent: 30 April 2002 17:32 Subject: Manor Park Home Builders - SA13549675
It is warranted in the unoccupied building insured by this policy; (2) All outside doors are to be securely locked to prevent unauthorised entry. (3) All windows are to be firmly secured at all times. (4) Regular visits shall be carried out by the Insured to physically check the premises and to carry out any work necessary to maintain the security arrangements. (5) All trade waste and combustible materials must be removed from the premises
Adrienne.” Both of these documents, the excerpt from the survey and the e-mail from Royal and SunAlliance, were faxed on the 1st of May, 2002, by Coyle Hamilton to Mr. Paul Kelly for the insured. Mr. Kelly set about addressing the concerns of the Royal and SunAlliance immediately since they were the existing insurer and no other willing insurer had quoted at that time. Mr. Kelly still thought that Royal and SunAlliance would be the relevant insurers for the following year. The position, therefore, was that when the cover was given by AIG on the 3rd of May, 2002, the client was by then implementing a programme set by Royal and SunAlliance which included, inter alia, the disconnecting of the electricity supply to the House. This was carried out by the ESB on the 24th of May, 2002, with the result that the alarm was rendered inoperable on that day. Mr. Kelly said in evidence he had commenced implementing the Royal and SunAlliance programme before the contract was entered into with AIG and he did not countermand his instructions as he thought he was making the property safer from an insurance point of view and because, in truth, he did not advert to the fact that when the electricity was disconnected it would have the effect of disarming the alarm system. The result was that there was no burglar alarm in operation after the 24th of May, 2002, or specifically when the fire occurred on the 14th/15th of September, 2002. Although the defendant made other complaints in its defence, the question of the alarm turned out to be their main contention as the case was run. As already mentioned, in around the middle of April, 2002, Paul Colgan of Coyle Hamilton, noting Royal and SunAlliances’ reluctance to renew on the same terms, and to ensure that there would be no break in the cover, sought quotes from four other insurance companies. From his soundings there was no great enthusiasm to underwrite the risk since the House remained vacant and was considered an unattractive risk in the market for this reason. Of those insurers approached, it was clear that Allianze did not want the business and Eagle Star and ACE would not quote, although the latter did intimate that the premium might be in the region of €10,000. AIG appeared to be interested. As already mentioned, Royal and SunAlliance had, in contemplation of renewing the policy, carried out on the 25th of April, 2002, a survey, and part of it, the Loss Prevention Programme (also known as the Risk Completion Programme), was sent to the brokers, together with a quote of a new premium of €10,660 plus government levy. The Loss Prevention Programme is set out above and does not have to be reproduced. The following sentence was also inserted by Royal and SunAlliance:-
“Facsimile Message
Company: AIG Europe Date: 24/4/02 Fax No: 283 7775 No Pages: 3 Re: Property Damage Insurance - Manor Park Homebuilders Ltd. Dear Simon, Our telephone conversation earlier today refers. Enclosed is a copy of our Submission dated 18th April 2002.
Up to recently the building has been used by our client as offices. Because it is now vacant and is a listed building the client has installed steel shuttering on all windows and doors. An alarm system is in place but is not linked to a central station. In the event of the alarm going off the 24 hour security service on the building site would by (sic) alerted. The security service would carry out period checks on the building during the night.
PAUL COLGAN FOR THE COMPANY .” These negotiations culminated in an exchange of e-mails which I now produce:- “From: Paul Colgan
To: '[email protected]' Subject: Property Damage Insurance - Manor Park Homebuilders Ltd. Simon, Our telephone conversation today refers.
Regards. Paul Colgan.”
Sent: 03 May 2002 12:42 To: 'Paul Colgan'
It is not contested that a contract was entered into between the parties on the 3rd of May, 2002, at the latest. That is evidenced by the exchange of e-mails between Paul Colgan of Coyle Hamilton for the plaintiff and Mr. Simon Russell for the defendants. What the exact terms of the contract were, however, is more problematic. This was because of the minimum enquires made and the paucity of documentation issued by the broker or by the defendant insurance company. No proposal form was completed, no “slip” was sent by the broker to the insurer, no confirmation note or memorandum was sent to the plaintiff after the 3rd of May, 2002, and no policy ever issued to the plaintiff. The communications between Mr. Colgan and Mr. Russell of AIG already referred to, identified that the policy was Fire, Aircraft and Explosion only, that the property insured was the House, that the premium was to be € 6,210 plus 2 % Government levy, that the sum insured was €1,015,000 for the building and €20,000 in respect of contents. Apart from an excess of €5,000 there were no additional conditions or warranties specified. These were set out in an e-mail from Mr. Colgan to Mr. Russell on the 3rd of May, 2002, and acceptance was made on the same day by Mr. Russell in a one word e-mail: “Confirmed”. It was indicated in Mr. Colgan’s fax, sent to the insurers on the 24th of April, 2002, that an alarm system was in place but was not linked to a central station, that the premises were vacant, had steel shuttering on the ground and upper floors, and that there was a security firm on the building site which would be alerted if the alarm went off and that the security service would carry out periodic checks on the building during the night. The status of these representations were central to the dispute before the court. In particular, the defendants focused especially on the statements that there was “steel shuttering on all windows and doors” and that “there was an alarm system in place”. The defendant argued that in addition to the agreed terms, few as there were, the defendant’s Standard Fire Only Policy applied to the contract. This, according to the defendant, was the background against which the negotiations took place. The “Standard Policy” covered other matters of a more or less general nature relating to insurance contracts of this nature and also had Condition Clauses which, it was argued, should also apply to the agreement. Where the standard form of contract is universally recognised in the sector, or a specific form is frequently used between the insurer and the broker, the court may admit such a form as providing the general terms to which the specific terms negotiated are added, to give the full contract governing the agreement. Mr. Colgan, of Coyle Hamilton, denied that this was the case here, however, and said that, to his knowledge, there was no such thing as a model “Fire Only” policy used by insurers generally throughout the industry in Ireland, and that he ( Mr. Colgan), was not familiar with the so-called AIG Standard Fire Policy. Mr. Austen Buckley, an expert on insurance practice and insurance law, gave similar evidence as did Mr. John Barry of Coyle Hamilton. There was no reference in the negotiations that preceded the e-mails of the 3rd of May, 2002, to any particular policy conditions. Moreover, as already stated, no policy document ever issued to the plaintiff, and the plaintiff only got sight of the so-called “Standard Policy" when, in the course of these proceedings, one was furnished in the defendant's reply to particulars, on the 12th July, 2005. Even at the trial, where two different forms were produced by the defendant, there was a dispute as to whether the “long form” or the “short form” of the policy applied. Moreover, the policy which the defendants finally produced was a Property Perils policy limited to Fire, Lightning and Explosions whereas the e-mails of the 3rd of May, 2002, referred to Fire, Aircraft and Explosion. There was no compelling evidence offered to the Court to justify the conclusion that any standard policy of AIG applied to the agreement. It is also clear from the evidence that there were no special conditions or limitations applied by the defendant. Mr. John Barry, of Coyle Hamilton, described this as a “very clean quote”. He stated that if there were any warranties they would have to have been communicated at the quotation stage because warranties have serious consequences for a policy holder. Simon Russell, the underwriter who negotiated the contract on behalf of AIG, accepted that he did not put an alarm warranty on the policy. He accepted he did not make any reference to any policy terms and conditions in his communications with Paul Colgan. In any event, because the defendant purported to avoid the policy on the 28th of November, 2002, it is not now open to them to rely on any of the terms or conditions in such policy. In Superwood Holdings v. Sun Alliance & London Insurance Plc [1995] 3 I.R. 303, the Supreme Court held that a party who repudiates an insurance contract on the basis of fraud cannot thereafter rely on the repudiated provisions. On this issue, Denham J. said at p.345:-
Was the alarm operational when the contract was concluded on the 3rd of May, 2002? One central issue for determination was whether the alarm was operational when the contract was concluded on the 3rd of May, 2002. This is a question of fact and because of its significance I now propose to look at the evidence and determine this issue at this early juncture as my finding in this regard will have a bearing on my subsequent analysis. As already noted, the steel shuttering on the ground floor of the house was replaced on the 9th of November, 2001. It was removed and the windows and doors on the ground floor were bricked up with concrete blocks instead. The defendants formed the view that such work inevitably meant that the alarm system would have been rendered inoperative by this work. To some extent, this view was based initially on an erroneous assumption that the alarm system was one which had contacts on the window sashes and that the alarm would be triggered when the window was interfered with. At the trial this was shown not to be the case. The defendant, nevertheless, maintained that the blocking up process that occurred in November, 2001, would have had the effect of disarming the alarm system that was in place. I am satisfied from the evidence given by Mr. Martin Kavanagh who was the site manager and from a close scrutiny of the many photographs (taken immediately after the fire) presented to the Court and noting especially the construction of the window and door openings and the depth of the reveals in particular, that there was no structural reason why the door and window openings could not be blocked up by men working solely from the outside, without triggering or disarming the alarm. That this was the way the work was carried out was supported by the many photographs which show the rough finish of the block laying from the inside, where the mortar between the blocks drips untidily (in a “snot”) and is not cleaned off evenly. The defendant drew the Court’s attention to only one photograph which was taken from the inside after the fire, which they said suggests that the block layers worked from inside the house because of its smooth finish. I am not satisfied that one can come to this conclusion from this one picture. First, the photograph was not taken for the purpose of showing the finish in the block work. It was taken for a different purpose and the smoothness of the finish is not clear. Second, the picture only shows a small portion of the lower inside of the window and only shows a little more than one row of concrete blocks scarcely three feet from the ground. It may look as if there was a somewhat smoother finish, but even if this is so, this could have been done by the block layer leaning over the partly built wall from the outside without entering the building. Further, the block laying job was done by several men over two days and it might indicate different block layers’ approaches to their craft or trade or simply a neatness of finish which one block layer thought was required at the commencement of the job, but which he soon learned was not required and quickly abandoned. I am not prepared to conclude from this one picture, as against the many pictures which clearly show uneven finish, that the block layers entered the premises to block up the openings in November, 2001. Neither am I prepared to conclude that the execution of this block work at that time inevitably suggests, as the defendants urged on me, that the alarm was not operating after that time. On the balance of probability I find that the block work was done from the outside and did not require the workmen to enter the premises and the alarm system could have remained operational after this work was completed. The evidence of Mr. Kavanagh, the site manager, is strong and unequivocal on this issue: all the block work carried out in and around the 9th November, 2001, was done by block layers who were instructed to work from the outside and he himself remained and supervised the work and ensured that no one entered the building to do this work at the time. Mr. Kavanagh’s evidence was not shaken in cross-examination and there was no other evidence to contradict what he said. The evidence of Mr. MacGibney, a consultant engineer called by the plaintiffs, confirmed the view that there was no reason why the block work, as he saw it, after the fire, could not have been done from the outside. He also gave evidence that the plaintiff would not have been allowed, in the blocking up operation, to interfere or damage in any way the architraves or the wooden surrounds of the windows and if they had done so they would have been “hammered by the planners”. It should be noted that at an early stage the defendants were under the impression that the alarm system in question was one based on contacts on the windows. If this were the case, the defendant’s interest in the block workers’ activities was clearly justified as it would be likely to trigger the alarm if such contacts were in place. It subsequently transpired, however, that the alarm to the house was a P.I.R. system which was activated, not by interference with the window sashes, but by an increase in the room temperature caused by a human presence. Warranties, Terms and Representations Having determined that the alarm was operating on the 3rd May, 2002, when the contract was entered into, I must now address what were the nature of the statements made by Mr. Colgan, of Coyle Hamilton, in his fax on the 24th April, 2002, relating to this steel shuttering being on all windows and doors, and the alarm being in place. Were they warranties? Were they terms of the contract? Were they misrepresentations? Were they material? Were they fraudulent? Warranties Section 33 of the Marine Insurance Act 1906 states as follows:-
(2) A warranty may be express or implied. (3) A warranty, as above defined, is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.” Section 35 of the Act states as follows:-
(2) An express warranty must be included in, or written upon, the policy, or must be contained in some document incorporated by reference into the policy. (3) An express warranty does not exclude an implied warranty, unless it be inconsistent therewith.” In Keating v. New Ireland Insurance Company [1990] 2 I.R. 383, McCarthy J., in commenting upon a ‘basis of contract’ clause stated at p.393:-
A policy ought to be so framed that he who runs can read. It ought to be framed with such deliberate care that no form of expression by which, on the one hand, the party assured can be cut, or by which, on the other, the company can be cheated shall be found upon the fact (sic) of it. Nothing ought to be wanting in it, the absence of which may lead to such results.’ 2. Whilst acknowledging the right of parties to express the pre-contract representations as being the basis of the contract, same must be read in the light of the actual terms of the contract subsequently executed. The contract, so to speak, takes over from the proposal. 3. If insurers desire to found the contract upon any particular warranty, it must be expressed in clear terms without any ambiguity. 4. If there is any ambiguity, it must be read against the persons who prepared it (see Anderson v. Fitzgerald (1853) 4 H.L.C 484 at 503, 507, 514 and Thompson v. Weems (1884) 9 App. Cas. 671 at 682, 687. 5. Like any commercial contract, such a policy must be given a reasonable interpretation.” It is clear from McCarthy J.’s judgment that a warranty cannot arise from representations made prior to the contract without the insurers making the situation entirely clear that same is to form the basis of the contract. Clarke, The Law of Insurance Contracts, 5th Ed.,(London, 2006), at paragraph 20-2B states:-
The court’s reluctance to construe a warranty as being continuing or applying to events into the future can be seen in the case of in In re Sweeney and Kennedy’s Arbitration [1950] I.R. 85. In that case, a proposal form for a motor insurance policy in respect of motor lorries, asked whether or not any of the drivers of the proprietor were under 21 years of age or had less than twelve months driving experience. This was answered in the negative. During the currency of the policy the proprietor occasionally employed his son who was under the age of 21. The son was involved in driving one of the lorries when a fatal accident occurred and the insurer refused to accept liability on the grounds that the terms of the policy had been broken. The proposal form also contained the following statement:-
In Hussain v. Brown [1996] 1 Lloyd’s Rep. 627, the plaintiff had completed a proposal form for a fire policy in respect of his commercial premises in Bury, Lancashire. One of the questions on the proposal form had asked whether the premises were fitted with any system of intruder alarm and, if so, for details of the installing company and a copy of the specification. The plaintiff had answered in the affirmative to the said question and had attached a specification of the alarm. The proposal form contained the following declaration:-
The insurers accepted the proposal and the insurance commenced on the 14th July, 1992. The insurance certificate provided that the proposal and declaration were to be the basis of, and form part of, the certificate. On the 24th November,1992, a fire occurred in the plaintiff’s premises and the plaintiff claimed under the insurance. The insurers claimed that the answer to question 9 on the proposal form amounted to a continuing warranty that the premises were fitted with an intruder alarm and that the alarm was operational and would be habitually set by the plaintiff when the premises were unattended. The insurers claimed that the plaintiff was in breach of this warranty. The Court of Appeal upheld the decision of the High Court that the answer to the question on the proposal form related to the state of affairs when the proposal form was signed and did not import any warranty as to the future. At p. 629 Lord Justice Saville stated:-
Terms Moreover for similar reasons, I do not think that the relevant statements in the fax of the 24th April, 2002, can be considered to be terms of the contract. There was no attempt made by Mr. Russell, for the defendant, to elevate the relevant representations in the fax to that status in his one word e-mail of acceptance: “confirmed”. This is to be contrasted with the words used in the Royal and SunAlliance survey where in it’s Loss Prevention Programme it explicitly stated:-
Representations In the fax of the 24th April, from Mr. Colgan to Mr. Russell, it is indicated that “an alarm system is in place but is not linked to a central station”. The same fax also indicates that “the client has installed steel shuttering on all windows and doors.” I will deal with each of these statements in turn. The representation that there was an alarm system in place was accurate. I have already found that the blocking up operation carried out in November, 2001 did not interfere with its operation. Since I have found as a fact that the alarm was operating on the 3rd May, 2002, there clearly could not have been any misrepresentation in that regard. Furthermore, I have also dealt with the defendant’s suggestion that there was a continuing warranty that the alarm was to remain operational after the contract was entered into. The ratio in the Hussain case clearly shows that such continuing warranties are not lightly inferred. For these reasons, I would reject any suggestion that there was a continuing warranty in this case in respect of the alarm. The fax of the 24th April also stated:-
As he indicated in evidence, however, he did not make any association at the time between disconnecting the electricity and the alarm. He acted in good faith. There is no evidence before the Court that the insured did not intend to continue to operate the alarm system when he made the contract on the 3rd of May. The system became non-operational unintentionally when the mains electricity supply was disconnected. In any event no undertaking was given that the alarm would remain operational as an effective system throughout the period of the insurance. If this had been required by the insurers they could have insisted on an alarm warranty, but they did not do so. It will be seen from the above analysis that, in my view, there has been no misrepresentation in relation to the alarm for the reasons stated. Materiality Even if the evidence was otherwise and one concluded that the alarm was not in operation at the time the contract was made on the 3rd May, 2002, I hold that it is not material to the risk on that day. It is clichéd law that the insured must disclose all material facts to the insurer when entering the contract. A fact is material if it would influence a prudent underwriter when he is considering the risk and the premium. Whether a fact is material or not, however, depends on the particular circumstances of the case and accordingly, it must be determined from the particular factual matrix in question. It is true that Mr. Niall O’Keeffe, an experienced broker, Mr. Martin Barry, an experienced property underwriter and Mr. Seamus O’Hare, an independent insurance consultant and a member of the Chartered Insurance Institute, all witnesses called by the defendants, gave evidence that a prudent insurer would regard the existence of a burglar alarm on the building as being a material fact. For reasons I am about to explain I am not persuaded by the evidence in this regard. In the present case, the alarm in question was a burglar alarm only, a fact that was not specified to the insurer. Mr. Russell who negotiated the contract said he did not know what type of alarm was on the property at the time: “I just knew it was alarmed. I took it was a burglar alarm actually.” This would suggest that the alarm was not a significant factor for him when he was assessing the risk. It was not a fire alarm which, if the insurer was concerned with alarms, it might have insisted on. Even when the alarm was disconnected, the alarm box remained visible on the outside of the building and continued to act as a visual deterrent for intruders who were looking for soft targets. Moreover, the survey by Royal and SunAlliance made when considering renewal, concluded that the house was “ well secured” at the end of April, 2002, and this report was furnished to and relied on by AIG before the contract was concluded. Further, all the downstairs openings were blocked with concrete blocks, and all the upstairs openings were secured with steel shutters. A burglar alarm in these circumstances was well nigh superfluous. This is especially so when one considers the other security measures in place at the time: the insured had a security contract with a proven security firm under which there was a continuous security presence on the site, with the security hut located approximately five hundred yards from the house. Two security men were on duty during the day and three at night at the relevant time, with patrols of the site taking place every two to three hours. In determining what a prudent insurer would have done, the relevant time to assess prudence is the time the contract was made, not subsequently with the benefit of hindsight. Mr. Buckley, the expert retained on behalf of the plaintiff, gave evidence that in his fifty years experience he never saw an underwriter in a Fire Only policy for unoccupied premises, require that an insured should install a burglar alarm. Mr. Barry, the expert called by the defendants, on the other hand, maintained that he had seen such a requirement in force “on several occasions”. Although it may be understandable that, when pressed, he could not give any specific example, the fact remained that “several occasions” would suggest that it was not done in the majority of cases. In this “battle of the experts”, it is appropriate to note that Royal and SunAlliance, the existing insurer, which had surveyed the property at the relevant time, by insisting on an unoccupancy warranty, which required that all services including the electricity supply to the building be disconnected, was clearly of the view that this option reduced the risk of fire even though it rendered the alarm ineffective. The Royal and SunAlliance in not insisting on the continued use of the burglar alarm, obviously formed the view that the greater danger from fire in the circumstances, came from the electricity supply. Of course, it can be argued as Mr. Barry did, that both approaches are reasonable and the preference made by Royal and SunAlliance, does not mean that the viewpoint followed by AIG was unreasonable. This argument has more force when advanced as an abstract proposition. When one examines it in the context of the facts of this case, however, because the requirement that the burglar alarm be operational, on the one hand, and the unoccupancy warranty (requiring the electricity supply to be discontinued) on the other, are mutually exclusive, one must conclude that the reasonably prudent insurer would in this case insist on an unoccupancy warranty. Mr. Buckley’s evidence indicates that, even if the insurer knew that the burglar alarm was out of commission, the underwriter would still have written the policy on the same terms. In his experience, the danger of fire in an unoccupied building was greater from the electricity supply than from unlawful intruders. The weakness of Mr. Barry’s attempt to establish the contrary by producing statistics entitled ‘Causes of Fires Attended by Fire Brigades in 2002’, from the Dublin Fire Authority was exposed in cross-examination and he was forced to admit this in his evidence. Finally, I accept the evidence of Mr. Buckley that it is highly unusual for an underwriter in such a case not to insert an unoccupancy warranty, in preference to a burglar alarm warranty. The Court was fortunate in this case to have evidence of what the existing insurer did, not what it would have done, when it learned that the house was unoccupied: it carried out a survey; it assessed the security position; it insisted on an unoccupancy warranty in preference to an alarm warranty and it trebled the premium. Clearly, it did not consider that the alarm was important. In taking this position one would have to conclude that it not only acted prudently, but its actions in assessing the risk give the Court a truer indicator as to what any prudent insurer fully familiar with all the facts would have done in the circumstances. Failure to disclose that the ground floor windows and doors had been blocked up Mr. Paul Conlon did not indicate to Mr. Russell of AIG that the ground floor windows and doors had been blocked up. In his letter of the 24th April, he indicated that there was steel shuttering on all windows and doors in the building. On the face of it, it is difficult to see how the bricking up or blocking up of the doors and windows would increase it as a fire risk or make the building less secure. It was for this reason that the plaintiffs altered the steel shuttering on the ground floor where there had been an attempt to force an entry. Mr. Russell accepted that bricking up might make access more difficult but he felt it might compromise the alarm and for this reason he felt it was significant. Mr. O’Hare, another expert of the defendants, also accepted that the bricking up afforded an additional level of security, but he felt that there was a potential problem with the single storey extension to the house. I am clear from the evidence that the blocking up of the doors and windows on the ground floor improved the security of the building and cannot for that reason be considered to be a material non-disclosure. Furthermore, I am satisfied that the non-disclosure was an innocent one. Paul Kelly of Manor Park thought he conveyed the information to the brokers but he could not be certain. Mr. Colgan, on the other hand, was of the view that he faithfully recorded the information given to him by Mr. Kelly. Mr. Russell’s suggestion that the blocking up might increase the risk was based on the assumption that the alarm could not be operational which as I have already found was erroneous. Finally, when Mr. Russell was making notes of a phone conversation he had with Mr. Colgan, on the 30th of April, 2002, and when completing an internal document entitled ‘Underwriters Risk Classification Form’, on the same day, he noted that the house was “Fully Boarded up” and “Boarded up”. From this it can be deduced that, for him, the material used in securing the property was not as important and certainly not as relevant as the fact that the house was secure. Reinstatement Mr. Martin Barry, the defendant’s expert, gave evidence that reinstatement would be abnormal and would only be given if specifically sought by the broker. The standard policy, however, put forward by the insurers as containing normal conditions that prevail in such contracts generally, does not support that. The relevant clause states:-
Two other points are significant. Paragraph 32 of the defence says:- “Further, or in the alternative, Ongar House has since been demolished by the plaintiff and, in the circumstances, the plaintiff is not entitled to reinstatement costs or costs of repairs as claimed, but is limited to the cost of demolition and all associated costs.” It would seem from this that the defendants were denying reinstatement or indemnity and were suggesting that its obligation was confined to a third basis for liability: the cost of demolition only. Of significance too is the fire report sent on the 24th September, 2002, to the New York office of AIG, wherein it was clearly stated that the basis of cover was “reinstatement”. This was a document emanating from the Claims Department of AIG in Ireland and was copied to ten other people in the organisation. No one in the organisation ever contradicted that description of the basis of liability. The evidence of Mr. Russell, for the defendants, on this issue was that the Claims Department used this terminology in error and they would not be au fait with the underwriting practices which were controlled by the Underwriting Department. At the very least this shows that there was no unanimity within the organisation as to what the basis of cover was in this policy. Given that there was a cap of €1,015,000 on the happening of the insured event, I do not believe that the insurers paid much attention to the basis of recovery at the time of entering the contract, as it was clear from the evidence that the basis for calculating the premium was the maximum payout, not anything else. Mr. John Barry, Mr. Colgan’s superior in Coyle Hamilton, also gave evidence as did Mr. Colgan himself, that because it was a listed building, the basis for liability would have to be reinstatement. Any other basis, such as market value, insofar as it would not provide indemnity, would have to be brought to Mr. Barry’s attention, and to the attention of the client if it was to apply. This was not done and was never even contemplated by the personnel in Coyle Hamilton. I conclude from this that even if the standard policy does not form the basis of the contract in this case, as I have found, it does indicate that Mr. Barry’s (the expert brought forward by the defendants) understanding on this issue does not conform to the position prevailing at AIG in its “standard fire policy” at that time. Taken with the fact that it was a listed building which would have to be reinstated if destroyed, a fact fully appreciated by the insurer, and that the maximum exposure for the insurer in any event was €1,015,000, I have little hesitation in concluding that the basis of indemnity in this case was indeed reinstatement. Uberrimae Fidei The principle of uberrimae fidei, which applies to all insurance contracts, imposes a heavy onus of disclosure on the insured. Without this obligation to divulge information frequently available only to the insured, the insurer would have great difficulty in assessing the risk or in calculating the premium. This does not, however, mean that the insurer can cover its eyes or abstain from making normal inquiries or investigations, in the expectation that, in the event of the risk materialising, it can point to the insured’s omission and repudiate the contract. The insured’s duty is balanced by a reciprocal duty on the insurer to make its own reasonable inquiries, to carry out all prudent investigations and to act at all times in a professional manner. In fact the onus to do this, because of its experience and expertise, lies primarily on the insurer. The law is willing to assist this process by obliging the insured to volunteer information not easily available to the underwriter and which is material to the risk. The uberrimae fidei principle applies with the greatest force to situations where the relevant facts are peculiarly within the knowledge of the insured and are not easily available to the underwriter. Where, however, the full extent of the risk can readily be defined without the insured’s participation, the law does not insist on full disclosure. That is why the authorities do not recognise any responsibility in this regard in over- the-counter or slot-machine policies such as travel policies sold at airports. Where the insurer has full access to the property to be insured, as in this case, so that it can easily measure the risk for itself, it cannot refrain from such reasonable inquiries as a prudent insurer would make to assess the risk and calculate the premium and hope to profit from the insured’s lack of skill or his honest mistake. Properly understood, the principle contains an equitable element which will be informed by the facts of each case. In taking this position, the law is not being harsh and unreasonable on the insurer, who at the end of the day can easily secure its legal and commercial position by drafting appropriate conditions and warranties and inserting them into the contract if it so desires. If it chooses not to do so, however, it cannot expect too much sympathy from the courts for not adhering to prudent and professional business practices in assessing the risk for itself. In this connection it has been well said, in Eggers, Picken and Foss, Good Faith and Insurance Contracts, 2nd Ed.,(London, 2004) at p.291, that :-
To briefly recall the insurer’s knowledge and belief when it entered the contract in this case on the 3rd May, 2002, is instructive. The broker had sent on his description of the risk by fax on the 24th April, 2002. This reads as follows:-
Up to recently the building has been used by our client as offices. Because it is now vacant and is a listed building, the client has installed steel shuttering on all windows and doors. An alarm system is in place but is not linked to a central station. In the event of the alarm going off the twenty four hour security service on the building site would by (sic) alerted. The security service would carry out periodic checks on the building during the night. The sums insured are as follows: Buildings: €1,015,000 Contents: €20,000” The broker sent the insurer the “survey” from the Royal and SunAlliance on the 30th April, 2002. The insurer also knew that the insured was by this time shopping around, that the risk was not an attractive one in the market, that several other insurers were not willing to cover the risk and that renewal with Royal and SunAlliance was not inevitable. On these mere facts the insurer quoted for the risk at a premium 40% less than the renewal premium quoted by Royal and SunAlliance, the existing insurers. Moreover, it did so without imposing any specific conditions or warranties and wrote the cover by virtue of a one word e-mail dated the 3rd May, 2002. It did not subsequently confirm cover in writing, nor did it issue any cover note. No policy was ever issued to the plaintiff. It did all of this without bothering to carry out its own survey of the property. This procedure was criticised by Mr. Buckley, the expert called by the plaintiffs, who described the insurer’s casual approach as being “very unusual” and “totally abnormal”. In Mr. Buckley’s opinion the insurer should have sought much more information about the property and about the alarm system in place if he thought it was relevant. Even the defendant’s own expert, Mr. Martin Barry, with some restraint, conceded that the follow up documentation issued by the insurer, in his opinion, “probably left something to be desired”. In my view, the insurer did not act as a reasonably prudent insurer should have done in inquiring into the risk, in assessing the facts on the ground and in quoting the premium. The absence of the normal follow up documentation meant that the insured’s reasonable expectations conflicted with what the insurer subsequently alleged were its requirements. The defendant’s careless approach is to be contrasted with the approach of Royal and SunAlliance, the existing insurers, when it learned that the building was vacant at renewal time. It had the property surveyed again, it introduced a non-occupation warranty and it increased the premium to €10,000. This clearly was a more careful response and what one might expect of a reasonably prudent insurer in the same circumstances. The conduct of the defendant by contrast falls well short of that standard in this case. The real reason for this casual approach is to be found in the motivation of Mr. Russell, the underwriter for the defendant at that time. In a document recording the transaction for internal use discovered by the defendants, Mr. Russell noted that the reason for underwriting the risk was done “as a favour” for the broker. This notation was made on the morning when Mr. Russell got notice of the fire. It was not prompted by any enquiry and it was made for the benefit of the Claims Department. It read as follows:-
It may also be true that the plaintiff was not well served by his broker in these negotiations, but this is not something which this Court is concerned with. Moreover, there is no evidence before the Court that the brokers were privy to the ulterior motive which was behind the defendant's decision to do business. One must remember also that in this transaction the broker, as the agent of the insured had also fiduciary duties to his principal and, in adopting the approach it did, the insurer was perhaps compromising the broker in this regard also. I find as a fact that Mr. Russell’s dominant, if not sole, purpose in offering cover to Mr. Paul Colgan, of Coyle Hamilton, for the House at such a favourable rate, was to acknowledge a business interest and to cultivate the relationship between a substantial brokering house and the underwriters which would, hopefully, result in more business for the insurer in the future. Scant consideration was given by the insurer to the interests of the insured or the effect that the casual procedures adopted would have on the insured’s interest. The insured is entitled to expect that proper business-like procedures would be adopted by the insurer in considering his application. Had the insurer adhered to more orthodox and regular procedures and standards when he decided to quote, it would surely have caused Ongar House to be inspected and surveyed; it would have noticed the blocking up measures and the steel shutters; it would have inquired about the alarm system in place if it considered it important and would have established that it was operational; it would have considered including an appropriate warranty: an “un-occupancy warranty”, if it deemed that it was appropriate to disconnect all the services, or an alarm warranty if it thought that the maintenance of the alarm in operational mode was relevant and important. It did not do what a reasonable prudent insurer should have done. It departed from this standard for its own business advantage, which at the end of the day, meant a betrayal of its duty of good faith and fair dealing with the insured. The actions of the Royal and SunAlliance more approximated to what the circumstances required in that event. In failing to inspect or establish these facts, the insurer was unfairly leading the insured into a false sense of security. In the vacuum it was not surprising that the insured concluded, reasonably in my view, that the requirements being imposed by the Royal and SunAlliance for renewal were making the property safer and were in no way increasing the risk. It is understandable too, that the insured did not advert to the consequences that disconnecting the electrical supply would have on the alarm system. This uncertainty could readily have been cleared up if the defendant followed up by issuing the normal documentation, specifying the conditions and warranties and issuing the policy documents in a timely fashion. On receipt of such documentation, the insured would be on full notice of what the insurer required of it, and in particular, what was the insurer’s requirement in relation to the alarm. In the normal course of events, the insured would then have full appreciation of his contractual obligations long before the fire occurred in September, 2002, and would have had a full opportunity of considering his position and discussing it with his broker. Failure to issue any sort of documentation robbed him of this chance. In these circumstances I hold that the insurer departed from good business practices and was in breach of its duty of uberrimae fidei in failing to adequately inform itself of the facts and in failing, for improper reasons, to deal fairly with the insured or consider his interests. In Kreglinger and Fernau Ltd v. Irish National Insurance Co., Ltd [1956] I.R. 116 at pp. 151 to 152, Davitt P., made the following statement of general relevance to our case:-
In AMP Financial Planning PTY Ltd v. CGU Insurance Ltd [2005] FCAFC 185, the Federal Court of Australia held at paras. 89 to 91:-
… Putting it another way, acting with utmost good faith involves more than merely acting honestly: Otherwise, the word utmost would have no effect. Failure to make a timely decision to accept or reject a claim by an insured for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith, even if the failure results not from an attempt to achieve an ulterior purpose but results merely from a failure to proceed reasonably promptly when all relevant material is at hand, sufficient to enable a decision on the claim to be made and communicated to the insured” Conclusion For the above reasons I find for the plaintiff and order that the defendant pay the plaintiffs the sum of €1,015,000 on foot of the policy. |
