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First English Insurance Act judgment handed down

The Queen’s Bench Division (QBD) has handed down the first English Insurance Act judgment in a business interruption insurance (BI) and contractors' all risks (CAR) insurance coverage dispute between Berkshire Assets Limited and AXA Insurance UK PLC.

The Court had to rule if Berkshire had made a fair presentation pursuant to Section 3 of the Insurance Act 2015 (“IA”) and the judgement will be closely studied as the case highlight the importance of complying with the duty of fair presentation and the continued relevance of the pre-IA authorities on material circumstances.

AXA’s Practice Note was a key factor behind the Court’s conclusion that Berkshire’s failure to make a fair presentation had induced the writing of the risk. Berkshire was a joint venture vehicle, set up to facilitate the development of a multi-million residential complex, including a gym and cinema.

AXA insured Berkshire under CAR and BI policies and at policy inception, the Policyholder confirmed that none of its directors had “either personally or in any business capacity, been convicted of a criminal offence or charged (but not yet tried) with a criminal offence.”

In August 2019, criminal charges were filed in Malaysia against Michael Sherwood, one of the Policyholder’s directors. This was not disclosed to the Insurer when the policy was amended in August 2019, nor at policy renewal in November 2019.

In January 2020, the Policyholder notified the Insurer of a substantial water damage claim following an escape of water at the property development.

The Insurer declined cover in February 2020 when it discovered the Malaysian criminal charges, contending that the Policyholder’s failure to disclose them at renewal was a breach of the duty of fair presentation under section 3(1) IA 2015

After AXA reached its decision, the charges against Mr Sherwood were dropped, following a commercial settlement between Goldman Sachs and the Malaysian government.

The Court addressed two issues: Materiality - Was the fact that Mr Sherwood had been charged a material circumstance for the purposes of the duty of fair presentation? Inducement - If it was, and if it had been adequately disclosed, would AXA have agreed to insure Berkshire in respect of business interruption, or at all, under the renewed Policy?

The Court found that if these factors had been of concern to AXA, it would not have taken the steps it did on learning of the criminal charge. Berkshire argued that had the matter been disclosed, AXA would have investigated, discovered that Mr Sherwood had not been accused of dishonesty and not taken any further action. The court accepted Mr Sherwood had not been dishonest, however, it did not accept the argument.

The existence of an AXA Practice Note was crucial as it made clear that underwriting risks in circumstances where there were criminal allegations, was outside its underwriting strategy.

The Court also found that it was irrelevant that other underwriters were prepared to cover the risk despite knowing of the allegations as the policy types that they were willing to write were different from those under consideration in the present case.

This case shows that it is vitally important to ensure that businesses make full disclosure of everything material to ensure that a fair presentation of risk is made when insurance contracts are entered into as well as during the period of insurance.

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