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High Court ruling confirms importance of full disclosure

A recent High Court decision involving two Hungarian nationals who had been trafficked to the UK confirmed that an insurer was entitled to avoid an employer’s insurance policy for non-disclosure and misrepresentation.

In Komives v Hick Lane Bedding Limited and AmTrust Europe Limited [2021] EWHC 3139, the High Court was asked to consider whether an insurer could be liable for an employers’ liability claim where an insurance policy had been avoided when written without the full facts from the insured.

The ruling was based on the view that a contract of insurance obliges the insured to make full disclosure of all matters material to the risk which is to be covered. If it becomes clear that material aspects of the risk were misrepresented, then insurers may have a right to avoid the policy.

This ruling also highlighted the plight of people trafficked to the UK with the two Hungarian nationals having worked for the First Defendant, Hick Lane Bedding Limited (“the Company”), in conditions of modern slavery. Both Claimants suffered psychiatric injuries, and one of them had also suffered a severe accident at work which resulted in the lower part of a leg being amputated.

The Company went into administration in 2015 and its managing director was sentenced to prison for conspiracy to traffic individuals into the UK with intent to exploit them.

The Claimants issued proceedings for their injuries against both the Company and the Second Defendant, AmTrust, the Company’s liability insurer at the time. AmTrust responded by avoiding the policy.

The claimants argued that rule 8.1.1 of the Insurance Conduct of Business Sourcebook (ICOBS), forced insurers to accept claims from innocent employees.

AmTrust had written the Company’s EL policy based on a positive survey of the Company’s working practices it had been given.

The Claimants’ Counsel challenged AmTrust’s avoidance arguing by writing the policy based on relatively scant information, AmTrust had turned a blind eye to the possibility of the Company’s criminal conduct. It was also argued the Employers’ Liability (Compulsory Insurance) Acts of 1969 and 1998, was designed to protect employees like the claimants.

 

The Claimants’ underwriting expert gave evidence that, as a matter of “market practice,” AmTrust should have paid the claims. However, the Court rejected these submissions.

 

W Denis Insurance Brokers plc has been placing Employer’s Liability insurance cover for over 50 years. Please contact Dan Moss at daniel.moss@wdenis.co.uk or on 0044 (0)113 2439812 if you would like to discuss Employers’ Liability insurance or any other form of commercial insurance.

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