The recent decision of Mr Justice Coulson in Mutual Energy Ltd v Starr Underwriting Agents Ltd and Travellers Syndicate Management Ltd considered the meaning of the word “deliberate” in the context of exclusion clauses contained within an insurance contract, and has provided some useful guidance as to the Court’s interpretation of the term.
The Claimant owned and operated an undersea interconnector, which provided a link between the electricity systems of Northern Ireland and Scotland. The Defendants were two of five insurers providing insurance in respect of the interconnector, in return for a premium.
The policy provided, at Clause 5, an acknowledgment from insurers that they had received adequate information in order to evaluate the risk, on the assumption that such information was not materially misleading.
The policy further provided, at Clause 6, an agreement from insurers not to terminate, repudiate, rescind or avoid the insurance on the grounds of inadequate disclosure or misrepresentation, unless deliberate or fraudulent non-disclosure or misrepresentation by the insured was established.
In September 2010 there was a cable failure which led to the renegotiation of the policy for the following year, and further sums being paid in respect of the premium. There were two subsequent and separate failures in 2011 which led to a loss of power flow and resulted in insurance claims. Three insurers under the policy agreed to compromise the claims made by the Claimant, except the two Defendants who alleged that there had been deliberate non-disclosure on the part of the Claimant, and they were therefore entitled to avoid the policy.
The Defendants relied on certain problems relating to the cables which were identified during the construction and commissioning phase, and which they claimed indicated that the cables were poorly designed. The insurers also alleged that at least one individual employed by the Claimant (or its agent) was aware that the such information was not being disclosed to insurers, but that individual held the honest but mistaken belief that it need not be disclosed.
It should be noted that the initial problems identified within the cabling appeared to have been rectified, the interconnector having worked satisfactorily for 8 years before the policy came into effect.
The issue to be decided was therefore whether the reference in the policy to “deliberate… non-disclosure” meant that the contract could be avoided in circumstances where the Claimant had honestly but mistakenly decided not to disclose a particular document or fact (which was the Defendants’ case); or whether it meant that avoidance was only available if there had been a deliberate decision not to disclose a particular document or fact which the Claimant knew was material, such that its non-disclosure involved an element of dishonesty and/or a conscious decision (as was the Claimant’s case).
In consideration of the natural meaning of the words, together with the contractual context, and with a view to general business common sense, Mr Justice Coulson concluded that the Claimant’s interpretation of the clause was to be preferred over the interpretation advanced by insurers.
In particular, Mr Justice Coulson considered the Oxford English Dictionary definition of “deliberate”, being “carefully thought out, studied, intentional, done on purpose” and, with that in mind, he held that the expression suggested an intentional failure to disclose something to the insurer which the insured knew ought to be disclosed (i.e. that the person knew what he was doing was wrong).
Insurers argued that because the clause referred to “deliberate or fraudulent non-disclosure” the two must have different meanings but although Mr Justice Coulson was not convinced that “deliberate” and “fraudulent” necessarily meant the same thing. He was of the view that conduct could be deliberate and dishonest, but not fraudulent if there is no intention to decieve. He concluded that “deliberate or fraudulent non-disclosure” means a deliberate decision not to disclose something which the insured knows should be disclosed, and does not extend to honest mistake.
Considering matters in a contractual context, Mr Justice Coulson noted insurers’ acknowledgement within the drafting that they had received adequate information in order to evaluate the risk of insurance (albeit on the express assumption that the material which they had been provided with was not materially misleading). Accordingly, and in Mr Justice Coulson’s view, there was no reference to any similar assumption in relation to additional information, thereby suggesting that, as far as insurers were concerned, they were agreed that no further information was required. Furthermore, given the wide range of the exclusions stated, which seemed to embrace every likely cause of action that might arise on the part of insurers, and every conceivable remedy, it would be difficult to see what would survive. Given that the clauses were designed to protect the insured against the normal consequences of non-disclosure or misrepresentation, Mr Justice Coulson concluded that any proviso to that wide-ranging exclusion clause should be given a restrictive interpretation.
Lastly, Mr Justice Coulson considered the issue of business common sense, noting that the Defendants’ interpretation would produce a result that would be the opposite of business common sense, namely by allowing insurers to avoid the policy for negligent non-disclosure, which they had expressly and contractually agreed not to do.
Accordingly, in order to satisfy the correct interpretation of deliberate or fraudulent, it seems that there is a requirement for some form of dishonesty (i.e. a deliberate decision must have been taken not to disclose something which the insured knew ought to have been disclosed). This interpretation may be looked upon with particular interest in light of the Insurance Act 2015, which entitles insurers to avoid a policy where the insured has acted deliberately (or recklessly) with reference to the duty of pre-contractual disclosure.
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