Berkshire Assets (West London) Limited v AXA Insurance UK PLC [2021] EWHC

This UK court has confirmed that a failure to disclose a moral hazard (charges of fraudulent conduct which were later dropped) was a breach of the duty of fair presentation for the purpose of the UK Insurance Act 2015.

The Claimant (BAWL) sought to recover an indemnity from its insurers under a Contractors All Risks (CAR) and a Business Interruption (BI) policy. The insurers, AXA Insurance UK PLC (AXA), denied liability on the basis that BAWL had failed to disclose a material circumstance in respect of a moral hazard and had therefore failed to make a fair presentation of the risk as required under the Insurance Act 2015.

BAWL was a property development joint venture which sought CAR cover for a new development in 2018. In early 2019 brokers requested to extend coverage to BI. A renewal was sought and cover incepted in November 2019. The renewal documentation for the BI cover included a term requiring that BAWL make a fair presentation of the risk to be insured.

One of the directors of BAWL, Mr Sherwood, was charged in August 2019 in relation to a scheme to defraud the Malaysian Government. (Charges were later dropped.) 

In January 2020, there was an escape of water discovered through a sprinkler pipe at the development site. A substantial amount of damage was caused to the site. BAWL claimed for damages under its insurance policies with AXA. Shortly after submitting a claim, BAWL’s brokers advised AXA about the fraud charges against Mr Sherwood.

The dispute

AXA argued that the failure to disclose the charges amounted to a breach of the duty to make a fair presentation (as required under section 3(1) of the Insurance Act 2015). The charges amounted to a “material circumstance” under the Insurance Act 2015. Furthermore, had the charges been disclosed, AXA would have declined to renew the CAR cover and would not have entered into the BI policy. 

Counsel for AXA submitted that the principles relevant to determining whether there was a material circumstance were well established. The court heard various authorities on moral hazard that amounted to material circumstances, including circumstances where the insured was under investigation for offences (even if later acquitted). A prudent insurer would want to know about such charges as it would raise doubts about the risk. Citing Brotherton v Aseguradora Colseguros (No. 2) [2003] EWCA Civ 705: “When accepting a risk underwriters are properly influenced not merely by facts which, with hindsight, can be shown to have actually affected the risk but with facts that raise doubts about the risk”.

The decision

The court had to answer two questions. 

1. Whether the charges amounted to a material circumstance. BAWL had argued that as the criminal charges did not cover dishonesty there was no duty to disclose. Expert evidence given at the trial submitted that the charges would be treated as a material circumstance and should have been disclosed. The judge agreed. The failure to disclose the charges did amount to a material circumstance, even if they were later dropped. Failure to disclose amounted to a breach of the duty to make a fair presentation of the risk.
2. Whether the non-disclosure had induced AXA to enter into the contract. BAWL argued that the non-disclosure made no difference to whether or not the insurer entered into the contract. The judge again found in favour of AXA. It was clear from AXA’s internal policies, submitted as evidence, that the risk would not have been written had AXA known about the charges.

Comment

The case confirms the continuing authority of case law on the nature of “moral hazard” prior to the Insurance Act 2015. It also shows how the court will consider what the insurer would have done had they had knowledge of the material circumstance – the element of retrospective underwriting introduced by the Insurance Act 2015. The court relied upon evidence from witnesses and copies of AXA’s internal underwriting policies to reach its decision.