John Meredith-Hardy acts for successful insurer in claim for property damage, following fires at a care home.

Tynefield Care Ltd & six other Claimants v New India Assurance Ltd.

John Meredith-Hardy recently acted for the successful insurer in a claim for an indemnity for property damage following fires at a care home. John was instructed by Keoghs LLP who represented the insurer, New India.

After a trial lasting five days in the Business & Property Courts in Birmingham before HHJ Rawlings sitting as a High Court Judge the claims of seven insured for an indemnity and declarations were dismissed and the Claimants’ policies avoided from inception for a breach of the duty of utmost good faith (2013 to 2016) and breach of the duty of fair presentation (2017 to 2019).

The claims arose from fires at a care home operated by Tynefield Care Ltd. When New India investigated the fires it was discovered that one of Tynefield’s directors (Mr Khosla) had an insolvency history that had New India known of it, it would not have provided coverage and consequently an indemnity for the fires was refused and the policy avoided.

New India also avoided the policies for prior policy years during which Mr Khosla was a de jure director from 2017, and in the years before that and from inception in 2013 as Mr Khosla was a de facto and shadow director of Tynefield throughout this period. Mr Khosla’s de facto and shadow directorship of Tynefield (and five of the other insured) was admitted by the Claimants. Mr Khosla had ceased to be a de jure director of Tynefield in 2011 on accountant’s advice because his insolvency history may have had to be disclosed to, inter alia, banks when seeking finance. It was denied by Mr Khosla that this was to avoid disclosure to insurers but it was found nonetheless by the Judge that Mr Khosla believed disclosure was limited to 10 years post the insolvency event.

The Claimants alleged that due to the age of the insolvency history (2006 to 2008) that it was not material at the time of the fires (2019), at inception (2013) and renewal (2014 to 2018). Having heard underwriting expert evidence from Stephen Coates (who was also the insurer’s expert in Berkshire Assets (West London) Ltd v Axa Assurance UK PLC [2021] EWHC 2689), the Judge preferred the evidence of Mr Coates and found that Mr Khosla’s insolvency history was material at inception and renewal when Mr Kholsa was a de facto and shadow director (2013 to 2017) and at renewal once Mr Khosla was a de jure director whose directorship was notified to Companies House.

 

The Judge’s finding was inter alia:

“… the combination of Mr Khosla acting as shadow director of the First and Third – Sixth Claimants at inception of the First and Third – Sixth Claimants’ policies and his having previously been a de jure director of KFL which had gone into administration in 2006 (between 7 and 10 years prior to the inception of the First and Third – Sixth Claimants policies with the Defendant) raises two possible concerns (both of which are touched on in Mr Coates’ report): (i) as to why the First and Third – Sixth Claimants de jure directors were following the instructions of someone who is not a de jure director; and (ii) that Mr Khosla, the shadow director, was a de jure director of a company that went into Administration 7 – 10 years earlier, which was, on its facts an unremarkable insolvency. Whist I cannot say whether a prudent underwriter would, if asked to provide insurance for the first time, refuse to provide that insurance, or only agree to do so on more stringent terms than would otherwise be the case, because of those concerns, it seems to me clear that a prudent underwriter would, at least be influenced or affected by those concerns and would not simply disregard them entirely, in considering the insurance risk” (para 111(c)).

The Judge heard from New India’s Senior Underwriter for care homes and New India’s Technical Control Manager and the Judge found that had New India known of Mr Khosla’s insolvency history New India would not have incepted or renewed the policies. Although the Judge did not rely on this fact, New India’s policy of not incepting or renewing policies where there was a director’s insolvency history (either personal insolvency or having been a director of a company that became insolvent) is of longstanding and was the subject of the Court of Appeal’s decision in Doheny v New India Assurance Company Ltd [2004] EWCA Civ 1705.

The Judge’s finding satisfied the pre-2015 Insurance Act remedy for avoiding the policies from inception and on each renewal for a breach of the duty of utmost good faith, and satisfied the Insurance Act 2015 remedy for failing to disclose a material circumstance. The finding of the court was that Tynefield was not deliberate or reckless, but because New India would not have renewed on any terms New India was entitled to avoid.

New India avoided from inception and on renewal five other care home policies of which Mr Khosla was a director for the same reasons, and consequently each insured brought a claim for a declaration that New India was not entitled to do so. The Judge found that in relation to each policy New India was entitled to avoid due to Mr Khosla being a de facto and shadow director (to November 2017) and a de jure director (from November 2017) whose insolvency history was not disclosed at inception or on renewal.

The outcome was that Tynefield’s claim for an indemnity for fire damage, business interruption and increased insurance costs were dismissed and New India was entitled to a declaration that it was entitled to avoid the six policies from inception, and on renewal of each over the period 2013 to 2019, and return the premiums paid. The Claimants were ordered to pay New India’s costs.

The Judgment provides useful analysis of the issues arising from de facto and shadow directorship and its bearing on the disclosure obligations of insureds where those in actual control of a company have a material insolvency history. The issue arose in Niramax Group Ltd v Zurich Insurance Plc [2020] EWHC 535 but was not decided.

The case illustrates the importance of the disclosure of insolvency histories, an issue that has arisen in a number of post Insurance Act 2015 cases, see Young v Royal v Sun Alliance Plc, 2019 SLT 622 and Ristorante Limited T/A Bar Massimo v Zurich Insurance PLC [2021] EWHC 2538. As Doheny v New India Assurance Company Ltd [2004] EWCA Civ 1705 shows, however, these issues are not new and whilst the legal analysis may be different post Insurance Act 2015, and in particular with regard to remedy, the outcome is the same.

The case also emphasises the importance of underwriting experts addressing matters by reference to a reasonable underwriter and an objective test, and not addressing materiality by reference to subjective impressions: for this reason (amongst others) the Claimants’ underwriting expert evidence was rejected. There was a parallel in this respect with the treatment of the Claimant’s underwriting expert evidence in Berkshire Assets (West London) Ltd.

 

John Meredith-Hardy is regularly instructed on coverage, indemnity & related disputes (including the duty of fair presentation) by insurers, the insured and insurance brokers in relation to non-consumer and consumer insurance. His insurance work dovetails with his commercial and PI practices as insurance claims involve liability issues falling within these areas of expertise. For further information, please contact his Clerking Team.

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