17 Mar 2014

Non-Disclosure - A need to stir the hornets' nest

In the placement of an insurance policy, your broker reminds you of the need to inform them of any material change / fact that could affect the policy. This is relatively straight forward in the case of car insurance but for property this can be rather onerous and unclear. This was highlighted in a recent case of Jones V Environcom which I will go in to a little more detail but first we need to clarify what a Material Change or Fact is.  

Simply it is something likely to influence acceptance or assessment of the risk by an insurer. This can include changes in occupation, use, construction method, building work or claims history to name but a few. If something has changed or occurred since the insurance was placed, you need to tell your insurance broker.

Environcom recycled fridges typically using screwdrivers and spanners to remove the compressors in order to extract the CFC or Pentane. Occasionally they used a plasma cutter if bolts were proving to be stubborn. Pentane is flammable and consequently there were a string of small fires where some were claimed against and others weren’t. For the fires where claims were not submitted they were not disclosed to the insurer at renewal.

In 2007 a major fire occurred and the insurer denied cover stating the policy was invalidated as a result of use of the plasma cutter and the fact that a number of historic fires had not been disclosed. In other words Environcom had not disclosed material facts that would have influenced the underwriter’s decision process when renewing the insurance policy. A settlement was finally reached in 2009, two years after the fire…….

However obvious or immaterial you should make your insurance broker aware of anything you believe could be considered a material fact. Don’t just assume the broker knows your business. In this instance the original insurance proposal described the business as recycling white goods. No details of the actual processes were sought or given and at each renewal the broker highlighted the need to disclose anything which may affect the underwriter’s attitude.

The final judgment placed particular emphasis on making sure the insured understand the importance of material disclosure. This impart is the brokers responsibility and therefore should you have any questions, do not hesitate to contact them.