England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		29th April 2005

Mrs Justice Gloster, DBE:

1. This is an application by the defendant, Tony McDonagh & Company Limited ("the Defendant"), pursuant to CPR Part 24(2)(a)(i) for summary judgment against Mr John Gaughan ("the Claimant") on the grounds that the claim has no real prospect of success and/or alternatively for an order under CPR Part 3.4(2)(a) for the claim to be struck out on the grounds that the Claimant has no reasonable grounds for bringing the claim.
2. For present purposes, the facts may be summarised by reference to the proposed Amended Particulars of Claim dated 14 April 2005 which allege the following:

"1. The Claimant is the proprietor of a hotel business known as the Newbury Hotel and situated at 75 Norfolk Road, Cliftonville, Margate, Kent (["the Hotel])".

2. The Defendant is, or was at the material time, an insurance broker trading from premises at 495 Greens Lane London N13 4BS.

3. In or about April 1998, the Defendant sought to obtain for the Claimant and on his instruction a policy of insurance in respect of the property, such policy to include cover against damage by the usual risks including fire.

4 In placing the said insurance the Defendant owed the Claimant a tortious and/or contractual duty of care:

4.1 accurately to communicate to the insurer all information which was known to the Defendant and which was (or might have been regarded by a reasonably prudent underwriter as) relevant to the risk;

4.2 to discover from the Claimant any such information which was not known to it;

4.2A to rectify any earlier non-disclosure of such matters of which it was or ought to have been aware;

4.3 to take such steps as were reasonable to ensure that the Claimant was not under-insured, such steps including advising the Claimant that the correct basis for valuation of the property was on a reinstatement basis and/or verifying that the values given by the Claimant were calculated on that basis;

4.3A to ensure that the Defendant obtained a valid policy of insurance;

4.4 to exercise reasonable care and skill.

4A. For the purposes of paragraph 4 above, placement of insurance was not complete until such time as Insurers were in possession of all material information required by them to assess the risk.

4B. Alternatively, the Defendant was subject to the same duties as are referred to in paragraph 4 on each and every occasion subsequent to the placement of the insurance when it purported, on the Claimant's behalf, to convey information about the risk which was or might properly have been regarded as material.

5. In the course of giving the instruction to the Defendant so to act, the Claimant had informed the Defendant that:

5.1 the hotel catered mainly for persons otherwise homeless who were being housed by the local authority with board and lodging being paid by the Department of Social Security;

5.2 the hotel's clientele covered a full range of ages from 16 - 60;

5.3 the value of the premises were it to be sold on the open market would be £200,000.

5A. In or about April 1998, General Accident Fire and Life Assurance Corporation PLC ("the insurer") issued a policy of insurance to the Claimant under policy number 22972245CRP. The policy covered a number of buildings in the Claimant's ownership and included cover for loss and damage caused by fire. The property was not initially contained within the schedule to the policy, but it is understood by the Claimant that at some subsequent time the insurer confirmed that the policy would extend to the property in addition to the other buildings referred to in the schedule.

3. At this stage, the pleaded facts require some amplification. On or about 3 April 1998, the Defendant informed the Claimant that cover had been placed for the Hotel and that Insurers would need to carry out a survey of it. On 1 May 1998, the Claimant paid the total premium to the Defendant including a sum of £436.80 in respect of the Hotel and the latter duly accounted for the sum to Insurers. However, when the issued policy was received by the Defendant on or about 13 July 1998, it became apparent that the Hotel was not included on the schedule as one of the properties on risk. On 14 July 1998, the Defendant sent a fax to Insurers informing them that the Hotel ought to have been included in the policy and asking Insurers to forward an amended policy. Insurers wrote to the Defendant on 28 July 1998 stating that they could find no reference to the Hotel. Subsequently, on 30 July 1998, a Mr Mullins, employed by the Defendant, apparently spoke to Mr Coutts, an employee of Insurers, and gave him details of the Hotel. Thereafter, on 18 August a Mr Reilly at Insurers is recorded by the Defendant as having stated that "there would be no problem with covering the property". The Defendant chased the matter up further on 14 October 1998 by a fax complaining that it had still not received an amended schedule to the policy covering the Hotel. The fax stated that the Defendant had checked back through its file, that there was a note recording that the Hotel had been discussed with a Mr Monahan of Insurers on 3 April 1998 and that a total premium of £2,525 plus VAT (by implication including the Hotel) had been agreed at that date.
4. I return to the Amended Particulars of Claim, paragraph 6 of which reads as follows:

"On 11^th November 1998, the Defendant sent a fax to the Norwich Union insurance company which purported to relay to that company the information given to the Defendant by the Claimant."

5. I interpose to record that the fax dated 11 November stated that:

"The rooms are occupied by elderly tenants. The rent is paid for by the DSS. There are no cooking facilities in the rooms. There is a kitchen and a chef who cooks the meals."

6. The Amended Particulars of Claim go on to state as follows:

"6. … The sending of the said fax constituted part of the process of placing insurance, or alternatively constituted a subsequent communication which purported to convey information which was or might properly have been regarded as material, but in either event the Defendant was, in sending the said letter subject to the duties set out in paragraph 4 [of the Amended Particulars of Claim].

7. As appears from that fax, and in breach of the obligations referred to in paragraph 4 [of the Amended Particulars of Claim], the Defendant informed … General Accident:

7.1 that the rooms were occupied by elderly tenants (when as appears from paragraphs 5.1 and/or 5.2 [of the Amended Particulars of Claim], that was not the case); [i.e., they were occupied by homeless people of all ages]

7.2 that the Defendant sought buildings cover of £200,000.

…

8A. At some time unknown to the Claimant General Accident merged with Norwich Union and continued thereafter to trade as Norwich Union.

9. On or about 21^st November 1998 a fire broke out at the premises causing extensive damage. The costs of reinstatement are not yet settled but are thought to be in the region of £400,000.

10. Following that fire a claim was submitted to the Norwich Union under the terms of the above-mentioned policy.

11. On 20^th November 2000, the Norwich Union communicated to the Claimant that it was avoiding the policy ab initio on the basis that the information in the fax of 11^th November 1998 was false in the respects set out in paragraph 7.1 hereof."

7. The material parts of the letter were in the following terms:

"As you are not doubt aware from your brokers, CGU Insurance have been investigating the circumstances of this fire under a reservation of rights. As a result of our enquiries, it has become clear that this risk was misrepresented to us at the time it was written and which, in any event, was only written subject to us obtaining a satisfactory survey of the premises.

The information we were sent by your brokers by fax on 11^th November 1998 stated that the premises were a three storey 32 bedroom hotel built in approximately 1910. The fax stated that the rooms were occupied by elderly tenants; the rent was paid by the DSS; there were no cooking facilities in the rooms but there was a kitchen and a chef cooked the meals.

No survey of the premises had been carried out by us between receipt of the above fax from your brokers and the fire on 21^st November 1998. However, the loss adjusters instructed to investigate the fire on our behalf discovered that the hotel was in fact used as a hostel for homeless people and asylum seekers.

Had this information been provided to underwriters at the time this risk was presented, it would not have been accepted and no cover would have been granted. Accordingly, the policy is avoided ab initio."

8. I return to the Amended Particulars of Claim which went on to plead as follows:

"12. It follows that, as a result of the Defendant's breach of duty, the Claimant has suffered loss and damage in that it has lost the benefit of an otherwise valid policy of insurance. Further or alternatively, if (in the event that the Defendant had accurately imparted to General Accident the information given to it by the Claimant) General Accident would not have accepted the risk, the Claimant has lost the opportunity to place valid insurance with some other insurer.

13. It is the Claimant's primary case that, had the Defendant not breached its duty of care in the respects set out herein, the Claimant would have enjoyed the benefit of complete cover, and its claim must therefore be valued at the full costs of reinstatement of the property.

14. If contrary to the Claimant's case the Defendant did not breach its duty as regards the level of insurance which was sought, the Claimant will assert that as a result of the false presentation of the risk the Claimant has lost such a proportion of its claim as may be found to correspond to the proportion by which the stated value of £200,000 fell short of the full reinstatement value of the property."

9. Mr Gavin Hamilton appeared on behalf of the Defendant and his submissions were as follows. First, he relies on a limitation defence, the claim form having been issued on 7 October 2004. He submitted that, since the Claimant's pleaded case is, in effect, that the policy was issued in or about April 1998 (or, that, at the latest, the insurance cover for the Hotel incepted in July/August 1998 when Insurers agreed that the Hotel was on risk) a limitation defence is available. This is on the grounds that the general rule, in claims for damages for negligence against insurance brokers, is that the insured's cause of action accrues when the insurance is placed. That is based on the proposition that, at that date, the insured acquires an asset of less value than he intends to acquire: see Jackson & Powell on Professional Negligence (5^th Edition) at paragraphs 5-046 and 5-047, citing Islander Trucking Limited -v- Hogg Robinson [1998] 1 All ER 826 (QB), Knapp -v- Ecclesiastical Insurance Group plc [1998] PNLR 172 (CA) and Nykredit Mortgage Bank plc -v- Edward Erdman Group Limited [1997] 1 WLR 1627 (HL) at 1634.
10. I am not satisfied for the purposes of CPR Part 24 and Part 3 that the principle set out in those cases is applicable. It appears to me to be highly arguable that Knapp, and the other cases which preceded it, are, as Mr Andrew Butler for the Claimant submitted, readily distinguishable on their facts from the present case. Those were cases where, for practical purposes, the breach of duty had had occurred at the time of inception or renewal of the policy. In Knapp there was no allegation of any breach of a continuing duty. Here, on the other hand, the first, and indeed only, breach of duty relied upon is alleged to have occurred on 11 November 1998 when the alleged misrepresentations about the nature of the Hotel's occupancy were given. The original breach by the Defendant here (if there was one), i.e. the breach in not ensuring that the Hotel was included in the schedule to the policy from inception in April 1998, as one of the properties on risk, was remedied in July/August 1998. In any event that breach is not relied upon by the Claimant.
11. The alleged breach of mis-describing the occupancy of the Hotel was an entirely different breach of an entirely different nature and was allegedly committed for the first time by the fax of 11 November. Prior to that date Insurers had no idea about the nature of the occupation and they were only misinformed as a result of what was said in that fax. Clearly, on that date, the Defendant was under an obligation to report accurately what it had been told by the Claimant. It cannot be said that, as broker, the Defendant was in any sense functus officio or was discharged from any continuing obligation at that stage. Thus, the facts are very different from Knapp, or from Bell -v- Peter Browne [1990] 1 QB 495 upon which Mr Hamilton also relied. Accordingly, I reject Mr Hamilton's submissions in relation to the limitation point. It seems to me that the Claimant does indeed have a reasonable prospect of success in relation to that issue. For similar reasons neither is the claim susceptible to strike out on the basis of limitation arguments.
12. The Defendant's second submission is that the evidence available establishes that, if the Defendant had not sent the fax of 11 November 1998, Insurers would have avoided this policy in any event because of non-disclosure of the material facts that: (a) other insurers had declined to insure the Hotel unless certain works were carried out; (b) asylum seekers had been accommodated at the Hotel; and (c) the placing of asylum seekers at the Hotel had been terminated by reason of concerns about the safety of the Hotel. Accordingly, Mr Hamilton submits that the claim must fail because the Claimant will not be able to establish a causal link between the alleged breach by the Defendant and the invalidity of the insurance. The Defendant contends that the policy in relation to the Hotel, from the moment of its inception (whether in April, June/July or November 1998), is susceptible to being avoided by Insurers for non-disclosure of the nature of the occupation and condition of the Hotel.
13. In particular, Mr Hamilton relies on the following:

i) It is submitted that the history of the Claimant's insurance with its previous insurers, Saxon, is relevant to the likely attitude of Insurers following a survey of the hotel. Saxon required work to be done. It is not clear on the evidence whether the Claimant complied with those requirements. There is no documentation to show that he did, although Saxon do appear to have remained on risk for a time.

ii) It was inevitable that a survey would be carried out for Insurers. Such a survey would be bound to have disclosed the true position with regard to the inadequacy of the fire precautions, as in fact revealed by the surveys after the fire - see the loss adjusters' report of 15 December 1998. In summary these were that works costing around £60,000 were required - although plainly this included work other than fire prevention.

iii) The policy issued by General Accident was a residential property owner policy. Insurers' reservation about including a property of this type on such a policy is apparent from the file note dated 11 November 1998 (which led to the fax from the Defendant of that date). Reliance was also placed on the report from the loss adjusters dated 15 December 1998.

iv) There is no dispute that asylum seekers were accommodated. There is an issue as to why their occupation was terminated. The Claimant alleges that it was because he was not paid the rent. The Defendant's evidence is that it was a direct result of concerns about the state of the Hotel.

14. In my judgment, the Defendant is not entitled to judgment or to strike-out relief on these grounds either. Having carefully considered the evidence relied upon, I am satisfied that, whatever the loss adjusters might now be saying, there are real evidential disputes as to the condition of the Hotel, why asylum seekers stopped going there, and as to whether, and if so, on what grounds, Insurers would have avoided, or have been have been able to avoid, the policy in any event, even if they had been told of the true nature of the Hotel's occupation. In particular, the evidence shows that the kind of occupation which Insurers say would have entitled them to avoid was that of homeless people generally, not asylum seekers specifically. But the fact is that the Hotel's occupation by homeless people is precisely what it is alleged was not disclosed to Insurers by the Defendant. As to the remaining issues, these are factual disputes which cannot possibly be resolved on a Part 24 application - particularly whether, in any event, Insurers would have avoided the policy by reason of the other matters alleged and whether the Claimant is entitled to run its alternative case that it lost the opportunity to obtain cover elsewhere by reason of the fact that the full picture was not presented to Insurers.
15. Accordingly, both applications are dismissed. I am grateful to both counsel for their helpful written and oral submissions.