ISSUE 9 MARCH 2009
TITLE NEWS
5 1 O a k w oo d A v e n u e , B o r e h a m w oo d WD 6 1 S S
Title & Covenant
Brokers Limited
D X 4 5 6 0 6 B o r e h a m w oo d T : 0 2 0 8 9 5 3 8 2 3 3
Invalidation of
insurance
a material alteration in the premises, or to a material
alteration in the facts stated on the proposal form. The
insured had pleaded ignorance of the circumstances
in which the system had been switched off and
sought to rely upon a non-invalidation clause in the
policy. This prevented invalidation of the policy in
Having paid for an insurance policy, the last thing one
cases where the insurance company had not being
would want to do is to invalidate it. The case of Ansari
informed of a change of circumstances, provided the
v New India Assurance Ltd [2009] EWCA Civ 93
insured was unaware of the act or neglect whereby
concerns a commercial property buildings insurance
the risk of destruction or damage had been increased.
policy which was invalidated by the actions of the
The Court of Appeal found that the switching off of
insured. However, the legal principles applied by the
the sprinkler system constituted a material change
court can easily be translated into any other insurance
in the facts supplied to the insurer, and was satisfied
policy, and the outcome of the case provides a salutary
that the insured had had sufficient knowledge of the
lesson for insured parties. Clients should be warned
circumstances. Hence, he could
of the dangers of allowing
not obtain the protection of the
circumstances to arise in which
“Clients
should
be
warned
non-invalidation clause.
an insurance policy might be
of the dangers of allowing
invalidated.
It is well-established that an
circumstances to arise in
insurance contract is subject to
In the Ansari case, the insured
which
an
insurance
policy
a duty of uberrima fides (utmost
owned commercial premises
good faith). When requesting
might be invalidated.”
which were badly damaged by
insurance, a proposer has a
fire. When seeking a buildings
positive duty to disclose to the
insurance policy, the insured had
insured all material facts known to him which would
replied positively on the proposal form to a question
affect the prudent insurer’s assessment of the risk.
asking whether the premises were protected by
This, of course, is relevant to any type of insurance
an automatic sprinkler system. However, when the
contract. Failure to disclose material matters renders
fire occurred, the sprinkler system had been turned
the insured in breach of the duty of good faith and
off. The court found that the insured had been fully
enables the insurer to avoid the policy. Hence, where
aware that his manager had switched off the system
applying for any form of insurance, an insured must
following a disconnection of the building’s water
answer all questions truthfully and must reveal
supply for non-payment of bills. The isolation valve
anything that may affect the decision-making of the
had been closed, and a filing cabinet had been placed
insurer.
against the control handle to prevent its being reopened. The policy contained a clause which stated
If you require advice on insuring freehold covenants
that the insurance would “cease to be in force if there
or other types of title issues for example village
is any material alteration to the Premises… or any
green and prescriptive rights to light please contact
material change in the facts stated in the Proposal
David Turschwell, (Solicitor), Director on:
Form or other facts supplied to the Insurer unless the
T: 020 8953 8233
Insurer agrees in writing to continue the insurance.”
M: 07720401916
The insurance company successfully argued that
E: [email protected]
switching off the sprinkler system amounted either to
Title & Covenant Brokers Limited is authorised and regulated by the Financial Services Authority
Invalidation of an insurance policy can come about
However, whilst the exceptions to disclosure will allow
in other ways. When obtaining insurance, the terms
a client to disclose the policy in the context of a sale
of the policy must always be inspected carefully. Any
by private treaty, great care should be taken where
risks of invalidation must be reported to the client.
the client is selling at auction. An auction room is full
For example, a title insurance policy may contain
of people who could not properly be described as
provisions preventing disclosure of
bona fide purchasers. Some will be
the existence of the policy to third
there out of interest; some may be
parties. An insurer of a title defect “Whilst the policy terms
there because they have an interest
or incumbrance does not want the
may permit disclosure in preventing development on the
insured to broadcast to potential
land to be sold, and are interested
to
third
parties
with
the
claimants that an insurance policy
in seeing who acquires it. Whilst the
consent
of
the
insurer,
has been taken out. If the insured
policy terms may permit disclosure
i t i s u n l i k e l y t h a t a n to third parties with the consent
were to do so, he would effectively
be providing an open invitation
insurer would consent to of the insurer, it is unlikely that an
to third parties to bring claims on
public notification of the insurer would consent to public
the policy. Accordingly, disclosure
notification of the existence of
existence of the policy by the policy by its being included
of the existence of the policy to
its being included by way by way of reference in an auction
third parties may bring about
of reference in an auction pack. Therefore, an intending seller
invalidation of it. The conditions
of the policy need to be checked,
should check the terms of the
pack.”
especially where a client is selling
policy, and speak to its insurers at
property with the benefit of an
an early stage, before taking steps
existing title policy. Any clause in the policy which
which might result in invalidation.
prevents disclosure will normally exclude disclosures
made to bona fide purchasers, their mortgagees,
and any lessees of the property (and their respective
Written by Alan Riley - Property Law Consultant
www.propertypsl.co.uk
professional advisors). It should be perfectly
acceptable to tell your buyer that a policy is in place.
Title & Covenant Brokers Ltd is an FSA Regulated Insurance Brokerage, specialising in finding the best
legal indemnity insurance solutions for title problems encountered in property transactions. We work
with the underwriters in the market who deliver on service and price. Our FSA number is 477408.
Title & Covenant Brokers Limited is authorised and regulated by the Financial Services Authority