Northfield Foods: solvent storage, fair presentation and an inflated stock claim
Northfield Foods Ltd makes chilled ready meals at one site in Cheshire. Its combined property and business interruption policy, placed through a broker, runs from 1 April 2024 with buildings insured for £6m, stock for £900,000, a 12-month indemnity period and an annual premium of £48,000. The proposal, completed by the finance director, asked: "Are any flammable liquids or solvents stored at the premises?" The answer recorded was "none". In fact 600 litres of industrial cleaning solvent have been kept in a bunded store since 2022. The finance director treated these as cleaning products rather than chemicals, and nobody told the broker, although the site manager knew about the store. In August 2024 a fire began in the store and spread to the packing hall. The insurer's surveyor confirms the solvent accelerated the fire, that a prudent insurer would have wanted to know about it, and that this insurer would have charged £62,000 for the risk, or alternatively would have required a fixed suppression system that was never installed. The stock claim now submitted includes two invoices sent in twice, inflating it by £90,000.
1. Has Northfield breached the Insurance Act 2015 duty of fair presentation? Does the finance director's misunderstanding help the company?
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The duty. Under s.3(1) of the Insurance Act 2015 a commercial insured must disclose every material circumstance it knows or ought to know, or give the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries. The presentation must also be substantially correct and not misleading (s.3(3)).
Knowledge. Under s.4, the company knows what is known to individuals playing a significant role in decisions about the insurance – the finance director plainly qualifies – and it ought to know what a reasonable search would have revealed. Information held by the site manager and in the COSHH inventory was available within the organisation (s.4(6)); asking the site manager about chemicals on site was an obvious step.
Materiality. The test in s.7(3) is whether a prudent insurer's judgement about taking the risk, and on what terms, would be influenced. A food factory holding 600 litres of solvent is material on any view: fire load, bunding, suppression and housekeeping all change.
The misunderstanding. The finance director's private view that solvents are "cleaning products" does not assist. The question was clear and the duty is objective as to materiality; a subjective mislabelling is at best carelessness, not a defence. Telling the broker would have counted as disclosure to the insurer, but the broker's failure to probe does not transfer the duty.
Conclusion. There is a clear breach. A strong argument also exists that the answer was reckless, given the director must have known the store existed.
2. Assuming the breach was neither deliberate nor reckless, what remedy does the insurer have and what should it pay?
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Framework. s.8 and Schedule 1 of the Act give a proportionate remedy for a non-deliberate, non-reckless breach. The insurer chooses between three outcomes depending on what it would have done:
- Would not have written at all – avoid the contract, refuse all claims, return the premium.
- Would have written on different terms – the contract is treated as if those terms had been agreed.
- Would have charged more – the claim is reduced in the proportion that the premium paid bears to the premium that would have been charged.
Applying it. The insurer would have written the risk, so avoidance is not available. It would have charged £62,000 rather than £48,000, so on the premium limb alone the claim is reduced: £2,100,000 × (48,000 ÷ 62,000) = approximately £1,626,000.
The sting. The insurer also says it would have required a fixed suppression system. Schedule 1 makes the policy read as if that term had always been there. No system was installed, so if the term is a condition precedent to liability for fire loss, the deemed term defeats the claim altogether and the proportionate calculation becomes academic.
Practical point. The insurer should decide which counterfactual it can actually evidence from its underwriting file, apply both limbs cumulatively where they genuinely apply, and explain the calculation in writing. A blanket refusal without showing the underwriting counterfactual is unlikely to survive challenge.
3. What is the effect of the duplicated invoices in the stock claim?
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The rule. s.12 of the Insurance Act 2015 deals with fraudulent claims. Submitting invoices knowing they have already been paid is a representation made in support of a claim that is false and made dishonestly; the provision expressly covers fraud in support of a claim, not only invented claims.
Consequences. Where the insured makes a fraudulent claim the insurer:
- is not liable to pay the fraudulent claim – the whole claim, not merely the £90,000 excess. The genuine element is not severed;
- may recover any sums already paid in respect of that claim;
- may treat the contract as terminated with effect from the fraudulent act (prospectively, not retrospectively);
- may retain the premium for the period before termination.
Attribution. The finance director is the directing mind of a small company, so his dishonesty is the company's.
Interaction with non-disclosure. The insurer can plead both points in the alternative: if the policy was validly avoided it never existed, and s.12 is otiose; if the court finds the non-disclosure was careless only, s.12 still lets the insurer refuse the entire claim. In practice the insurer should notify the insured of its position promptly, investigate who prepared the invoices, and consider whether to refer the matter to the police or report it. It must still deal with any separate, unrelated claim in good faith.