Harlow Mill: fair presentation and the finance director's disqualification
Harlow Mill Ltd owns a converted Grade II listed mill in Yorkshire, used as offices and a café. Turnover is £4.2m. It buys a commercial combined policy from Northgate Insurance with property damage cover of £3m, business interruption of £1m and a 12-month indemnity period. The proposal is completed by the office manager. It asks: (i) 'Has the business or any director been subject to insolvency, disqualification or winding-up proceedings in the last five years?' and (ii) 'Has any director or partner made a claim on any property insurance in the last five years?' The office manager answers 'No' to both. In fact, the finance director was disqualified as a director for four years in 2021, and a sister company owned by the same group claimed £180,000 for flood damage at a different warehouse in 2022. The office manager did not ask the finance director and did not check the group's claims history. Northgate would have imposed a flood exclusion and charged 30% more premium. A fire in the café kitchen causes £600,000 of damage. Northgate discovers the omissions.
1. Did Harlow Mill Ltd breach the duty of fair presentation under the Insurance Act 2015? Identify the material facts, whose knowledge is attributed to the insured, and whether a reasonable search was made.
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Yes. Section 3 of the Insurance Act 2015 requires a fair presentation of the risk: disclosure of every material circumstance the insured knows or ought to know, or sufficient information to put a prudent insurer on notice to make further enquiries. A circumstance is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and on what terms.
The finance director's disqualification is material: a disqualification order goes to the integrity and management of the business and is exactly what the proposal asked about. It is known to a senior manager, and the knowledge of senior management is attributed to the company under section 4. The £180,000 flood claim at a sister property is also material because it indicates a group-wide flood exposure and claims history; the proposal asked about claims by 'any director or partner', but the wider group history would still influence a prudent insurer. The office manager's failure to ask the finance director or check the group claims history is a failure to make the reasonable search required by section 7. The fact that the office manager personally did not know the facts is not a defence. There is a breach. On these facts it is likely careless rather than deliberate or reckless, because there is no suggestion of dishonesty or indifference to the truth.
2. Assume the breach was not deliberate or reckless. Explain the remedies available to Northgate in relation to the £600,000 fire claim. If the annual premium paid was £12,000 and Northgate would have charged 30% more, calculate the proportionate reduction, ignoring any excess.
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Because the breach is not deliberate or reckless, section 8(3) to (6) applies. The insurer cannot simply avoid the policy. The remedy depends on what Northgate would have done had it known the truth.
First, if Northgate would have entered the contract on different terms, the contract is treated as if it included those terms. Here Northgate would have imposed a flood exclusion. That term does not defeat a fire claim, so it does not by itself reduce the fire claim.
Second, if Northgate would have charged a higher premium, it may reduce the amount payable on the claim proportionately. The premium that would have been charged is £12,000 × 1.30 = £15,600. The proportionate fraction is the premium actually paid divided by the premium that would have been charged: £12,000 ÷ £15,600 = 0.7692. Applying that to the £600,000 fire claim gives £600,000 × 0.7692 = £461,538 (approximately). Northgate would therefore pay about £461,538, less any policy excess, rather than the full £600,000. The insurer bears the burden of showing what it would have done.
3. How would your answer to (2) differ if Northgate would have declined the risk altogether, and what if the breach had been deliberate or reckless?
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If Northgate would not have entered into the contract on any terms, section 8(4) allows it to avoid the contract and refuse all claims, but it must return the premium. That is a more severe outcome than the proportionate reduction. The insurer must prove that it would have declined; a mere assertion is not enough.
If the breach had been deliberate or reckless, section 8(2) applies: Northgate may avoid the contract, refuse all claims and need not return any premium. 'Deliberate' means the insured knew the fact was material and deliberately withheld it; 'reckless' means it did not care whether the fact was disclosed. On the facts given, the office manager's failure to ask the finance director is more naturally characterised as careless, but the position would change if the finance director had deliberately kept the disqualification from the proposal process. The distinction matters because the remedies are radically different.