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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Niramax Group Ltd v Zurich Insurance Plc [2020] EWHC 535 (Comm) (09 March 2020) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2020/535.html Cite as: [2020] EWHC 535 (Comm) |
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BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Rolls Building Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
NIRAMAX GROUP LIMITED |
Claimant |
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- and - |
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ZURICH INSURANCE PLC |
Defendant |
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Mr Graham Eklund Q.C. and Mr Carl Troman (instructed by BLM Law LLP) for the Defendants
Hearing dates: 2nd, 3rd, 4th, 5th, 9th, 10th, 11th, 12th December 2019
Draft Judgment sent to parties: 27 February 2020
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HTML VERSION OF JUDGMENT
Crown Copyright ©
Cockerill J:
The Trial
The Facts
The insurance of Niramax's plant.
i) A contractor's plant policy (policy number FL572863) which originally incepted in 2006 and was renewed thereafter. It is this policy, or to be more precise the renewed policy which incepted on 15 December 2014 ("the Policy") which forms the basis of the claim in these proceedings.ii) An inspection contract and plant protection policy (pursuant to which Zurich's engineers routinely inspected the plant at Thomlinson Road).
iii) A sudden and unforeseen damage policy.
iv) A second contractor's plant policy (AG618970) ("the AG Policy") which provided cover for engineering plant.
v) SWS and Niramax also had fleet insurance with Zurich.
Original writing and renewal of the Policy
The change in sentiment regarding the waste business
"These are extremely challenging times from an insurance perspective within the recycling industry. Markets are extremely limited….
The waste industry has been viewed as an extremely high risk for many years…
When you flip the coin and look at the material damage insurance, overall it could not be worse news. Research on the Internet has led me to a very useful site which mentions that there have been 59 fires at recycling centres in Great Britain in 2012 in other words over 1 fire a week on average.
Essentially there are 3 possibly 4 insurance companies when it comes to material damage cover for the recycling/waste industry."
"Unfortunately, the recycle market from an insurance perspective particularly where material damage is concerned has deteriorated somewhat in the last year or so. Last year there were 3 companies offering terms and we placed you with the cheaper of the 3, Aviva which also happened to be the best. If you recall there was nagging problems in relation to accumulation of waste, storage of waste, et cetera and after many, many claims Aviva /Core Underwriting have taken the decision that they are out of the market. This has effectively [sic] Recyclesure and Catlin. We obtained quotations from both of them sources, and the Recyclesure one was slightly cheaper so we went ahead with that one. It is just my worry that if the survey does not go well on 14th February we may be back to square one.
They will be looking primarily at fire precautions that you are taking we need to really have a few areas under control if at all possible which I would append below:"
The Buildings Cover
"Please find enclosed the provisional risk requirements report which we received this morning… In the meantime, please pass the report to the insured and ensure they are aware of and understand all the requirements and ensure that they are working to complete them within the given timescales. Following underwriter's agreement, it will be a condition precedent to the liability of insurers that all risk requirements are completed within the given timescale… It is therefore important that all requirements are addressed as a matter of urgency."
i) An automatic fire detection system in the areas where waste was stored;ii) CCTV cameras were to be installed outside and inside areas of the process/storage building and were to be recorded off-site by a third party security company at all times;
iii) Hot-spot checking procedures.
"We are looking for various options to comply with insurance requirements because as you well know within the industry now fires at waste sites are seen as a big risk… This email is to start a dialogue with you but I am available next Tuesday for a site visit to discuss options."
The AG Policy
Renewal of the Policy on 15 December 2014
The addition of the Eggersmann plant
"… Therefore we are paving the way with the engineering policies to cover all of the plant, traders, conveyor belts, IDF, et cetera under separate engineering policies so then in relation to the material damage we will only need to consider the prospect of buildings only."
"I can see that its brand new equipment and has fire suppression … it gives me some comfort that there is no imminent danger that the equipment will fail or burn to the ground.
My feeling is that as we have already accepted this risk for a 12 month period and the equipment that they are adding to the schedule is not significantly different to that they already operate, we are morally bound to accept this additional equipment up to renewal date."
"I can see from the website that this is probably a pretty clean business of its type and in another world we might consider renewal, but ultimately this is a Property risk and the cleanliness/loss experience is not a consideration for us and as with everything in this trade, if they haven't had a claim yet, it is just waiting to happen."
Later events
i) A conviction of Niramax in 2006, 9 years before the fire, for which it received a fine of £10,000 ("the 2006 Fine Defence");ii) A conviction in 2009 of a former director of Niramax (namely Malcolm Dean) for which he received a fine of just £250 ("the Dean Fine Defence");
iii) Receipt by Niramax of HSE notices in 2009 ("the HSE Notices Defence");
iv) A fire at a separate site in 2012 ("the 2012 Fire Defence").
The Law
i) Pursuant to section 18 of the Marine Insurance Act 1908 an assured must "disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known to him."ii) A fact is material if it "would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk".
iii) "Whether a circumstance is material or not is a question of fact to be determined in each case. The decision rests on the court's own appraisal of the relevance of the disputed fact to the subject-matter of insurance. It is not something which is settled automatically by current practice or the opinion of insurers. The court makes its own evaluation." Carr J. in Brit UW Ltd v F & B Trenchless Solutions Ltd [2016] Lloyd's Rep IR 69 at [102] and to similar effect Leggatt J in Involnert Management v Aprilgrange Ltd [2015] 2 Lloyd's Rep 289 at [98] noting that expert evidence will generally be "helpful and important to ensure that the court's findings are grounded in commercial reality". It is an objective, and not a subjective question. The Court decides, as Leggatt J put it, "whether or not it is rational to take a particular matter into account".
iv) An insurer can only avoid the contract if he was induced by the representation or non-disclosure to write the precise contract which was written – including as to its terms: see Synergy Health (UK) Ltd v CGU Insurance Plc (t/a Norwich Union) [2011] Lloyd's Rep IR 500 per Flaux J at [185]. Clarke LJ put it thus in Assicurazioni Generali SpA v Arab Insurance Group [2003] 2 CLC 242 [62]:
"In order to prove inducement the insurer or reinsurer must show that the non-disclosure or misrepresentation was an effective cause of his entering into the contract on the terms on which he did. He must therefore show at least that, but for the relevant non-disclosure or misrepresentation, he would not have entered into the contract on those terms. On the other hand, he does not have to show that it was the sole effective cause of his doing so."v) As to the burden of proof, it is common ground that the burden is on Zurich to prove its case.
The Issues
i) Niramax's failure to comply with the Millennium risk requirements imposed in February 2014.ii) The Millennium special terms imposed in October 2014 (and in force when the Policy renewed) requiring 35% self-insurance and a minimum contribution of £250,000.
I shall refer to these defences, which were really one composite issue, as "Non-disclosure of non-compliance with Risk Requirements and the Special terms".
i) The Sweeney Misrepresentation Defence: Non-disclosure to Zurich of Mr Sweeney's false assertion to Miles Smith, London in January 2014 that the risk had "surveyed very well". This was said to be contrary to the then most recent surveys of Niramax' premises (in January 2013 and March 2013 undertaken for Aviva) which had revealed breaches of insurance policy conditions/warranties and a very high exposure to the risk of arson and had imposed a range of risk improvements which Niramax had failed to comply with at all.ii) The 2012 Fire Defence: Non-disclosure in December 2014 of a fire in November 2012, at a property owned by Seneca (a Neil Elliott company) but which Niramax was using for its tyre crumb operation.
iii) The 2006 Fine Defence: Non-disclosure of convictions of Niramax in 2006 for illegally stockpiling around 128,000 tyres between August 2005 and March 2006 without a licence and for failing to remove the tyres following receipt of a notice requiring Niramax to do so. There were four offences of keeping or controlled waste without a licence and a total fine of £10,000.
iv) The Dean Conviction Defence: Non-disclosure of a conviction dated June 2009, of Mr Dean for unlawfully depositing controlled waste between July 2007 and January 2008.
v) Non-disclosure of Niramax's breach of duty for failing to disclose material facts on earlier renewals or occasions when the material facts should have been disclosed.
Non-disclosure of the non-compliance with Risk Requirements and the Special Terms
Materiality
Inducement - introduction
"Q. So, you explained that there was a change in strategy to not write new waste risks because they were not making money because of fires. Was a different approach adopted to: renewals of existing business?
A. We do not like kicking business out, to be honest. If we have
had business a long time, we will rather have a look at it
first and give it every opportunity before we decide what we
are going to do with it.… Some we offered renewals terms on that they did not find acceptable. There were a handful that we just did not renew, because we looked at them and just could not find a way of underwriting it sensibly.
Q. Why do you not like kicking business out?
A. Because there is a certain amount of loyalty to clients and it
is not, I would say it is not a very Zurich thing to do. Actually refusing somebody insurance is not something I particularly want to do, because there are implications to that. So I would rather find a way of underwriting it, if we can."
"In evaluating the underwriters' evidence it is important to keep firmly in mind that all their evidence is necessarily hypothetical and that hypothetical evidence by its very nature lends itself to exaggeration and embellishment in the interests of the party on whose behalf it is given. It is very easy for an underwriter to convince himself that he would have declined a risk or imposed special terms if given certain information. For this reason, such evidence has to be rigorously tested by reference to logical self-consistency, and to such independent evidence as may be available."
Inducement: Identity of underwriter
Inducement: The extra information
i) A security guard who patrolled on an hourly basis;ii) A CCTV system with internal and external cameras;
iii) A fire risk assessment had been undertaken by a health and safety consultant;
iv) Niramax employed a third party contractor to provide guidance on fire protection if required;
v) 21 small bore hose reels positioned throughout the site as per the fire risk assessment;
vi) Fire extinguishers throughout the site and in close proximity to all plant and machinery;
vii) The site was connected to the town's water mains and 1,000 litre water barrels were held;
viii) Niramax owned and operated a working fire engine;
ix) The fire station was 0.5 miles from the site with a response time of 5-10 minutes;
x) The fire extinguishers were serviced and maintained under contract.
Inducement and Mr Penny
The Millennium Renewal Terms and Aspen defences
The other issues
Return of premium
Quantum
i) If the insured has that item to use and it is totally lost, the indemnity is the price in the market to get another similar one to use, provided that a market exists.ii) If the item is one for which there is a second-hand market, the basis for indemnity is therefore likely to be the market price; but, if there is no such market, the only way to indemnify the insured may be to repair it (at unreasonable cost) or to replace it with a new one;
iii) The market value will in principle be measured at the place of the loss.
Item | Niramax's expert (Mr Correa) |
Zurich's expert (Prof Sheldon) |
Eggersmann Mechanical Treatment Plant | £4,308,582 | £3,765,828 |
Liebherr 904 Excavator (53081) | £126,000 | £85,355 |
Liebherr 904 Excavator (45914) | £127,750 | £99,022 |
Liebherr LH 24M Material handler | £165,750 | £121,000 |
Eggersmann plant
Liebherr machines
i) Figures based on the 2019 quotes from Liebherr and applying relevant discounts backwards to 2015. This produced figures substantially higher than those suggested by Mr Correa.ii) The figure given by Crawfords (the highly experienced loss adjusters appointed by Zurich). They gave an estimated indemnity value for the owned plant (other than the Eggersmann machine) of £450,000.
Conclusion