Romero Insurance Brokers Case Study: Berkshire Assets vs AXA
Whilst the Insurance Act of 2015 has now become part of the common language of claims handlers and underwriters, there have been surprisingly few cases that have sought to test its provisions in the courts.
As such there has been great interest in a recent High Court ruling in the case of Berkshire Assets (West London) Ltd v AXA Insurance UK PLC, where the non-disclosure of a material fact seemed to bring into question certain key elements of this legislation.
We spoke with Stuart Dobbins, Technical Claims Manager at Romero Insurance Brokers, on the background and details of this case.
He explains why this example is rather unusual; and therefore necessary to be paid attention to for the benefit of future claims; and also what both brokers and policyholders can learn from the court’s verdict.
In 2018, Berkshire Assets purchased a Construction All Risks and Business Interruption Policy underwritten by AXA Insurance UK Plc (“AXA”) for a property development project in Brentford.
The quote contained a number of provisions, including the following:
“The proposer for insurance, its partners or directors or any other person who plays a significant role in managing or organising the business activities, have not, either personally or in any business capacity, been convicted of a criminal offence or charged (but not yet tried) with a criminal offence.”
In 2019, prior to renewal but unbeknownst to the director who was tasked with handling Berkshire’s insurances, one of its other directors, Mr Sherwood, had had criminal charges filed against him by the Malaysian public prosecutor in connection with a $4.3bn fraud.
In January 2020, an escape of water resulted in substantial damage to the Brentford development. Berkshire thereafter made a claim under the Policy.
After investigating the claim, AXA avoided the Policy on the basis that Berkshire had failed to disclose the charges against Mr Sherwood at renewal, and, had it done so, cover would not have been provided.
Berkshire argued that Mr Sherwood was not personally involved in the planning, approval or execution of the transactions which gave rise to the charges. To the contrary, the charges related solely to his capacity as a director of an investment banking company.
The Insurance Act
Section 3(1) IA provides that “… Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk …”.
Sections 3(3)(a) and 3(4)(a) define a fair presentation as a presentation which discloses “every material circumstance which the insured knows or ought to know”.
As per Sections 7(3) and 7(4), circumstances are material if they “would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms”. Examples of material circumstances include “anything which those concerned with the class of insurance and field of activity in question would generally understand as being something that should be dealt with in a fair presentation of risks of the type in question …”.
There were two issues for the Court to consider:
Were the charges against Mr Sherwood material, for the purposes of the duty of fair presentation?
If they were, and had they been disclosed, would AXA have agreed to insure Berkshire?
In considering the case, and addressing each of the above points, the court ruled as follows:
Materiality. Previous case law had already established that the charge of a criminal offence was a material fact, regardless of the whether the party involved was deemed innocent and subsequently acquitted. Irrespective of this fact, at the time of renewal AXA would not have had the opportunity of establishing whether these charges related to dishonesty and wrongdoing by Mr Sherwood. As such, the criminal charges were material to an assessment of the risk.
Acceptance of Insurance. The Court rejected Berkshire’s arguments that AXA would still have written the policy had they known about the criminal charge. Berkshire attempted to suggest that other considerations, such as an unwillingness to alienate the broker in question, would have made AXA reluctant to reject coverage; however these assertions were rejected by the Court. Indeed, it was confirmed that the local branch of AXA that had accepted the cover had a ‘Practice Note’ which established that any cases involving criminal allegations were outside of its underwriting authority.
The disclosure of criminal charges is essential for a policyholder in order to avoid an unwanted voidance of the policy.
A thorough investigation must be undertaken by clients at every renewal to ensure that they are not the victims of an unwitting breach of policy conditions.
Furthermore, brokers must be aware that good relationships with insurers may count for little once a case has entered the realms of non-disclosure. In the above case the policyholder insisted that the well-established connection between the broker and the insurer would have given rise to an acceptance of cover; in fact, this was deemed by the court to be an unsatisfactory and unpersuasive argument in influencing the judgement.
What have we learned?
Thank you Stuart for explaining in detail this complex and unique case. The two points to take away from this are:
1. Clients must investigate thoroughly before every renewal. This is to ensure no changes have occurred which may breach the conditions of their policy. All changes should be accurately relayed to your broker.
2. Good broker-insurer relationships will not stand up in court as grounds for better cover and therefore are not to be used of the defence of the policy by policyholders.
This case study shows the importance of discussing and disclosing all facts to your broker. We are here to help, and we will need to know of any criminal chargers or company changes which could become relevant to your policy.