Laker Vent Engineering Ltd v Templeton Insurance Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE AIKENS,Lord Justice Richards,Lord Justice Jacob |
| Judgment Date | 11 February 2009 |
| Neutral Citation | [2009] EWCA Civ 62 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2008/1449/A |
| Date | 11 February 2009 |
[2009] EWCA Civ 62
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION, MERCANTILE COURT
HHJ HEGARTY QC
Before : Lord Justice Jacob
Lord Justice Richards
and
Lord Justice Aikens
Case No: A3/2008/1449/A
6LV40810
Mr Mark Smith (instructed by Manches, LLP, London) for the Appellant
Mr Jonathan Bellamy (instructed by SLS, Solicitors, Liverpool) for the Respondent
Hearing date : 8 th December 2008
Background to the appeal
This is an appeal from the decision and order of HHJ Hegarty QC made on 30 May 2008, when sitting in the Mercantile Court at Liverpool. The case arises out of an insurance policy for legal expenses between Laker Vent Engineering Limited (“LVE”) and Templeton Insurance Limited (“Templeton”). The judge declared that Templeton was bound, pursuant to the policy, to indemnify the claimant in respect of the claimant's legal costs and expenses arising out of an arbitration between the claimant and a third party that began in 2005. The judge also declared that Templeton was obliged to indemnify LVE in respect of any liability on it to pay the legal costs and expenses of others, all up to a total of £245,000. The judge refused permission to appeal, but permission was granted by Stanley Burnton LJ on 8 August 2008 on a paper application.
LVE, the assured, is an engineering contractor. LVE specialised in the fabrication and installation of pipework and pumps for the petrochemical, pharmaceutical, aviation and power industries. At the relevant times LVE had an insurance broker called Lymm Insurance Brokers (“Lymm”). Templeton, the insurer, is an insurance company incorporated and operating in the Isle of Man. Templeton operated through underwriting agents called Legal Risk Management (“LRM”).
LVE was first insured by Templeton for legal expenses risks under a Constructors Protection Policy which had effect for one year from 19 December 2002. The initial period of cover therefore expired on 18 December 200It was renewed for a further year which expired on 18 December 2004. The present dispute concerns the renewal of the policy for the following year, ie. 2004/2005. It is agreed between the parties that (subject to the arguments that arise in this case), the renewal for the 2005 policy year took place on 17 January 2005, but was back – dated so that it took effect as from 19 December 2004.
On 20 January 2005 Lymm wrote to LRM, asking it to send a new claim form through to LVE “for a potential new claim”. The letter explained the circumstances briefly. The potential claim arose out of a construction contract (“the contract”) that had been concluded on 15 June 2004 between LVE and Gas Wasser Umwelt Gommern GmbH, (“GWUG”). Under the contract LVE agreed to carry out certain specialist sub – contract work involving the manufacture, supply and installation of piping at a major engineering project at Cottam Power Station, near Retford, Nottinghamshire (“the contract works”). Later in this judgment I will have to set out the relevant chronology of the discussions and the eventual dispute that arose between LVE and GWUG.
On 17 February 2005, LVE, through Lymm, submitted a claim form to Templeton, through LRM. In the claim form LVE sought from Templeton an indemnity in respect of legal expenses in connection with a dispute with GWUG, which LVE said had arisen from the contract. LVE stated that it intended to pursue this dispute in an arbitration against GWUG. Templeton declined the claim. Ultimately it relied on two grounds for doing so.
First, Templeton alleged that, prior to the policy renewal for the 2004/2005 policy year, LVE had failed in its duty of utmost good faith to the insurers, because it had not disclosed a “material fact” or a “material circumstance” (in the sense understood in insurance law) 1 to Templeton. In paragraph 8 of its amended defence, Templeton had identified five particulars of material facts which were said to be known (or ought to have been known) to LVE before or at the time of renewal on 17 January 2005. Effectively they amount to an allegation that between October 2004 and early January 2005 there was an escalating dispute between LVE and GWUG in relation to the progress of the contract works and payment for them. Templeton alleged that the pleaded facts were “material” to a “prudent underwriter” and that Templeton was induced by their non – disclosure to enter into the policy renewal. It was pleaded that this failure of duty by LVE entitled Templeton to avoid the Policy. Templeton gave a notice of avoidance to LVE on 31 May 2006.
Secondly, Templeton alleged that LVE had failed to comply with a claims notification provision in clause 6.1 of the policy terms. Clause 6.1 stipulates that the assured must give notice in writing “…immediately the insured is aware of any cause, event or circumstance which has given or is likely to give rise to a Construction Claim”. Compliance with this provision is stated to be a condition precedent to the liability of the insurer under the Policy. Templeton asserted that LVE had failed to comply with this term. Templeton said that it was, therefore, under no liability to LVE in respect of the legal expenses claims arising out of the dispute concerning the contract.
Those defences, which I will call respectively the “non – disclosure” defence and the “notification of claim” defence, were maintained at the trial before the judge. He rejected them both, having heard evidence from witnesses of fact and experts. Templeton submits on appeal that the judge was wrong to reject both defences and argues that it was entitled to avoid the policy; alternatively, that it is not liable to pay under it.
The policy terms
I have set out the relevant policy terms in an Annex to this judgment. It is enough to note here that the key clauses are: (i) the statement at the head of the policy terms that the policy is a “claims made policy”; (ii) the “definition” of “Construction Claim” at clause 1.5, and (iii) clauses 6.1 and 6.2.
The trial below
LVE started proceedings on 20 June 2006. The trial before HHJ Hegarty QC took place over three days in February 2008. LVE called Mr Richard Ventre, a director and the chief executive of LVE, as a witness of fact. He was cross – examined on the relevant contemporary correspondence between LVE and GWUG during the period from June 2004 to January 2005. LVE also put in evidence witness statements from Mr John Ashe, the Finance Director of LVE, and Mr Glen Slaymaker, manager of the contract. Neither was required for cross examination.
The underwriter of the policy, Mr Antony Corlett, had ceased to work for Templeton by the time of the trial. Mr Corlett said that he would not come to give evidence for the insurer. So neither he nor any other witness from amongst its underwriting staff was called by Templeton. Nor did it call any witness from LRM. Instead Templeton called as a witness Mr Antony Murphy, who was Templeton's general legal counsel. He explained that Mr Corlett had refused to give evidence on behalf of Templeton at the trial because of an employment dispute between them. I shall have to return to this matter later in this judgment.
Both sides served expert's reports on the issue of the “materiality” of the alleged escalating dispute between LVE and GWUG. Both experts were cross – examined on their reports. LVE called Mr Nicholas Stanbury, an insurance consultant with specialist knowledge of legal expenses insurance. Templeton called Mr Grahame Pipe, a former underwriter who had become an insurance and reinsurance consultant.
The approach of the judge to the defence of non —disclosure and the appellant's criticism of it
The judgment, which runs to 162 paragraphs, is very careful and detailed. After setting out his findings of primary fact and reaching some conclusions on construction issues, the judge deals with the issue of whether Templeton was entitled to avoid the Policy for non – disclosure of a material circumstance. 2 Mr Mark Smith, who appears on the appeal for Templeton, accepts that the judge set out the correct principles of law on the assured's duty of disclosure and the circumstances in which an insurer can avoid a policy for non – disclosure of a material circumstance. The judge referred to section 18 of the Marine Insurance Act 1906 and the leading case on the law concerning non – disclosure of a material fact to an insurer, the House of Lords' decision in Pan Atlantic Insurance Co Limited v Pine Top Insurance Co Limited.3 That case, like the present one, was a non – marine insurance case. But, in giving the leading speech in Pan Atlantic, Lord Mustill stated that the law relating to the duty of disclosure of material circumstances and the consequences of non – disclosure were the same in both marine and non – marine insurance. The law is based on the language of section 18 of the Marine Insurance Act 1906, which, as Lord Mustill reminded us, embodies a partial codification of the relevant common law. 4
Section 18 of the Marine Insurance Act 1906 provides as follows:
...“ (1)Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured…
(2) Every circumstance is material which would influence the judgment of a prudent underwriter in fixing the premium or determining whether he will take the risk”.
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