Insurers avoiding claims

Filling in an insurance proposal form may seem a straightforward process. But getting it wrong can have severe consequences.

In 2007, Paddingdon Churches Housing Association, part of Genesis Housing Association, contracted Time and Tide (Bedford) (TTB) to renovate a large number of flats. It was a term of the contract for TTB to secure insurance cover for Genesis and the future owners of the properties, including cover for insolvency.

TTB was incorrectly named on the proposal form as Time and Tide Construction Ltd, an experienced builder with a good credit rating. TTB itself had no established credit rating. The contract sum was also misstated as £3.7m (instead of £4.6m) and the housing association’s name was also incorrect (Genesis rather than Paddington).

After a difficult period working on the contract, TTB was ultimately dissolved and Genesis sought to enforce the insolvency provision in the policy. However, Liberty, the insurer, declined to provide cover on the basis that the proposal form contained a “basis of contract” clause. This meant that the incorrect statements listed above formed the basis of the contract.

In proceedings issued against the insurers the Judge found in favour of Liberty. The Court of Appeal subsequently considered three issues: were the warranties in the proposal form contractual; had Genesis warranted that TT Construction was the builder and was there intent to misrepresent?

The Court found that the statements in the proposal form had contractual effect. The inaccurate statements about the identity of the builder therefore formed the basis of the policy. Even though Genesis was not directly involved in the completion of the proposal form, it was bound by the acts of TTB. The misstatements in the proposal form had contractual effect and were deemed warranties forming the basis of the policy. Therefore the policy was void.