Genesis Housing Association Limited v Liberty Syndicate Management Limited
Genesis Housing Association Limited v Liberty Syndicate Management Limited  EWCA Civ 1173
Incorrect identity and the importance of care in completing proposal forms are at the heart of the issues raised in this case. As other recent cases have illustrated, the identity of the contracting party is not a matter to take for granted:
- Derek Hodd Limited v Climate Change Capital Limited. 2013
- Westshield Civil Engineering Ltd and Westshield Ltd v Buckingham Group Contracting Ltd. 2013
This is particularly true here where it denied the insured cover under its policy of insurance.
The employer-claimant Genesis Housing Association Limited (“Genesis”), engaged a builder, Time and Tide (Bedford) Limited (“TT Bedford”) to construct 51 units of social housing in a development in Bedford. Genesis took out a latent defects insurance policy which also included cover for the insolvency of the builder during construction. Genesis appointed TT Bedford as its agent to complete the insurance forms and it incorrectly named Time and Tide Construction Limited, a related but separate company, as the builder rather than TT Bedford, the actual builder. This inadvertent error coupled with the fact that the proposal form contained a basis of contract clause meant that the statement naming the wrong builder was elevated into a contractual warranty. When TT Bedford subsequently became insolvent and Genesis tried to claim under its policy the defendant insurer, Liberty Syndicate Management Limited (“Liberty”), denied liability claiming breach of warranty, that is, that statements made became warranties to the effect that all information given was correct and complete. Genesis brought proceedings in the Technology and Construction Court (TCC) but lost and subsequently appealed.
The basis of contract clause in the proposal form read: “Declaration by the Insured
I/we declare that to the best of my/our knowledge and belief, the information I/we have given is correct and complete in every detail and I/we have not withheld any material fact.
I/we understand that the signing of this form does not bind us to effecting insurance under the Premier Guarantee for Social Housing scheme but agree that should a contract be completed for a New Development or Housing Unit that this proposal and the statements made therein shall form the basis of the contract between me/us and the Insurer."
The effect of such clauses are to convert statements in proposal forms into warranties giving the proposal form contractual effect, even if it is not referred to in the insurance policy.
Interestingly a declaration in the proposal form that information given is true to the best of the insured’s “knowledge and belief” did not assist Genesis by qualifying the basis of contract clause.
Case law is littered with instances of proposal forms containing such punitive clauses which rendered insurance policies void on the basis of breach of warranty due to innocently made incorrect statements. The fact that the mistake in naming the wrong builder was not fraudulent did not come to Genesis’s rescue.
Unfortunately for Genesis, the Court of Appeal dismissed its appeal finding that Liberty was entitled to avoid the policy for breach of warranty in naming the wrong builder as all statements in the proposal form constituted warranties on which the insurance contract was based. The court declared that basis of contract clauses can be displaced by express words in the insurance policy but found no such evidence here.
This may seem an obviously unfair result but in the construction context it is fairly common for contractors to arrange insurance in the joint names of the employer and contractor but vital that the correct parties and particulars are given in proposals forms which must then be carefully checked as mistakes can prove fatal.
Consumers will be relieved to hear that basis of contract clauses are now excluded by statute from consumer insurance contracts but unfortunately still apply in commercial contracts. Prospective insureds must be acutely aware of their punitive effect lest cover be denied.
This article was created by construction lawyer --Najma Dunnett as part of an ongoing series of legal articles. Follow Najma on Twitter to keep up to date with the latest changes in construction law @NDunnett_Cons.
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