Genesis Housing Association limited v. Liberty Syndicate Management Limited [2012] EWHC 3105 (TCC)
This recent decision looks at a type of clause in an insurance contract called a “basis of contract” clause found in some contracts of insurance or proposal forms and which will soon be unavailable to insurers in the UK. The effect of this clause is to convert any comments made by the insured or the person seeking insurance into warranties. A breach of a warranty will release insurers from liability.
The Law Commission in the UK, which was tasked to review insurance contract law, has found that the current law of warranties appeared unfair and unprincipled. Particularly, the Law Commission wants to abolish “basis” clauses in insurance contracts. These are therefore no longer available in consumer insurance contracts, section 6 of the new Consumer Insurance (Disclosure and Representations) Act 2012 (not yet in force) abolishes these types of clauses. It is the intention of the Law Commission to abolish similar clauses in business insurance contracts too.
In this case, an association which was part of the Genesis Housing Association ltd (Genesis) entered into an agreement with a company, Time and Tide Bedford Ltd (T&T) for the refurbishments of a number of flats for the purpose of providing affordable housing. T&T were tasked to approach MD Insurance Services (MD), a company administering policies covering, among other things, certain types of defects within social housing and insolvency, and underwritten by Liberty, to obtain suitable cover. A proposal form, which contained a “basis” clause was filled by MD with the help of T&T. However, the form wrongly identified the name of the builder. T&T became insolvent and Genesis claimed under the insurance. Liberty rejected the claim claiming breach of warranty.
The court found for Liberty. It was well established that “basis” clauses were enforceable and not contrary to public policy. Although there had been a clear error in the form (T&T was identified as T&T Construction) and such error was an innocent one, this statement was clearly not true to the best of Genesis’ knowledge and belief. Therefore, there had been a breach of warranty.
Such defence will not be available to insurers when the Law Commission passes its recommendations into law.