The financial probity of directors

It is common for insurers on property risks to seek information about the financial probity of the directors of the assured company, and in particular whether the directors have ever been insolvent. R&R Developments Ltd v. Axa Insurance UK Plc [2009] EWHC 2429 (Ch), discussed by Mark Cannon QC of 4 New Square, shows that clear questions are required if insurers are concerned not just with the position of the directors but also with the position of other companies with which the directors have been involved.

R&R: the facts

The proposal form for a commercial combined and contract works insurance policy had a section headed ‘General Details’. In that section the words ‘Have you or any Partners or Directors either personally or in connection with any business in which they have been involved’ were followed by eight questions, the first of which was ‘Ever been declared bankrupt or are the subject of any bankruptcy proceedings or voluntary or mandatory insolvency?’. In June 2006 the insured answered ‘no’. One of the insured’s directors, M, had been a director of another company which was in administrative receivership in June 2006. There was an unresolved issue as to whether M was still a director of that company. M had also been a director of another group of companies which had gone into either members’ voluntary liquidation or compulsory liquidation some time before. Those companies had all been dissolved by 2006. The insured warranted the accuracy of the answers, acknowledging at the same time that it had not withheld any material information. Insurers argued that the answer constituted a misrepresentation or that the insured should have disclosed the liquidations and receivership of the companies with which M had been involved.