PERSIMMON HOMES LTD V GREAT LAKES REINSURANCE (UK) PLC

[2010] EWHC 1705 (Comm), Queen's Bench Division, Commercial Court, Mr Justice David Steel, 12 July 2010

Insurance (after the event) - Non-disclosure and misrepresentation - Whether insurers induced by false statements and failures to disclose - Whether insurers waived right to avoid

In 1999 CPH (a company operated by BT and PT) negotiated with NCP to purchase a site for development. CPH ran out of funds, and in August 1999 Persimmon had discussions with CPH with a view to taking over its negotiating position. It was disputed as to what had been agreed in August and December 1999, although CPH subsequently asserted that it had been promised an introduction fee of 2 per cent. CPH commenced proceedings against Persimmon in 2004, and in May 2004 entered into an after the event policy with the defendant insurers on the basis that there was a 51 to 60 per cent chance of success for a sum of around £650,000. Various documents were presented to the insurers when the cover was placed, but it was common ground that CPH had misrepresented or failed to disclose its own financial position and also that documents had been manufactured to support the claim. At the trial the judge found for Persimmon, holding that fraudulent evidence and forged documents had been presented to the court, and indemnity costs of £175,000 were awarded. CPH then became insolvent and Persimmon brought direct proceedings against the insurers under the Third Parties (Rights Against (Insurers) Act 1930 to recover the award of costs under the policy. David Steel J held that: (1) the facts withheld were material; (2) CPH had no genuine belief in the validity of the claim, and inducement had been conceded if such a finding was made, so that the policy could be avoided; (3) there had not been negligent underwriting - it could not be assumed that the policy would have been issued had the true facts been disclosed, even though the underwriter who had written the risk had not been called to give evidence on the point; (4) even if CPH had genuinely believed that its claim was valid, there had been non-disclosure and misrepresentation, the facts presented did not put the insurers on notice of other facts disclosure of which they had waived, and the insurers had not lost the right to avoid the policy by waiver or estoppel by not withdrawing from the proceedings as soon as they became aware that there had been breaches of the duty of utmost good faith.