Case Studies

Based on…

Trilby Pheasant

The disclosure of prior insolvencies

The Insured ran a clothing shop which suffered serious water damage as a result of a faulty water heater.  The company had two directors, one of whom was previously involved in an unconnected business which had gone into liquidation some years earlier.

When the insurer discovered the details of this prior liquidation, the claim was refused and the policy voided from inception.  The insurer was able to show, from its underwriting criteria, that had it known about the liquidation, it would not have accepted the proposal for insurance.

However, in this case, the insurer had employed a statement of Fact which included the following statement:

Neither You or Your directors or partners involved with The Business or any other company or business have:

  • ever been declared bankrupt or insolvent or been the subject of bankruptcy proceedings or insolvency proceedings or been disqualified from being a company director
  • ever been the subject of a County Court Judgement, an Individual Voluntary Arrangement, a Company Voluntary Arrangement or a Sheriff Court Decree

The general principle is that the Insured is under an obligation, in accordance with The Insurance Act 2015, to make a fair presentation of the risk.  This includes the requirement to disclose every material circumstance of which it knows or ought to know, or, at the very least, to provide sufficient information to put the insurer on notice that it needs to make further enquiries.

This requirement can leave a prospective policyholder unsure as to what information should be disclosed.  However, an insurer’s chosen wording in a statement of fact can be taken as a reliable indication of the information that an insurer particularly wants to know.

Statements of Fact (SoF) and the Principle of Waiver

An insurer is under no obligation to provide a SoF.  However, many insurers use such a document as a convenient way to capture the information gleaned in the early stages, and the issuing of the document to the Insured represents a good opportunity for the Insured to check through the details to make sure that the information is correct.  As mentioned above, one useful feature of a SoF is that it can be taken as an indication of the issues that are of particular concern to the underwriter.

We analysed the exact wording of the SoF used in this case and concluded:

  1. The SoF seeks to address whether You or Your directors have experienced any of the listed insolvency events.  The wording does not extend to apply to the fate of companies in which the directors of the Insured might have previously had an involvement.
  2. The insurer’s letter refers to the fact that the previous business was made the subject of a ‘Creditors Voluntary Liquidation’.  This is not the same as a

Company Voluntary Arrangement (as shown in the SoF).  In fact, the word liquidation does not appear in the SoF at all.

We were able to show that the Insured had, in fact, correctly addressed the points raised in the SoF because the insurer had, effectively, waived its right to expect the Insured to disclose information not ‘caught’ by the SoF wording.  We were able to arrange for the policy to be reinstated and the claim paid in full.


The operation of a ‘floating’ sum insured in a nearby annexe

The Insured was in the business of producing and supplying office stationery.  There was a significant fire in its paper store and a claim was made under the commercial combined policy.

The policy covered four locations within a 20 mile radius of the main property.  However, the location of the discrete paper store had never been specified on the policy and so liability for the claim was rejected by the insurer.

We investigated the matter and had to agree that the separate address had never been included.  However, we viewed the separate address as being something of a technicality because, operationally, it operated as an informal wing to the main property.  Having made further enquiries, it was established that access to the store could only be made via the main front door.  We also identified that the contents sum insured was ‘floating’ over all four listed locations and that the sum insured was adequate to cover the entire stock.

We then examined the policy wording and noticed that:

The policy described Contents as:

Machinery, plant and all other contents belonging to the

Insured or held by the Insured in trust and for which the

Insured are responsible (other than landlord’s fixtures and

fittings, stock and other property specifically described in

the Schedule) whilst in or on the Buildings

The policy described Buildings as:

The buildings shown in the Schedule including:

– landlord’s fixtures and fittings, fixed glass and fixed

sanitary ware in or on or pertaining to the buildings

– walls, gates and fences and

and so far as they are not otherwise insured

– small outside buildings (including steel containers and

portacabins), annexes, gangways, conveniences and

other structures

extensions communicating with the buildings


(the emphasis is ours)

We explained to the insurer that it had not been deprived of any premium because the floating contents sum insured was adequate to cover all locations.  This fact, coupled with the specific inclusion of annexes in the policy’s description of Buildings, allowed us to negotiate a full settlement of the claim.