Ansari v New India Assurance Ltd.

In this action the Claimant Mr Ansari, seeks damages for what he alleges is the wrongful refusal by the Defendant, the New India Assurance Company Limited, (“New India”) to indemnify him under a Commercial Property Owners’ Insurance Policy (“the policy”) in respect of damage caused by a fire to commercial premises at 12-24 Honey Street, Manchester (“the Premises”).

Mr Ansari is the owner of the freehold of the Premises which he purchased on 5 May 2004. They comprise a two storey detached building with a rear basement. The entrance to the building is on the ground floor from the street into a lobby area. From there one can gain access through doors into the remainder of the ground floor. A staircase also connects the lobby with the first floor.

According to his evidence Mr Ansari purchased the Premises as an investment with the intention that they should be occupied by a friend of his, Mr Asim Ali, as his tenant. Mr Asim runs a company called Lava (UK) Limited. From about 2003 he shared the occupation of another property owned by Mr Ansari at 35 Park Street, Manchester. Mr Ansari ran his own business (Marbonyx: a marble and onyx importing business) from an office on the first floor of 36 Park Street and Mr Asim had his office on the ground floor. The two men mix socially and are friends. When Mr Asim had his offices at Park Street they saw each other every day but even once he had moved to the Premises they continued to meet regularly. Mr Ansari often called in to collect the rent and all the evidence suggests that they have remained throughout on good terms.

One indication of this are the arrangements made to let the Premises to Mr Asim. Mr Ansari says in his witness statement that before purchasing the Premises he discussed the terms of the letting with Mr Asim. He had been advised by a firm of chartered surveyors that the rental value of the Premises was some £22,500 per annum. But Mr Asim was unwilling to pay that much and he agreed to let them to him at a rent of £20,000 per annum.

He then arranged to insure the Premises through a firm of brokers (Barnetts). They recommended New India as insurers and the proposal form was signed on 12 May 2004. The form contains details of Mr Ansari’s business; and the address, method of construction and value of the Premises including the rent payable by Mr Asim. There is a space in which to enter details of the tenant’s trade or business which Mr Ansari has described as “wholesaling kitchenware”. Question 6 on the form asks in terms: “Are the premises protected by an automatic sprinkler installation?: if yes give details.” Mr Ansari has answered yes but no other details were included on the form.

The proposal form concludes with the usual declaration that to the best of Mr Ansari’s knowledge and belief “all the statements and particulars made with regard to this proposal are true” and that a contract of insurance was being applied for on New India’s usual terms.

The proposal was accepted and in due course the policy was issued. It begins with an introduction in these terms:

“The Insured having applied to New India Assurance Company Ltd the Insurer for this insurance and having paid or agreed to pay the premium the Insurer will provide insurance during the Period of Insurance in accordance with the Sections of the Policy shown as operative on the Schedule, subject to the terms of this Policy.

Provided that the liability of the Insurer in any one Period of Insurance in respect of any Item shall not exceed the Limit of Liability thereon.

This Policy incorporates the Schedules and Endorsements which shall be read together as one contract.”

There are then various defined terms. These include

“The Business” – Property Owner

The Premises – the addresses stated in the Schedule of Premises leased or rented to third parties by the insured in connection with the Business”

The cover provided by the policy is described in these terms:

“The Insurer will indemnify the Insured in respect of Damage to the Buildings and/or Landlord’s Contents at the Premises by any of the Contingencies stated as operative in the Schedule by payment or at its option by repair reinstatement or replacement.”

The contingencies referred to include fire.

Page 8 of the policy document contains a number of extensions to the cover. The third of these headed “non-invalidation” provides that:

“The interest of the freeholder lessor or mortgagee in this insurance shall not be prejudiced by any act or neglect whereby the risk of destruction or damage is increased without the authority or knowledge of the freeholder lessor or mortgagee provided they shall immediately on becoming aware thereof give notice in writing to the insurer and on demand pay such reasonable additional premium as the insurer may require.”

Finally, there are the general conditions which so far as material provide as follows:

“ Policy voidable

1.

This Policy shall be voidable in the event of misrepresentation, misdescription or non-disclosure in any material particular

Changes in Facts

2.

This insurance shall cease to be in force if there is any material alteration to the Premises or Business or any material change in the facts stated in the Proposal Form or other facts supplied to the Insurer unless the Insurer agrees in writing to continue the insurance

Reasonable Precautions

3.

The Insured shall take and cause to be taken all reasonable precautions

a)

to prevent Damage

b)

for the safety and security of the property insured

c)

to prevent bodily injury and Damage to the property of others

….”

On 5 June 2004 Mr Ansari granted to Mr Asim a tenancy of the Premises for a period from 5 June 2004 to 5 June 2007 at the rent of £20,000 per annum. The lease is a standard form Law Society Business lease under which the tenant covenants to use the premises only for the use allowed, not to do anything which might invalidate the insurance and to maintain the state and condition of the property but not to improve it. At the time of the lease the Premises were equipped with a sprinkler system which Mr Ansari says that he inspected prior to the purchase and which appeared to be in proper working order. As a fixture this would have formed part of the property demised to Mr Asim by the lease and would therefore have fallen within his covenant to maintain the state and condition of the property.

Mr Ansari says in his witness statement that the description of Mr Asim’s business as “wholesaling kitchenware” was how Mr Asim described his business when asked and reflected Mr Ansari’s own understanding of the position. In fact it is clear that historically Mr Asim imported or dealt in a much wider range of goods. Although he did not store stock at Park Street he was importing children’s scooters in 2003 and gave some of them to Mr Ansari for his own children. Mr Ansari said that this stopped some time before the move to the Premises and that the only other non-kitchen items which he saw were two or three boxes of saddles and harnesses which were in the lobby area of the Premises on one occasion when he called. He said that he did not know why they were there or ask Mr Asim about them. He did not go into the storage areas at the Premises and was not aware of any other non-kitchen items stored there.

Had he done so he would have discovered that Mr Asim was importing a very much wider range of goods than could reasonably be described as kitchen- ware. One of the witnesses called by Mr Ansari was Mr Ali Khan who began to work for Lava UK at Park Street and then was employed full time as its warehouse manager at the Premises. In paragraph 2 of his witness statement he says that Mr Asim sold a broad range of products from the Premises made up of about 25% toys, 50% kitchen items and 25% saddlery. The toys were mostly battery operated or were push scooters and pedal bikes but from Spring 2005 onwards Mr Asim also imported small petrol powered motorbikes.

Mr Khan said in his evidence that these were imported from China from May 2005 onwards and this is confirmed by a note of an interview conducted with Mr Asim (which I will come to later) in which he said that the bikes sold for between £50 and £100 each and that about £20,000 worth of these bikes were imported between May and September 2005.

On 29 March 2005 the insurance was renewed for a further year from 4 May 2005. The Defendant’s case at the start of the trial was that by then the standard policy documentation had changed and that the new policy wording supplied to the brokers under cover of a letter of 29 March 2005 contained a new preamble in the following terms:

“The proposal and declaration made by you the Insured are incorporated in and form the basis of this contract with the New India Assurance Company Limited (referred to in the Policy as “the Insurer”

In return for the Insured having paid or agreed to pay to the Insurer the premiums for the periods of insurance stated in the Schedule the Insurer undertakes to provide the insurance described in the Policy subject to its terms and conditions

The Policy is effective only whilst the Insured is carrying on the Business described in the Schedule and no other for the purpose of this insurance”

It is clear from the correspondence that a copy of whatever were the current terms and conditions was supplied to Barnetts before they contacted Mr Ansari about the renewal of the cover. This they did on 19 April 2005 recommending that he renew the policy with New India. There is nothing in the letter to suggest that they sent him the new policy terms and he says that he was never shown them. In fact the letter of 19 April refers to a policy document and schedule “already in your possession” which suggests that this is a reference to the policy issued in 2004. But whether or not Mr Ansari was ever shown the document supplied to Barnetts under cover of the letter of 29 March, the offer to renew was made on the basis of that document and was accepted by the brokers on Mr Ansari’s behalf. The only real issue therefore is what terms were enclosed with the letter.

There is some indication on the version of the policy relied on by New India that it was not current as of 29 March 2005 and that an earlier version not containing the revised preamble was sent to the brokers. They have been unable to adduce evidence confirming that the new preamble was current by the end of March 2005 and in these circumstances it is agreed that I should proceed on the assumption that no material changes to the terms and conditions of the policy were made on its renewal.

On the night of 7 September 2005 there was a serious fire at the premises which caused a great deal of damage both to the building and to its contents. After the fire New India discovered that the sprinkler system had been turned off by closing the isolation valve and placing a filing cabinet against the control handle on the valve so as to prevent it being opened. There is also evidence that Mr Asim had not paid the water charges for the premises and that the supply had been cut off in August. Those investigating the fire also discovered a considerable quantity of goods on the premises which could not be described as kitchenware including the scooters and mini motorbikes I have referred to.

As a consequence, New India wrote to Mr Ansari on 21 December 2005 cancelling the policy ab initio. In their letter they relied on two matters:

The defence to the claim was originally pleaded on four grounds:

Grounds 1 and 2 were abandoned prior to the trial because New India accept that the statements made in the proposal form related only to the state of affairs as they existed at the date of the original contract and were not in any sense a representation as to what the future position might be. There is no evidence that the disabling of the sprinkler system or the alleged change of use occurred prior to that date and that the statements as made in the proposal form were then false. For the same reason the breach of warranty claim would also fail. The case has therefore proceeded on the basis of grounds 3 and 4.

Mr Ansari’s response to these two points can be summarised as follows:

At the end of the trial Mr Watt-Pringle Q.C indicated to me that whilst maintaining their case that Mr Ansari was aware of the two alleged changes prior to the fire, his clients did not feel able to submit that he had, on the evidence, been reckless in the sense described above and they therefore no longer relied on General Condition 3.

The issues which therefore fall for decision are:

It is common ground in this case that at some time prior to the fire the sprinkler system was turned off by Mr Khan and remained turned off up to and including the date of the fire. Over and above that, the water supply to the building (and therefore to the system) was cut off in August 2005 due to the non-payment by Mr Asim of the water charges for the premises and the sprinklers could not therefore have functioned on the night of the fire in any event.

Mr Khan says in his witness statement and maintained during cross-examination that in about June or July 2005 the fire alarm at the Premises was activated and the sprinkler system came into operation more or less throughout the building soaking many of the cardboard boxes containing Lava U.K’s stock. He therefore turned off the main valve which is situated by the staircase in the lobby of the Premises. He says in paragraph 4 of his witness statement that subsequently he told Mr Asim repeatedly that there was a problem with the water supply but ultimately it was cut off which itself caused obvious problems in relation to the absence of drinking water and the use of the lavatories.

When Mr Khan was cross-examined about the water damage to the boxes caused by the sprinklers and the scale of the task involved in re-packing their contents he said that it was a big job but that the weather was warm at the time and many of the boxes dried out. Mr Asim was away at the time in Northern Ireland but Mr Khan said that he did not tell him about the problem when he returned. Instead, he tidied things up and told a Mr Siddiqui who also worked in the warehouse that he should not worry Mr Asim about it in case Mr Asim should think that he and Mr Siddiqui had done something wrong. It was put to him that this was rather strange conduct given the importance of the sprinkler system and the fact that it was now turned off but he said that he did not realise how important the system was until after the fire.

I am afraid that I do not regard this account as even remotely credible. If, as Mr Khan says in his witness statement, the boxes were soaked and the system became operational throughout the storage area, the task of re-packing the goods would have been very considerable. There is no suggestion that Mr Khan was able to move all of the boxes outside in order to dry and they would not have dried out inside quickly enough to avoid damage to the stock unless specific measures such as heaters or de-humidifiers were employed which it is not suggested was the case. It is also unlikely in the extreme that widespread damage of this kind could have been kept from Mr Asim even if Mr Khan had tried. The boxes would have been stained and the effects of the water clearly visible. In the case of the saddlery and other more delicate items stored in the premises it would have been necessary to have removed them from their boxes immediately to avoid damage to the goods. According to the evidence, all the goods imported by Mr Asim arrived pre-packed in boxes and Mr Khan does not explain how and from where he obtained new boxes in which to re-pack the goods.

The scale of the damage and the operation necessary to re-pack the goods makes it in my judgment almost inconceivable that Mr Asim did not become aware of what had happened assuming that the sprinkler system did in fact malfunction as alleged. Mr Khan’s evidence in cross-examination is also inconsistent with the reference in his witness statement to his having told Mr Asim that there was a problem with the water supply. This would have necessitated him explaining what that problem was.

It was put to him that the water damage in June or July 2005 was an invention and that the turning off of the system was not in fact related to this. Mr Khan denied this and in the absence of expert evidence it was not possible to explore further whether the system could have been accidentally activated as alleged. If, however, there was the water damage referred to by Mr Khan it was in my judgment something which Mr Asim would have been aware of as soon as he returned from Northern Ireland shortly afterwards.

Mr Khan was also asked about the termination of the supply. The correspondence in evidence shows that United Utilities had pressed over many weeks for payment of some £1025.90 and that the supply was eventually disconnected by 15 August. Mr Khan says that Mr Asim received these and other earlier letters and had said that he would sort it out. In fact he did nothing. After the water was cut off Mr Khan says that he complained repeatedly about it, but again to no avail.

Mr Asim has given no evidence in these proceedings although he has been available to do so. Mr Ansari appears to have remained in contact with him and said that he last saw him about a week before the trial. The only evidence which we have from him is in the form of a signed statement which he gave to Dr Charles Gardner as part of Dr Gardner’s investigation into the causes of the fire. Dr Gardner interviewed Mr Asim, Mr Ansari and Mr Khan. The interview with Mr Asim was arranged though Mr Ansari’s loss adjusters and took place on 18 May 2006. Mr Asim told Dr Gardner that he was responsible for the maintenance of everything at the premises including the sprinkler system and that he had been told by Mr Ansari to get it checked. At the time of the grant of the lease the water supply was operational. Mr Khan had told him that he had closed off the sprinkler system because of a leak but this was a few days after the fire. Mr Khan had said that he had forgotten to tell Mr Asim. Mr Asim also told Dr Gardner that he had not seen any letters from United Utilities and that he was unaware that the water supply had been cut off. Again, this was not mentioned to him until after the fire.

Based on notes taken at this interview Dr Gardner prepared a statement for Mr Asim which he signed on 16 June 2006. In it he confirms that the sprinkler system was working when Mr Ansari bought the premises and that it was only a few days after the fire that Mr Khan told him about the leak, that he had closed off the system and that the water supply had been cut off by United Utilities. He says in the statement that he did not inform Mr Ansari about this until after the fire.

In the absence of Mr Asim as a witness there is only a limited amount of assistance to be obtained from this evidence and New India does not of course accept that he remained ignorant of the position in relation to the sprinkler system and that none of this was communicated to Mr Ansari before the fire. But what the notes of interview and the subsequent statement do reveal are a number of inconsistencies between Mr Asim’s account of these matters and that given by Mr Khan. Mr Khan did accept that Mr Asim was made aware of the termination of the water supply which must have affected Mr Asim when he came to the Premises as much as it affected Mr Khan. Mr Asim says that Mr Khan told him that he (Mr Khan) had forgotten to tell him that he had closed off the sprinkler system because of the leak of water. Mr Khan’s evidence is that this was deliberate.

The credibility of Mr Khan is an important issue in this case because he is one of the two witnesses called to support Mr Ansari’s evidence that he was unaware that the sprinkler system was switched off until the night of the fire. For the reasons already given, I do not accept Mr Khan’s evidence that he somehow kept Mr Asim ignorant of the problems with the sprinkler system until after the fire and in any event, it is clear even on his evidence that Mr Asim was at least aware that the water supply had been cut off in August.

The reservations which I have about his evidence also apply to his account of the night of the fire. What occurred on that evening is critical to the outcome of this case in relation to Mr Ansari’s reliance on the non-invalidation clause. The Defendant’s case is that Mr Ansari was aware prior to the fire that the sprinkler system was not working. They are not able to prove by direct evidence how Mr Ansari came to know this or precisely when. They rely in terms of background material on the fact that he was friendly with both Mr Asim and Mr Khan (they all play football together), and that he visited the Premises regularly to collect the rent and to see Mr Asim. They submit that as Mr Asim’s friend and landlord it is likely that Mr Ansari would have looked around the Premises from time to time, have seen what Mr Ansari was storing there and have been made aware of any problems with the sprinkler system or water supply.

But in terms of direct evidence they rely principally upon the evidence of Mr Martyn Ward, a group manager in the Greater Manchester Fire and Rescue Service, who was called to the fire at the Premises and asked by his control room to be the investigating officer.

The first call to the Fire Service was at 1.07 a.m. and the fire crews arrived about six minutes later. Mr Ward received a call at 1.53 a.m. and arrived at the Premises at 2.08 a.m. By then the fire crews had been at the scene for some time under the control of their incident commander. Mr Ward was in uniform over which he put on his protective clothing and helmet and spoke to the incident commander. He was told that the fire crews had found the doors and windows locked with flames rising through the roof of the building. They had cut open the shutter door at the rear of the Premises and were directing their hoses into the lower ground floor area at the rear which appears to have been the seat of the fire.

Prior to his arrival, two gas cylinders stored on the ground floor had exploded but he said that there were no further explosions after he arrived.

Mr Ward’s role as the investigating officer was not to fight the fire or to ascertain whether there were any other dangerous or potentially explosive materials stored in the Premises. These were matters for the incident commander and his fire crews. Mr Ward’s task was to discover what the origin of the fire was and to gather information for that purpose. He said that when he arrived he looked at the Premises and went into the rear yard. He then spoke to the incident commander who said that the police officer present had identified the occupier of the building. He then spoke to the police officer who pointed out three men standing together. They were Mr Ansari, Mr Khan and Mr Muhammed Karim, another friend of Mr Ansari, who also gave evidence. Mr Karim has known Mr Ansari for about ten years and has often helped and advised him in relation to property purchases. He runs a restaurant and has also developed and managed residential and commercial property. He says that he was telephoned by Mr Ansari on the night of the fire and asked to come and help. He lives about ten minutes drive away and he went and met Mr Ansari outside the Premises. By then the police and fire service were present and Mr Khan had already arrived.

Mr Ward’s evidence is that he went up to the three men and told them he was the investigating officer. They explained who they were by identifying Mr Ansari as the owner and Mr Khan as the warehouse manager. Mr Ward says that he spoke to all three men together with a view to discovering what had caused the fire. All three men responded to his questions although his recollection is that Mr Khan said relatively little. It was put to him that the one who spoke least was Mr Ansari but Mr Ward was emphatic that this was not the case.

The information which he received was recorded in notes which he wrote on a clipboard at the time. These were kept and then typed up as bullet points a few weeks later. Mr Ward produced the file history for the document from his computer which indicated that the first draft was typed on 17 October 2005. The manuscript notes were then destroyed.

The typed document begins with the address of the premises and the name of the owner, Mr Ansari, with his mobile telephone number. Mr Ward says that he was given this by Mr Ansari on the night of the fire. There are then eleven bullet points some of which are clearly no more than Mr Ward’s own observations at the time. These include the reference to the premises having been secured by the fire crew (point 1) and the observations about a broken drainpipe and fence (point 11). But a number of the points are clearly based on information given to Mr Ward on his visit. These include the reference to the sprinklers not working for eighteen months due to a defect (point 2) to various break-ins at the Premises when doors were forced open and a motorbike stolen (points 3,4,5 and 6) and to whether anyone smoked in the Premises (point 7).

Mr Ward identified the landlord of the next door public house (whom he also spoke to) as the source of some of the information about one of the burglaries but the rest of the information about that and whether anyone smoked came, he said, from Mr Khan. The most important bullet point, however, for present purposes is, of course, point 2 relating to the state of the sprinkler system. This information came, he said, from Mr Ansari and this evidence is relied upon by New India as proving that Mr Ansari had been aware of the position prior to the fire.

In his witness statement Mr Ward says that Mr Ansari identified himself as the owner of the Premises and that he asked Mr Ansari about the insurance of the building. The witness statement goes on to say that Mr Ansari informed him that the contents were not insured but that the building was. At the start of his evidence Mr Ward said that on further reflection he thought that the information about the insurance of the contents may have come from Mr Khan.

In the next paragraph of the witness statement Mr Ward says that he then inquired about the condition of the sprinklers and was told by Mr Ansari that they were defective and had been for some time. When asked how long they had been defective Mr Ansari said that it was approximately eighteen months, by which Mr Ward understood Mr Ansari to mean that they had been out of action for that time. Mr Ansari sought confirmation of this from Mr Khan. Mr Ward says that he then said to Mr Ansari that it was usually a condition of insurance policies that the sprinkler system had to be in working order and that Mr Ansari replied that there was no such condition in his policy.

When asked in cross-examination about this section of his witness statement Mr Ward said that he was confident that he did ask about the insurance before asking about the sprinklers. He also conceded that much of the information which he obtained from the three men may have come from Mr Khan but he said that he had no doubt that it was Mr Ansari who told him that the sprinkler system was defective although he may have obtained confirmation of this from Mr Khan. This evidence, of course, remains the bedrock of the Defendant’s case.

During the course of the trial New India disclosed Dr Gardner’s notes of two interviews he conducted with Mr Ward and copies of the statements which Mr Ward made following those interviews. The first note refers to the sprinkler system being defective for eighteen months. In the first of the two statements (dated 28 February 2006) Mr Ward states that he met Mr Ansari on site who introduced himself as the owner. He makes no reference to having asked Mr Ansari about the insurance position. What he says (in paragraph 13) is that Mr Ansari informed him that the sprinkler system had been defective and switched off for about eighteen months and had never been repaired. He also said that there was no requirement in the insurance policy for the system to be operational. It was put to Mr Ward by Mr Terry that this reversed the order of the conversation contained in his most recent witness statement but he said that he thought that his recent statement set out things in the right order.

On 10 November 2006 Mr Ward spoke to Dr Gardner again by telephone and we have Dr Gardner’s note of that interview. In it he is recorded as having said that Mr Khan told him that he was the first to arrive at the scene. He also spoke to Mr Ansari who identified himself as the owner and was the only person who gave him the information about the sprinkler system. This included the statement that it had been defective for eighteen months. They also, he said, had the conversation about the terms of the insurance referred to above. On the basis of this interview Dr Gardner prepared and Mr Ward signed a further statement dated 16 November 2006 which confirms the contents of the conversation he says he had with Mr Ansari.

The account of the fire given by Mr Ansari, Mr Khan and Mr Karim is very different. Mr Ansari’s evidence is that he knew the importance of the sprinkler system and believes that the system was working when he bought the Premises. He asked Mr Asim to check that this was the case when he moved in. As mentioned earlier, the lease throws the burden of maintaining the premises on to the tenant. He said that neither Mr Asim nor Mr Khan complained about the system prior to the fire and that he had no reason to believe it had been turned off.

In his witness statement Mr Ansari says that on the night of the fire he was telephoned by Mr Khan and told what had happened. He then called Mr Karim and asked him to meet him at the Premises. When they arrived there they met up with Mr Khan. A fireman came over and asked for the keys which Mr Khan gave to him. There was then an explosion. The fireman came back and asked if there were any gas cylinders in the Premises. Mr Khan confirmed that there were. At this point the fireman asked why the sprinkler system was not working and it was then that Mr Khan said that it had leaked and that he had turned it off. The conversation, he said, lasted only a minute or two. The fireman was fighting the fire. He did not ask any of them who they were and Mr Ansari says that he did not answer any of the questions because he did not know the answers. It was Mr Khan who gave the fireman all the information.

Mr Ansari was cross-examined about this account of the fire. He said that the fire officer asked for the keys and Mr Khan gave them to him. There was only one fireman who came to speak to the three of them. He did not ask for their names or ask why the sprinkler system had not functioned. In fact, according to Mr Ansari he did not ask Mr Ansari any direct questions at all. He spoke only to the three men as a group and Mr Ansari himself said nothing about the sprinkler system. He knew nothing about it being turned off. It was Mr Khan who answered the officer’s questions but there was no discussion about the insurance policy for the building or whether it required the sprinklers to be operative. When Mr Khan disclosed that the system had been turned off it was, he said, a complete surprise.

Mr Ansari was then shown a copy of the statement prepared by Dr Gardner on the basis of the interview which he conducted with Mr Ansari on 18 May 2006. In that statement he says (in paragraph 14) that the fire officer asked him why the sprinkler system had not worked and he told him that he did not know. Mr Khan was present at the time and he (Mr Ansari) asked Mr Khan why it had not operated. It was then that Mr Khan said that the system had leaked a few months earlier and that he had turned it off.

He said in cross-examination that the reference to him having spoken to the fire officer was incorrect. It was Mr Khan who spoke. When it was put to him that he had received the statement in draft before signing it and that he had amended other parts but not the two paragraphs dealing with the conversation with the fire officer, he said that the references to him speaking were a mistake. He did not make himself known to the fire officer as the owner of the building nor did he give him his mobile telephone number. The fire officer, he said, did not even have any paper or pen at the time with which to write it down.

Mr Khan in his witness statement says that at about midnight he received a call from ADT to say that the burglar alarm at the Premises was ringing. He went there and found the building alight. The police were already there and the fire service arrived at about the same time. He says that a fire officer asked him for the keys and he handed them over to him. There was then an explosion which was obviously caused by the gas cylinders. He then rang Mr Ansari who arrived about twenty minutes later with Mr Karim.

In paragraph 6 of his witness statement Mr Khan then repeats his account of being asked by a fire officer for the keys and suggests that the officer made his request both before and after the arrival of Mr Ansari. On a literal reading of his witness statement he says that he handed the keys over on two occasions. He also suggests that there were two explosions which occurred both before and after Mr Ansari arrived. In relation to the second conversation he says that after asking for and being given the keys the fire officer then asked about the sprinkler system and he (Mr Khan) gestured that it had been turned off. During this time Mr Ansari said nothing. The fire officer did not ask any of the three men who they were or for their names. There was no further conversation with any other fire officers.

When cross-examined about this account of the fire Mr Khan confirmed that he got to the Premises about twenty minutes before Mr Ansari but (contrary to his witness statement) said that he did not then hand the keys to the fire officer. This occurred after Mr Ansari and Mr Karim arrived. He (Mr Khan) was the only one to speak to the fire officer. Mr Ansari said nothing nor did the fire officer speak to him about the sprinkler system. There was no discussion about the terms of the insurance policy. These matters were discussed with Mr Khan.

He was then asked about a statement which he gave to Dr Gardner on 16 June 2006 following an interview on 22 May that year. In that statement he also says that the only discussion about the sprinkler system was between him and the fire officer but that he cannot recall what he said to him. In paragraph 14 of the statement he says that it was not until the following day that he told Mr Ansari and Mr Asim that he had turned the sprinkler valve off about a month before the fire.

When the inconsistencies with his more recent witness statement were pointed out, Mr Khan said that he had been pressurised into signing the earlier statement and that Dr Gardner had pestered him about it making up to four or five calls a day in relation to it. I am satisfied that there is no truth in that allegation. Dr Gardner took notes at the meeting (as in the case of Mr Ansari and Mr Asim) and then sent the draft statement to Mr Khan for amendment. Mr Khan made a number of changes to the statement including adding to paragraph 11 a reference to an explosion. No changes, however, were made to paragraphs 13 and 14. At the end of the corrected draft, Mr Khan even wrote a note to Dr Gardner asking him to incorporate the changes and to re-submit the statement which he did. Mr Khan was unable to explain why he could not then recall what he had said to the fire officer but now had an apparently clear recollection of these events. Nor is he able to explain the difference in timing about his alleged disclosure to Mr Ansari that he had turned off the sprinklers.

The other witness called by Mr Ansari was Mr Karim. He says in his witness statement that the three men were approached by the fire officer who directed his questions to all three of them. He did not ask who they were but began by asking whether any gas cylinders or combustible items were stored in the Premises. Mr Khan said that there were gas cylinders, which were used in connection with a fork lift truck. The officer then asked whether there was a sprinkler system in the building and whether it worked. Mr Ansari said nothing, but Mr Khan then said that the system had been switched off because it was leaking. That was the extent of the conversation.

When cross-examined Mr Karim gave a rather more graphic account of these events. He talked of the fire officer shouting out questions about the contents of the building and being primarily concerned about what was stored there. He said that he probably did identify Mr Ansari as the owner and that Mr Ansari may have given the fire officer his name and telephone number. But Mr Ansari did not say anything about the sprinklers and the insurance policy was not discussed.

In relation to what was known by Mr Ansari about the sprinkler system prior to the fire, the key issue is whether I can accept as accurate the recollection of Mr Ward that it was Mr Ansari who told him that the sprinklers had been switched off. It is common ground that the fire officer spoke to Mr Ansari and Mr Kahn and did ask why the sprinklers were not working. This is confirmed in the witness statements of Mr Khan, Mr Ansari and Mr Karim and in the earlier statements which Mr Khan and Mr Ansari gave to Dr Gardner. What is challenged is Mr Ward’s recollection that it was Mr Ansari rather than Mr Khan who provided the answer.

It is, I think, useful to narrow the scope of the disagreement by establishing what is not alleged by Mr Ansari. His case is that he remained ignorant of the fact that the sprinklers were not working until he heard Mr Khan tell the fire officer that they had been turned off. In his witness statement and during his oral evidence he referred to a single conversation with one fire officer. He also said that the question about the sprinklers was not directed to him personally and that he did not answer it or any of the fire officer’s other questions. He did not identify himself as the owner and he did not give the officer his telephone number, which in any event the fire officer would have been unable to write down.

The evidence that it was one conversation with one officer was confirmed by Mr Khan and Mr Karim. Both said that it was Mr Khan who answered the questions about the sprinklers and that Mr Ansari said nothing. The only real difference between their accounts is Mr Karim’s recollection in cross-examination that he may have told the fire officer that Mr Ansari was the owner and that Mr Ansari did give the fire officer his telephone number.

As part of his closing submissions Mr Terry suggested as a factual possibility that Mr Khan may have spoken to another fire officer about the sprinklers in the presence of Mr Ansari prior to Mr Ward’s arrival and that Mr Ansari was therefore able to answer Mr Ward’s question about the sprinkler system on the basis of what he had heard Mr Khan say earlier. But that account is completely inconsistent with the evidence of Mr Ansari and his witnesses and requires me to reject Mr Ansari’s evidence that there was only one conversation with a fire officer in his presence and that he said nothing to Mr Ward because he was at the time unaware of the position in relation to the sprinklers. There is also no other evidence to suggest that there were two conversations rather than one except for what is said in Mr Khan’s witness statement. As recorded earlier, he appears to be saying in that statement that he had two conversations with a fire officer but the first of these was before Mr Ansari arrived. His witness statement also talks of being asked for the keys on both occasions and handing them over on each. Equally, in the statement he gave to Dr Gardner he said that he did not tell Mr Ansari about the sprinklers being turned off until the following day which is inconsistent with the account given in his current witness statement and with the evidence of both Mr Ansari and Mr Karim.

I therefore reject the suggestion that two conversations about the sprinklers with different fire officers took place in the presence of Mr Ansari. But I also consider Mr Khan’s evidence to be confused and unreliable and I attach no weight to it except to the extent that it is confirmed by other credible evidence. The suggestion in paragraph 6 of his witness statement that there were consecutive conversations in the terms he describes is simply untenable. He would not have been asked for the keys at a time when the fire crews had already been given them and had presumably used them to obtain access to the building.

It is not part of the Claimant’s case that he, Mr Khan and Mr Karim were not approached by Mr Ward and Mr Ward was not cross-examined on that basis. There is also no challenge to Mr Ward’s evidence that he went to the fire to act as the investigating officer and that the fire fighting operation as such was a matter for the incident commander who had been on site from shortly after the fire was discovered. Mr Ward’s role as the investigating officer is an important factor in considering the Claimant’s evidence as to what was discussed. Mr Ward was not concerned to obtain entry to the building or to assess the risks to the fire crews posed by the contents of the Premises. One can see this from the points contained in the typed sheet based on his notes taken on the night of the fire. I should say at once that I do not accept Mr Ansari’s evidence that Mr Ward did not have a pen or paper with him at the time. This is inconsistent with Mr Karim’s evidence and with the fact that Mr Ward did record Mr Ansari’s name and telephone number together with the other points comprised in the typed bullet points. Neither Mr Ansari nor his witnesses suggested how else Mr Ward might have come by that information and there is no reason to doubt his evidence that he obtained the details as to who Mr Ansari was and his telephone number from Mr Ansari at the fire.

Given that he was there to investigate the fire and it is accepted did ask about the sprinklers not working, the only real issue is the identity of the person who gave him that information. Although he concedes that it was Mr Khan who answered many of his questions, he has a positive recollection that it was Mr Ansari who told him that the system had leaked and was switched off. This is not based on his typed notes (which refer only to the sytem not having worked for eighteen months) but was a recollection which he had when he first spoke to Dr Gardner and subsequently signed his statement on 28 February 2006. One oddity of course is the reference to eighteen months. If accurate this would have been a date prior to Mr Ansari’s purchase of the Premises. But it is difficult to believe that he would have noted the reference to eighteen months if that was not the figure given to him and the date given may be a reflection of the quality of the information which he received rather than anything else. It does not cause me to doubt the accuracy of his recollection as to what was said.

On the basis that I have to choose between the evidence of Mr Ward and that of Mr Ansari as to who provided the information about the sprinklers, I have no real hesitation in preferring the evidence of Mr Ward. He went up to the three men believing that one of them was the owner of the premises and ought to be able to assist him in discovering what had caused the fire. I do not accept as credible Mr Ansari’s evidence that he was not identified as the owner (which is not supported by Mr Karim) and it seems to me most unlikely that as the owner Mr Ansari remained entirely silent in the face of Mr Ward’s questions about the sprinkler system and the other matters concerning the fire.

If Mr Ansari had been unable to explain why the sprinklers had not operated one would have expected him to say so. It is also likely that he would already have asked Mr Khan the very same question had he been unaware that they had been switched off. One would have expected him to have been as concerned to discover the cause of the fire as Mr Ward was. I think that his denials of any communication with the fire officer, including as to his name and telephone number were part of an obvious unwillingness to concede that he had any contact with Mr Ward and were not truthful. Mr Khan’s attempts to support his account of these matters does not, for the reasons given earlier, add to its credibility particularly when one takes into account Mr Khan’s earlier statement to Dr Gardner that he first told Mr Ansari about the sprinklers the day after the fire and that he was unable to recall what he said to the fire officer.

So far as Mr Karim is concerned the account of the conversation with the fire officer both in his witness statement and his cross-examination does not accord with Mr Ward’s role as the investigating officer. He talked of his description of the fire officer shouting out questions about whether the gas cylinders or other similar materials were stored at the Premises is much more akin to how one would expect those fighting the fire to behave. I do not regard Mr Karim as a sufficiently independent or reliable witness so as to cause me to doubt the evidence of Mr Ward.

For these reasons I am satisfied that Mr Ward was told by Mr Ansari on the night of the fire that the sprinklers were defective and that to do that he must have had that knowledge prior to the fire. It follows that he cannot rely on the non-invalidation clause in the policy if General Condition 2 applied so as to terminate the cover prior to the fire.

It is therefore strictly unnecessary for me to decide whether Mr Ansari was also aware of the wider range of goods stocked by Mr Asim assuming that this also constituted a material change in the facts stated in the proposal form, but I propose to set out very briefly my findings of fact on that issue.

Earlier in this judgment I described the categories and quantities of other goods imported and sold by Mr Asim. These included boxes of saddles and harnesses together with the scooters and mini motorbikes. Mr Ansari accepts that he saw one or two boxes of saddles on one of his visits to the Premises but denies any knowledge of the fact that Mr Asim had started to import the scooters and motorbikes in 2005.

There is no direct evidence from any unconnected third parties which indicates what Mr Ansari’s state of knowledge about this was prior to the fire and any findings about this require one to reject his evidence that (apart from what he says were the sample boxes of saddlery) he assumed that Mr Asim continued to sell kitchen ware. I have considerable misgivings about this evidence. We know from the inspection of the Premises after the fire that a considerable number of scooters and bikes were stored there. Mr Khan was obviously aware of this and there is nothing to suggest that he was privy to the terms of the insurance proposal form, or that either he or Mr Ansari had ever given any thought to the significance of Mr Asim widening the range of goods he imported and sold. Given that they are all friends it seems to me most unlikely that there was no mention of the scooters or other items as part of a general conversation about what each was doing, particularly when one bears in mind that Mr Ansari had been given scooters for his children by Mr Asim back in 2003 and had never told Mr Asim what he could and could not sell from the Premises.

On balance, therefore, I am inclined to believe that Mr Ansari is likely to have been aware that the scooters and other items in dispute were stored at the Premises prior to the fire but because of the relative lack of evidence on this point, I prefer to base my judgment on the findings I have made about his knowledge of the defects in the sprinkler system.

There are two issues to resolve in respect of General Condition 2: (i) whether the “facts stated” in the proposal form are limited to Mr Ansari’s statement of belief in the declaration at the end of the form or whether what is referred to are all the facts stated in the form itself; and (ii) whether there has been a material change in those facts by reason of the defective nature of the sprinkler system.

I have no doubt that the facts stated include the answers given by Mr Ansari to all of the questions on the proposal form. If General Condition 2 was intended to operate only in respect of Mr Ansari’s statement that the particulars given were true to the best of his knowledge and belief at the time, it is difficult to see how it could have any application or purpose as a term of the insurance. By definition Mr Ansari’s knowledge and belief at that point in time would not alter as a result of any later knowledge on his part of a change in the facts that he had earlier believed to be true. What General Condition 2 is referring to is a change in the facts stated in the proposal form which form the basis of the assumption of risk by New India. A material change in these facts will according to the condition terminate the cover.

On the question of what type of change might be material Mr Watt-Pringle Q.C submits that all that the condition contemplates is a fact which is relevant to the insured risk. He relies in support of this test on a passage in the speech of Lord Mustill in Pan Atlantic Insurance Co. Ltd. v Pine Top Ltd [1995] 1 AC 501 at p. 550C where he said this:

“…

A circumstance may be material even though a full and accurate disclosure of it would not in itself have had a decisive effect on the prudent underwriter’s decision whether to accept the risk and if so at what premium. But (2) if the misrepresentation or non-disclosure of a material fact did not in fact induce the making of the contract (in the sense in which that expression is used in the general law of misrepresentation) the underwriter is not entitled to rely on it as a ground for avoiding the contract.

….”

In Pan Atlantic the House of Lords had to consider the meaning of a “material circumstance” in s.18 of the Marine Insurance Act 1906 but the decision confirms that in order to avoid the contract for non-disclosure the underwriter had to show that he had been induced by the non-disclosure (and the misrepresentation it created) to enter into the policy on the terms of the cover. Mr Terry says that for General Condition 2 to be satisfied both these elements would need to be present and that a change of fact will not be material unless it can be shown that it would have had an impact on the insurer’s decision whether or not to accept the risk. To construe the condition otherwise would in effect, he says, be to introduce a continuing warranty by the back door by allowing the insurer to escape liability for an insured risk even though the statement of the fact about the sprinkler system contained in the proposal form could not be treated in itself as a representation or promise that this state of affairs would continue for the duration of the cover.

His principal argument, however, was that for General Condition 2 to apply the change in the factual position had to be one which on the true construction of the case took the case outside the risk which the underwriters had agreed to accept when writing the policy. Otherwise the insurance cover, he said, would cease simply because the very risk insured against was about to occur.

This construction of General Condition 2 is based on the decision of the Court of Appeal in Kausar v Eagle Star Insurance Co. Ltd. (supra). In that case, shop premises used as a hairdressing salon were insured against malicious damage. Condition 3 of the policy provided that:

“…You must tell us of any change of circumstances after the start of the insurance which increases the risk of injury or damage. You will not be insured under the policy until we have agreed in writing to accept the increased risk…”

The owner of the shop, Mrs Kausar, failed to disclose that she was involved in acrimonious possession proceedings against her tenant and after the insurance cover had been renewed the shop window was broken. This damage was not covered by the insurance policy but Mrs Kausar believed that her tenant or his sub-tenants were responsible for it and again failed to notify Eagle Star. When subsequently the premises were damaged in a way that was covered by the insurance and Mrs Kausar made a claim under the policy Eagle Star repudiated liability on the ground, inter alia, that there had been a change of circumstances within the meaning of Condition 3 because she had come to believe that the premises had been damaged by her tenant or sub-tenants and this increase in the risk of damage had not been notified to them.

The Court of Appeal rejected this as a basis for avoiding liability for the claim. Saville LJ (at p.156) described the meaning and effect of Condition 3 of the policy as follows:

“….

In my judgment all that this condition does is to state the position as it would exist anyway as a matter of common law, namely that without the further agreement of the insurer, there would be no cover where the circumstances had so changed that it could properly be said by the insurers that the new situation was something which, on the true construction of the policy, they had not agreed to cover. The mere fact that the chances of an insured peril operating increase during the period of the cover would not, save possibly in the most extreme of circumstances, enable the insurers properly to say this, since the insurance bargain is one where, in return for the premium, they take upon themselves the risk that an insured peril will operate. In calculating that premium it is for the insurers to assess the chances of insured perils operating; and the fact that they may (in hindsight) have got this assessment wrong does not begin to establish that what has happened falls outside the cover they have agreed to give. In the present case all that the facts and matters upon which Eagle Star rely show is, at best, that during the period of the cover events occurred which increased the chances that an insured peril (namely damage to the buildings by vandals or malicious people) would operate. Thus to my mind condition 3 does not afford a defence to the claim in question.

Mr Davis argued that such a construction should not be adopted since it deprived condition 3 of any effect. In the sense that the condition does no more than state the common law this is true, but the difficulty with this argument is twofold.

In the first place the argument assumes, with no factual justification, that those drafting policy conditions such as these wanted to go further than or change the common law position, rather than just restating that position for the convenience and assistance of those taking out insurance on this form of policy, not all of whom are likely to be insurance law experts. Indeed it is apparent from the policy wording as a whole that Eagle Star have made a serious attempt to draft their policy terms in what might be described as 'user friendly' language, rather than in the more ponderous legalese often found in insurance documents. To my mind, therefore, it is not in the least surprising to find in the conditions something which under common law would in any event be the legal position.

In the second place, the alternative suggested meanings of the condition produce either bizarre results which cannot have been intended, or require the wholesale rewriting of the provision. For example, on one suggested construction the entire insurance would automatically lapse if anything new happened which increased the chance or risk of damage, thus turning the insurance into one which only lasted so long as the chance of loss or damage from any peril did not increase. Again, on the construction preferred by Mr Davis, this would on the face of it entail that the moment a threat was made to the insured to damage the building, malicious damage cover would cease, so that if the threat was immediately followed by damage there would be no cover. Mr Davis said that this would not be so, since either such a circumstance was so closely connected with the actual damage that it should be ignored, or that the insured had a reasonable time in which to report a change of circumstances such as a threat, but these qualifications are not hinted at, let alone set out, in the wording of condition 3.

….”

Conditions in insurance policies dealing with an increase of risk have a long history. The common law rule referred to by Saville J in Kausar severely limits the right of an insurer to avoid liability for an undisclosed increase in the risk of damage which occurs after the grant of cover. Absent non-disclosure of material facts, it is for the insurer to assess the likelihood of future risk on the basis of the proposal and to calculate the premium accordingly. For this reason it has become common for insurers to insert express provisions into policies requiring increases of risk to be notified and suspending or terminating cover if notification is not given.

The decision in Kausar demonstrates that the Courts have often given such clauses a fairly narrow construction. In Kausar itself the assimilation of the clause with the common law rule effectively robbed Condition 3 of any effect and is unlikely to have been what the insurer had intended to achieve. But the approach taken by the Court of Appeal was obviously much influenced by the potentially serious consequences for an insured of having to notify Eagle Star of any increase in risk however slight in order to maintain cover.

The common law does, however, distinguish between an increase of risk and cases where the nature of the subject matter insured has changed. In the second of these categories it will be easier to treat the new risk as falling outside the scope of the cover.

In Kausar the Condition was focussed in terms on a change of circumstances which increased the risk of damage and there is clearly a strong argument (accepted by the Court of Appeal) that evidence that malicious damage had occurred (and therefore was likely to recur in the foreseeable future) was not of itself a change of circumstances which increased the risk of damage or took the use outside the scope of the policy. It was simply evidence that the risk insured against existed by virtue of the state of affairs subsisting at the date of the renewal of the policy.

In the present case, however, General Condition 2 is not in terms limited to changes of circumstances which increase the risk of the insured peril occurring. It operates on a material change in the facts stated in the proposal form. This would include the physical state of the building and the use made of it both of which could have been highly relevant to the underwriter’s assessment of risk at the time when the existing cover was granted.

The protection of the Premises by a properly functioning sprinkler system was obviously something which was of concern to New India: hence question 6 in the proposal form. The cover was assessed and granted against confirmation of that fact. Turning off that sprinkler system does more in my judgment than merely to increase the risk of damage by fire. It constitutes a material alteration of the nature of the subject matter of the insurance. The existence of a working sprinkler system was on any view material to the proposal. A properly functioning system which protects the premises affects the safety of those premises and risk insured. The absence of such a system was by the same token a material change in the facts stated in that proposal.

For these reasons I am not persuaded that General Condition 2 ought to be construed in the same way as the Condition in Kausar and I am also satisfied that there was a material change in the facts stated in the proposal form so as to bring into effect a termination of cover from the time when the system was turned off prior to the fire. Although it is clear law that a warranty or representation as to the condition of the insured premises is not to be treated as covering the future (see Hussain v Brown[1996] 1 Lloyds L. R. 627) I do not accept Mr Terry’s submission that this principle should operate so as to inhibit the insurer from requiring notice to be given of any subsequent change of fact which is material to the insurance. The stipulations contained in General Condition 2 were obviously intended to recognise the limited effect of the representations of fact made in the proposal form and to give New India a greater degree of protection against subsequent changes in them. Mr Ansari had the protection afforded by the non-invalidation clause which clearly has to be read in conjunction with General Condition 2. Against this background, General Condition 2 is clear in its terms and I see no reason in principle why it should not be given effect to.

Given that Mr Ansari can not take advantage of the non-invalidation clause, it follows that the cover provided by the policy terminated prior to the fire and that New India were entitled to refuse to indemnify him for the damage which it caused.

The action will therefore be dismissed.