Anders & Kern UK Ltd (t/a Anders & Kern Presentation Systems) v CGU Insurance Plc (t/a Norwich Union Insurance)

This is a claim for payment under an insurance policy following a burglary. The insurer relies upon the burglar alarm condition in the Policy.

The Claimant (“Anders & Kern”) is a wholesaler of audio-visual presentation equipment and home cinema systems based at a building, which includes a warehouse, in Mildenhall Suffolk. The company was founded in 1989 and by 2004 had a turnover of over £8 million and a net profit of £390,000. At the time of the burglary on 16 April 2004 Anders & Kern had some 25 employees. Its managing director at the time and now is Mr Derek Kuziw. The financial director and company secretary was and remains Ms Ann Coxhead who deals with insurance matters within the company, often advised by its insurance broker Mr Kim Griffin who trades as “Griffin Insurance Consultants”. Anders & Kern has a good insurance record, its claims are low and, in recent years, have amounted to about one-tenth of premiums paid.

Until the 2003/04 Policy year Anders & Kern was insured by AXA but towards the end of 2003 Mr Griffin sought alternative quotes as a result of which the business went to the Defendant (“Norwich Union”) the well known insurer. During the night of Friday 16 April 2004 there was a break-in at the warehouse, damage was done and plasma screens were stolen. The value of the subsequent claim is agreed at £195,433.80 plus interest but liability is in dispute.

In essence Norwich Union says that the Intruder Alarm Condition (“IAC”) in the Policy requires either that the premises be attended or that an intruder alarm be set and working. Since neither requirement was met on the night of the burglary there is no liability. Anders & Kern says that on the facts the IAC did not apply or only did so subject to an implied term. Alternatively the IAC was never effectively incorporated as a provision of the Policy. Before turning to the facts I set out the relevant terms of the Policy.

The Policy is a Norwich Union Retail and Wholesale Policy. With exceptions and conditions the Policy runs to some 70 pages and while it needs to be considered in context the only provisions directly relevant are in the Theft Section which, as regards Cover states:-

“We will indemnify You in respect of Damage occurring during the Period of Insurance

(1)

in The Premises

(2)

in respect of buildings at The Premises where You are responsible for the repairs caused by

(a)

theft or attempted theft involving entry into or exit from The Premises by forcible and violent means

(b)

theft involving violence or threat of violence to You, Your partners, directors or Employees.

It is common ground that the IAC applies to (a) above but not to (b). The theft section also contains “Additional Conditions” and under the subheading “Keyholder” provides as follows:-

“You or any person or keyholding company authorised by You who must be available at all times to accept notification of faults or alarm signals relating to the Intruder Alarm System, attend, and allow access to The Premises.

If in relation to any claim for Damage caused by theft or attempted theft involving entry or exit from The Premises by forcible and violent means, You have failed to fulfil any of the following conditions, You will lose Your right to indemnity or payment for that claim.

While The Premises are unattended You must ensure that

(1)

The Premises are protected by an Intruder Alarm System and means of communication used to transmit signals from such an Intruder Alarm System designed, installed and maintained as agreed by Us.

(2)

The Protected Premises must not be left without at least one Responsible Person in attendance

(i)

unless the Intruder Alarm System is set in its entirety with all means of communication used to transmit signals in full operation

(ii)

if the police have withdrawn their response to alarm calls

unless we agree otherwise.

(3)

In the event of notification of any activation of the Intruder Alarm System or interruption of any of the means of communication during any period that the Intruder Alarm System is set, a Keyholder shall attend The Premises as soon as reasonably possible, in order to confirm the security of The Premises and reset the Intruder Alarm System in its entirety.

If the Intruder Alarm System cannot be reset in its entirety or all the means of communication used to transmit signals are not in full operation, a Keyholder must remain at The Premises unless We agree otherwise in writing.

(6)

You and each Keyholder maintain secrecy of codes and security of keys and setting/unsetting devices for the operation of the Intruder Alarm System. All keys and other setting/unsetting devices for the Intruder Alarm System must be removed from The Premises when they are left unattended.

(7)

The Intruder Alarm System is maintained in full and efficient working order under a contract to provide both corrective and preventative maintenance with the installing company or other such company, as agreed by Us.

(8)

You must appoint at least two Keyholders and lodge written details (which must be kept up to date) with the alarm company contracted to maintain the Intruder Alarm System, and with the police if they so require.”

This action was tried on 7 and 8 February. Few of the facts are disputed. I heard evidence from Mr Kuziw for Anders & Kern and from Mr Sterecki, a Commercial Underwriter at the Cambridge branch of Norwich Union and from Ms Ann Butler, its Senior Underwriter. The witness statements of the Norwich Union witnesses contained some passages more appropriate to an expert witness than to one of fact and some speculation and argument. I declined to conduct a redaction exercise on these statements but I have ignored the offending passages, none of which cast light on the central issues. All three witnesses were completely honest and straightforward. Norwich Union’s witnesses were not much challenged on the facts and to the extent that it was suggested that Mr Kuziw was inaccurate or wrong in his recollection, I believed him completely. He gave a measured and entirely credible account of events and was as willing to admit facts that would damage his case as those which would progress it. I also heard from two expert witnesses in the area of security and loss prevention. Mr Stewart Kidd gave evidence for Anders & Kern and Mr Graeme Dow for Norwich Union. Both experts did their best to assist the court and it is no fault of either that their evidence is not decisive in this case.

On 26 November 2003 Mr Griffin requested a quotation from Norwich Union indicating that the warehouse was secured by a BT Redcare Alarm System. On 2 December 2003 Norwich Union sent a quotation which stated, amongst other things “normal terms, conditions and exceptions of our standard wording” ;

“a specimen of the Policy and endorsement wordings are available on request”.

Neither Mr Griffin, nor Anders & Kern requested a specimen of the Policy. Neither Mr Griffin nor Ms Coxhead gave evidence. It seems likely that Mr Griffin, who had dealt with Norwich Union for some time and who frequently received materials and information from it would have known, at least in general terms, of the IAC. On 10 December Ms Coxhead instructed Mr Griffin to transfer the insurance to Norwich Union. The Norwich Union quote was competitive and that company insured other risks of the Claimant. It seems that the Policy incepted on 10 December 2003. In early February Policy documents and a Schedule were prepared by Norwich Union and sent to Mr Griffin. The additional clauses included a stock declaration provision and the IAC. Mr Griffin referred specifically to the stock declaration when acknowledging receipt of the documents from Norwich Union. There is no evidence that when passing these materials to Ms Coxhead Mr Griffin gave any advice about the terms of the new Policy and their implications. In evidence Mr Kuziw said that he did not himself read the Policy but that he assumed that Ms Coxhead had done so.

The Norwich Union quotation was subject to a survey and on 4 March 2004 this was carried out. A report was sent to Anders & Kern in which Norwich Union said that an appraisal of the precautions in place to reduce the risk of loss or damage to the business had been undertaken and that a schedule of risk improvements had been prepared and discussed. Under “burglary” the report said only “at the close of each working day all ground floor windows are to be closed and the key operated window locking devices put into operation”. The reactions of Mr Griffin after the theft indicate that the IAC was in the documents sent out in February 2004.

Mr Kuziw left the warehouse just after 6.00 pm on Friday 16 April 2004. He was the last to leave apart from the cleaner Ms Schultheiss. At about 7.00 pm the BT telephone line used for the alarm system was cut . At about 7.10 pm Ms Schultheiss telephoned Mr Kuziw and told him that the alarm pad was bleeping. At about the same time he also received a call from the maintainers of the alarm system, Chubb, who told him of a fault on the BT line. Mr Kuziw went back to the warehouse and telephoned Chubb and BT. BT was unable to tell him when an engineer would attend (Norwich Union has pointed out, but only after the event, that if Anders & Kern had taken a more expensive maintenance package from BT arrival of an engineer would have been likely if not guaranteed within 4 hours). Mr Kuziw left his home and mobile telephone numbers with BT so that he could be kept informed of progress. He telephoned the police to ask them to be vigilant given the problem which had developed and supplied them also with his home and mobile numbers. Mr Kuziw parked a fork lift truck in front of the roller doors to the warehouse and ensured that each lock was secure. The police station was about one and a half miles away from the warehouse. At about 9.30 pm Mr Kuziw felt alone in the warehouse in a relatively remote location on an otherwise empty industrial estate. Mr Kuziw did not feel safe remaining at the warehouse and returned home. In cross examination Mr Kuziw accepted that had he known that the insurance policy required attendance if the alarm was not set he would still have left but would have telephoned security companies and tried to get someone to attend. I reject the suggestion however that this was some choice by Mr Kuziw to go home knowing that insurers would bear the risk. He was simply unaware of the matter and his decision did not involve that calculation. Mr Kuziw did not telephone either of the other two keyholders (one of whom is Ms Coxhead) or any of his company’s employees (who , if they had come out ,would have been “Responsible Persons” under the Policy). Mr Kuziw also accepted that if he had been aware of the IAC he would have phoned security companies and tried to get someone to attend. Mr Kuziw has in the past been called out, a couple of times when there has been some fault with the alarm. One area covered by the expert evidence is speculation about what would have happened if Mr Kuziw had decided to try and find a security guard late on a Friday evening.

Overnight a burglary took place. Entry was gained by forcing a window. The alarm equipment was disabled when the sounder was ripped from the wall. The telephone lines were cut as were the locks to the roller doors. The fork-lift truck was pushed out of the way. After the police arrived it emerged that the reason the alarm had not been working the night before was that the telephone line had been deliberately cut in advance, almost certainly by the burglars.

Mr Kuziw rang round on Saturday to find a security guard to come to the warehouse and remain there. He tried seven or eight companies without getting a response. Eventually he spoke to the owner of a small business, Star Security, who came round promptly and was later awarded a contract by Anders & Kern.

On 6 May Norwich Union carried out a repeat of the risk assessment exercise done in March. This time the conclusions and requirements were quite different. A security guard employed by an approved company was to be on duty whenever the premises were unoccupied and detailed requirements were imposed about how this job should be done. The alarm system was to be upgraded to a dual path signalling system. This meant that there would be a mobile as well as a fixed telephone line and if one failed or was cut the other would keep the system going. There were other alarm and security requirements set out in this risk improvement document and in another issued on 17 May. It is understandable that Anders & Kern regretted that at least some of these additional requirements had not been suggested or imposed in March.

The correspondence between the parties after the theft does not cast much light on the issues I have to decide. It seems clear however that Mr Griffin corresponded on the assumption that the IAC applied but had not been complied with.

When Anders & Kern made a claim under the Policy Norwich Union declined to pay on the grounds that since Mr Kuziw had not remained in the warehouse overnight it had been neither attended nor protected by the alarm.

On 18 June 2004 Mr Kuziw wrote to the Chief Executive of Norwich Union. He set out the facts, referred to the premium of £23,373 which Anders & Kern had paid and the additional costs of some £18,000 it was having to pay to maintain cover by introducing measures which, if recommended in the first place, would have prevented the burglary. He invited Norwich Union to reconsider. Reading that letter and the response from Norwich Union one can understand why Mr Kuziw formed the view that his company had not been well served by its insurers.

On 14 October 2004 Anders & Kern’s solicitors wrote to Norwich Union and, amongst other things, requested, after the event, written agreement under the IAC for the premises to be left without a person in attendance or the Intruder Alarm System being set. That consent was not given.

As I have already observed, this evidence seems to me of limited relevance to the issues which remained at the trial. I shall therefore summarise this evidence only briefly.

Mr Kidd, for Anders & Kern concluded that it would not have been reasonable to expect Mr Kuziw to remain in the building overnight given the security risk, a conclusion shared not only by Mr Kuziw himself but by Ms Butler of Norwich Union. He also concluded that it would not have been reasonable for a security guard to have been left alone in the building overnight without there first being health and safety and fire risk assessments together with a security survey. He considered that Anders & Kern could not reasonably have been expected to do anything more than they did on the evening of 16 April. Mr Kidd also carried out an experiment by going to the warehouse at 9.00 pm on 1 April 2005 repeating in effect the exercise which Mr Kuziw had carried out on the Saturday after the burglary to obtain a security guard and found that none of the seven companies originally contacted could supply one that night. Mr Kidd also formed the view that even if Anders & Kern had entered into a key holding contract with a specialist company he doubted if this would have produced an effective response on 16 April. He considered that the contract would generally not require the key holder company to remain for more than a fixed period and that too might be reduced if there was another call to answer.

Mr Dow considered that a guard would have been available if there had been a pre-arranged guarding or key holding contract. He also considered that a guard might well have been available if Mr Kuziw had made more effort on the evening. He cited the availability of a 4 hour call out contract with BT at an additional charge and he mentioned that the alarm could have been set to “bells only” mode even without the telephone line. That was something that Chubb had not explained to Mr Kuziw. Mr Dow’s views about the availability of a guard on the night were based on an informal survey and seemed to me less empirical and reliable than the conclusions of Mr Kidd (which I accept had some limitations). Mr Dow was doing his best to help the court but he seemed to me to be less at home with the process of being an expert witness than Mr Kidd and less organised in the presentation of his views. For example having cited in his report an article from a publication “Risk UK” to support a passage in his report he disowned the article as an unreliable advertisement when taken to a passage which did not assist his position. (Furthermore a helpful standard contract for shared key holding and alarm response services which Mr Dow produced in the witness box gave some support for what Mr Kidd said were the unavoidable limitations of such an arrangement.) For these reasons, on balance, I prefer the evidence of Mr Kidd about the issues to that of Mr Dow.

Anders & Kern points to the fact that the IAC does not apply to the second category of theft, that “involving violence or threat of violence to You, Your partners, directors or Employees. Mr West argues that there was a threat of violence in this case because the burglars had already disabled the system by the time Mr Kuziw attended the warehouse. It is conceded that violence was used in the burglary in the sense of damage to property. It follows that there was a threat of violence to Mr Kuziw because he was at risk of attack when alone at the warehouse. Mr West submits that the ordinary meaning of the word “threat” does not require there to have been a threat by direct words or action. Thus an atmosphere can be threatening without any actual words being uttered or physical intimidation being offered. He says that if threat was to have a special or restricted wording it should have been made a defined term particularly given that, being Norwich Union’s document, the Policy will be construed against it.

Mr Elkington for Norwich Union argues that for there to be a “threat” there must be some form of communication between the person threatening and the person threatened. There must be some knowledge or perception on the part of the person threatened. The use of the wording “involving” indicates that something must happen. In this case nothing happened to Mr Kuziw. No one threatened him and he did not perceive that anyone was doing so. He had no idea on the night of 16 April that anything was wrong beyond a fault on the BT line. He also argues that if the word threat is given this broad meaning then the IAC would have no application because all theft could be said to involve a threat of violence. If Anders & Kern were right an insured would never have to comply with the terms of the IAC because he or she could leave whenever the alarm stopped working because of concern about some unspecified threat.

Anders & Kern argues that it is an implied term of the policy that Norwich Union’s power to relax the requirement of the IAC that a Keyholder remain at the Premises “unless we agree otherwise in writing ….” is one that cannot be unreasonably withheld. An alternative implied term contended for is one that “a Keyholder would not be required to remain at the premises if to do so would, or if the Keyholder reasonably perceived that it would, put him in personal danger”. These terms are put forward as being required for reasons summarised in MacGillivray on Insurance Law at paragraph 11-11: “terms may be implied in order to give effect to the principle of utmost good faith underlying every contract of insurance, such as those obliging insurers to exercise rights conferred on them for their benefit with proper regard for the interests of the assured”.

If I am wrong about that and the test is whether Norwich Union acted unreasonably in declining to give its agreement there is still not, as I see it, a breach given the competing arguments put forward. There is no doubt that Mr Kuziw acted entirely reasonably given the situation in which he found himself and to the extent that Norwich Union contend otherwise I disagree. There is however more force in the submissions made by Norwich Union about the wider considerations it would have been entitled to take into account. First the scope of the risk described in the IAC is clear and should have been known to Anders & Kern. Secondly it was open to Anders & Kern to put in place the provision of people or contractual assistance so that the premises were attended if the alarm was not working. If Anders & Kern did not want its employees to attend the premises themselves at night if the alarm was not working then it was open to them either to decline the cover or to take the risk of being uninsured. In contrast to some contractual provisions the effect here of agreeing otherwise is to shift the entire agreed allocation of a risk from one party to the other. Clearly some circumstances may arise where it would be unreasonable to agree otherwise, for example in the aftermath of a burglary. There is a distinction to be drawn between what it was reasonable for the Claimant to do on the one hand and what it was unreasonable for the Defendant to decline to agree on the other. It does not follow that because the Claimant was acting reasonably in a particular situation that it would be unreasonable for the Defendant to decline to extend the cover.

Anders & Kern contends that the IAC never became incorporated into the Policy. This third ground was not pressed by Mr West with much force at trial. The IAC is in the section of the Policy headed “Additional Conditions”. These apply only if stated in the Schedule. The Schedule to the Policy states under “Additional Conditions applicable” the words “Intruder Alarm Conditions”. However Anders & Kern points to the fact that the quotation for the insurance stated only that it was subject to normal terms and conditions and that a specimen policy wording was available on request. Anders & Kern rely on the fact that as at 10 December 2003 there had been no reference to the IAC. Mr West argues that even if the IAC is said to be one of Norwich Union’s normal terms and conditions the specimen policy wording which was available in December was simply a long form pre-printed policy and it would not have been clear from this, without the Schedule, which Additional Conditions apply.

Mr West has an alternative case on Incorporation even if the IAC formed part of the Norwich Union’s normal terms and conditions. He contends that the IAC is so onerous and exceptional in its provisions that it cannot be incorporated by a mere reference because specific and particular notice was required. This is because Mr West puts the IAC into the category graphically described by Denning LJ in J Spurling Ltd -v- Bradshaw [1956] 1 WLR 461: “I agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient”.

Mr Elkington relies on the well established principle (see for example MacGillivray at 2-10) that a court will not require the parties to have reached separate agreement on all the terms of the insurance, apart from the essentials, in order that a contract should be held to exist. It will readily be assumed that when an Applicant seeks insurance cover from particular insurers he impliedly offers to take an insurance on their usual or standard terms of cover. This would be the case even if the quote had not referred to “normal terms, conditions and exceptions”. The evidence of Norwich Union was that the IAC would always be included in their company’s theft cover of this category. He contends that the “red hand rule” does not apply because Anders & Kern or at least their agent Mr Griffin knew that the contract contained or would contain such a clause and it seems that Mrs Coxhead would also have done so had she asked the questions which Mr Kuziw would have expected her to put. Furthermore there is nothing to show that this type of clause is particularly unreasonable or onerous. It appears from the textbooks that similar clauses are common. Mr Elkington also relies, should he need to do so, upon estoppel by convention, the parties having proceeded on the assumption that the Schedule accurately set out the applicable terms and also on estoppel by representation on the basis that Anders & Kern came under a “duty to speak” once it became aware that Norwich Union was proceeding on the mistaken assumption that the IAC formed part of the policy.

Anders & Kern were right to place little emphasis on this argument. Insurers generally and Norwich Union itself, as its witness accepted, often give more emphasis to provisions like the IAC than did the documentation in this case. That is obviously desirable. However it is clear that Anders & Kern agreed to the policy either knowing that there were standard terms but not checking them or learning what those terms were but still deciding to go ahead. The IAC was, as I see it, incorporated into the Policy essentially for the reasons Mr Elkington gives. Although the provision may have had a harsh effect in this case it is in conventional terms, clear in its meaning and well away from the categories of exclusion clause which Lord Denning identified as requiring a red hand.