Synergy Health (UK) Ltd v CGU Insurance Plc (t/a Norwich Union) & Ors

The Claimant company (to which I will refer as “Synergy”) is one of a number of companies in the Synergy group of companies, which provide laundry and related services to the NHS. The business was founded by Dr Richard Steeves in 1991 and has grown fourfold since then. In October 2005, during the period with which this case is concerned, Synergy acquired another business called Shiloh Plc, which was a substantial supplier of services to health care providers.

One of the laundries owned and operated by Synergy was at Unit 32, Verey Road, Woodside Industrial Estate, Dunstable. This was a modern building constructed in the 1990s which Synergy acquired and developed as a laundry in 2005. With effect from 23 May 2005, the premises and the plant and equipment were insured against, inter alia, the risks of material damage and business interruption, by way of addition to the Combined Commercial Policy for the year 30 April 2005 to 29 April 2006 (subsequently renewed from 30 April 2006 to 29 April 2007) under which the First to Fourth Defendants insured Synergy. The insurance was underwritten on behalf of the First to Fourth Defendants (to whom I will refer as “the insurers”) by underwriting agents, Fusion Insurance Services Limited (“Fusion”) in Birmingham. The insurance was placed with Fusion by the Fifth Defendants, THB Clowes Limited (now called Towergate TLC Limited following a takeover in 2006), insurance brokers acting on behalf of Synergy (“the brokers”).

On 3 February 2007, during the currency of the renewed policy, there was a fire at the Dunstable premises which led to a claim by Synergy under that policy for both material damage and business interruption losses. The material damage claim has been agreed at £4 million and whilst there are some areas of dispute in relation to business interruption, the overall claim under that section of the policy is in excess of £2 million. However, the insurers have repudiated liability and sought to avoid the contract of insurance for alleged material non-disclosure and/or misrepresentation by Synergy before and at the time of the renewal of the insurance as at 30 April 2006.

The alleged misrepresentation arises from the fact that, on 28 December 2005, the brokers forwarded to Fusion a letter from Dr Geoff Andrews, Operations Director of Synergy, dated 13 December 2005 which dealt with various Risk Improvements outstanding from insurers’ surveys of Synergy premises, including a survey at Dunstable on 15 September 2005 which had noted the absence of an intruder alarm. In relation to this, the letter stated “Intruder Alarm. This will be completed by end December”. In fact work had not even commenced and due to an extraordinary internal breakdown in communications within Synergy (which I will need to consider in detail hereafter) the alarm was never installed before the fire over a year later.

The insurers’ case is that the statement in the letter was a misrepresentation as at 28 December 2005 when conveyed to them which was never withdrawn or corrected prior to renewal. Accordingly, they contend that there was a continuing material misrepresentation or an implied material misrepresentation at the time of renewal. Alternatively, they contend that there was a material non-disclosure of the fact that there was no intruder alarm installed at the Dunstable premises. Either way, it is their case that their underwriter Simon Smith and his immediate superior Paul Garbutt, the Regional Underwriting Manager for Fusion, who between them had responsibility for underwriting the risk at renewal, were induced to renew the policy by such misrepresentation or non-disclosure.

In those circumstances, Synergy has commenced proceedings against both the insurers, seeking an indemnity under the policy and against the brokers for damages for breach of duty if (contrary to Synergy’s primary case) the insurers were entitled to avoid the contract of insurance.

Before setting out my findings of fact in detail, I should just set out my findings about the various witnesses who gave evidence at the trial. Synergy called a number of its former and current management. Ms Sue Cowley was the operations manager at Dunstable until she left in December 2005, for what were essentially personal reasons. She was a candid witness who understandably had a limited recollection of events after some five years, but I found her entirely truthful. Mr Nicholas Caley, who was to take over from her as operations manager at Dunstable having been operations manager at Derby, was also straightforward, although some of his evidence was rather confused and he evidently had some embarrassment over the fact that his errors, particularly in relation to the email exchange in January 2006 which I describe in detail below, contributed to the situation in which Synergy found itself after the fire.

Mr Derek Isles was managing director of UK linen services within Synergy and, as such, the immediate line manager of Ms Cowley and Mr Caley. He too was straightforward in his evidence, although like others, he had limited recollection of events. He fairly accepted that the problem over the non-installation of the alarm had arisen because nobody at Synergy “saw it through”.

Dr Geoff Andrews was operations director of Synergy at the time. For reasons which I set out in more detail below, he was the person in Synergy management who was most to blame for what went wrong. It may have been an appreciation that what occurred was to a substantial extent his fault that led to his being somewhat defensive and inflexible in his evidence. On a number of occasions he showed a marked reluctance to accept propositions which pretty clearly were the explanation for what had occurred.

Another aspect of his evidence was extremely unsatisfactory. After the fire, he was interviewed by the loss adjusters and on Friday 9 March 2007, a witness statement was taken from him. It is apparent that at the time that the statement was taken he had forgotten about his involvement with the installation or otherwise of the intruder alarm at Dunstable since the statement said in paragraph 32:

“As far as I am aware there was never an issue relating to a burglar alarm system. Certainly I was never involved in any discussions relating to such at our Dunstable branch. I have never commissioned or asked for such a system to be considered. This is something I cannot comment on”.

Dr Andrews did not sign the statement until the following Monday 12 March 2007. However, before he did so, his memory about his involvement with the problem of non-installation of the alarm at Dunstable must have been jogged by an email exchange later on 9 March 2007 with Mr Harris of the brokers and then Mr Caley, where Mr Harris was asking why an alarm had not been installed and Mr Caley, albeit incorrectly, was saying that there had been a number of quotes obtained, but that the expenditure on the alarm had not been approved because of the tight budget on installation of the Dunstable laundry.

Dr Andrews accepted, on the basis of these emails, that between the statement being prepared and its signature, his attention had been directed to the fact that there had been a number of quotes for the alarm. When challenged as to why he had not corrected the statement, he initially said this was an oversight. When it was pointed out to him that at the end of the statement before his signature, it said: “I believe the facts in this Statement are true”, he then came out with some quite extraordinary evidence that this was a statement as to his belief on 9 March when the statement was taken, not on 12 March, when he signed the statement. I considered this evidence unimpressive, displaying a somewhat cavalier attitude to the giving of evidence generally. In consequence, I approached the evidence of Dr Andrews with a certain amount of caution.

Mr Ivan Jacques was the finance director of Synergy, who had overall responsibility for insurance matters. He was by far and away the most impressive of Synergy’s witnesses, intelligent and sophisticated. He gave his evidence in a frank and fair manner. The particular significance of his evidence was that it was quite clear that, at the time, he had been unaware that the alarm had not been installed by the end of December, but that if he had known this, he would have immediately issued instructions for the installation of the alarm and would have ensured that any misleading impression given to the brokers and insurers was corrected.

Mr David Johnson was the former Group Accountant for Shiloh and then for Synergy Health plc. He had taken over responsibility for insurance within Shiloh about eighteen months before the takeover. He took over responsibility within the newly expanded Synergy group for insurance matters with effect from January 2006. He was an essentially straightforward witness, although he was obviously somewhat embarrassed by the fact that he had missed various opportunities which would have revealed to Synergy senior management before the fire that the alarm had not been installed.

Finally, Dr Richard Steeves, the chief executive officer and founder of Synergy gave evidence. His involvement would normally have been high level and he would not have been concerned with the installation of an alarm. However, he did have an email exchange with Mr Caley on 9 January 2006, as a consequence of which the alarm was in abeyance. He accepted quite candidly that he was partly to blame for the situation in which Synergy found itself, although he clearly thought others within the organisation should carry greater blame.

The insurers called both the underwriters who were responsible for writing the risk, Mr Simon Smith, a commercial underwriter with Fusion in Birmingham who dealt with the brokers on the details of the placing of the risk in 2005 and 2006 and Mr Paul Garbutt, the Regional Underwriting Manager for Fusion in Birmingham. It was Mr Garbutt who made the ultimate underwriting decision as to whether to write the risk and whose evidence is therefore the more critical on the issue of inducement.

Mr Smith was a careful and fair witness, reflecting in his evidence before me his attitude to his underwriting. Where appropriate, he readily conceded that he had neglected to chase up or check particular points, which made his evidence overall more impressive. Mr Garbutt was also an intelligent and careful witness, again reflecting his attitude to underwriting. It seemed to me that Mr Garbutt was an honest witness doing his very best to give evidence about what he believed he would have done if the true position had been disclosed to him prior to the 2006 renewal. However, although I found Mr Garbutt to be honest and truthful, it does not follow that I have to accept his evidence on this issue of inducement, given that inevitably such evidence is all given on a hypothetical basis, with the benefit of hindsight.

The insurers also called Mr Neil Willetts, the risk surveyor at Fusion who was responsible for the various surveys of premises including Dunstable. He was also a fair and careful witness.

The brokers called Mr Paul Harris, the director with overall responsibility for this account. He was very uneasy and nervous in the witness box and I agree with Mr Wynter QC for the insurers that he was somewhat suggestible, in the sense that he tended to agree with propositions put to him, mainly by Mr Eklund QC for Synergy, as to what he should have done in certain circumstances. I have to say that I viewed these “admissions”, if they can be called that, with some circumspection. It certainly does not follow that the brokers were in breach of duty, which is a more complicated question, as Mr Eklund essentially accepted.

The brokers also called Mr David Hawkins, the Account Handler who had the day to day responsibility for the account and for contact with both the insured and the insurer. He was an altogether more robust character than Mr Harris, who gave his evidence in a forthright, straightforward manner.

It is not necessary to make specific findings about the expert witnesses who gave evidence on issues of materiality, broking practice and forensic accounting, save to say they were all impressive witnesses doing their best to assist the Court. Where it was necessary to prefer one expert over another, that emerges at the relevant point in the judgment hereafter.

In view of the issues which arise it is necessary to look in a little detail at the history of the relationship between the parties. The brokers had in fact acted as brokers for Synergy throughout the 1990s, evidently as a consequence of Dr Steeves knowing Mr Paul Dudley, the managing director of the brokers. For a couple of years in 2001 and 2002 other brokers acted for Synergy, then in 2003, the brokers acted for Synergy again.

At this stage, Synergy was operating a laundry and a warehouse at two locations in Derby, Newmarket Drive and Ascot Drive and laundries at two other locations in Sheffield and Bristol. The brokers approached Fusion for a quote for material damage/business interruption and employers’ liability insurance. Mr Neil Willetts the Regional Risk Control Manager of Fusion carried out what were described as “Pre Quote Surveys” at the two Derby locations on 26 April 2003. This corresponded with what Mr Garbutt said in evidence, that on a new risk, so far as possible, Fusion would try to conduct a survey before coming on risk.

It is not necessary to set out the detail of the survey report. It noted that Ascot Drive was a 1970s building in satisfactory repair and that Newmarket Drive was a 1990s building in excellent repair. There was also a “Private and Confidential” Report which only ever went to Fusion’s underwriters, not to the insured. This described Synergy’s quality of management as “Good standard of management with premises well laid out and clean and tidy.”

Under the “Summary/Acceptability” section of this Report, Mr Willetts stated:

“Expanding and well run medical textile and equipment suppliers here operating a large laundry and a warehouse from two non combustible industrial blocks on the edge of Derby having management, housekeeping, security and health and safety to a good standard subject to risk improvements which were all discussed and agreed during the survey”

These comments in the Private and Confidential Report were essentially reiterated in all subsequent such Reports.

The Risk Improvements were headed with a rubric:

“Please keep your Insurance Broker informed on progress with implementation and confirm. Implementation of Risk Improvements is considered essential and completion should be within the timescales indicated when completed.”

There were two Risk Improvements which are of particular relevance to the issues in the case. The first concerned the need for the electrical installation at Ascot Drive (which had not been tested, according to the body of the report, since 1996) to be inspected and any defective wiring or equipment to be brought up to standard under current Regulations within 30 days of inspection. A certificate was to be obtained from the electrical contractor and forwarded to Fusion. Implementation was to be by 26 July 2003.

The second Risk Improvement arose out of the fact that Mr Willetts noted that the fire alarm at Newmarket Drive was not linked to the remote signalling link on the intruder alarm. He recorded this as follows:

“2003-02 Fire Alarm System

The Newmarket Drive premises benefit from a good fire alarm system with smoke detectors throughout. The system needs to be linked into the remote signalling link on the intruder alarm giving early central station signalling in the event of a fire and therefore prompt brigade response with potential minimisation of fire damage.

Implementation by 26^th June 2003”

The remainder of the Risk Improvements related to health and safety issues relevant to the Employers’ Liability section on which there was some claims experience under the previous insurances.

On 14 May 2003, Mr Garbutt wrote to Mr Dudley of the brokers agreeing to hold covered with effect from 30 April 2003. He stated that cover was conditional upon (1) satisfactory survey of the premises which was currently being arranged; (2) the insured’s agreement to the Declaration of Material Facts and (3) an authenticated five year claims experience.

The Declaration of Material Facts was a document which stated that the insurance had been agreed on the basis that certain facts were true and accurate to the best of the insured’s knowledge and belief. The facts were that no previous insurance had been declined, that none of the directors or principals had been (a) convicted or charged (but not yet tried) for a criminal offence involving fraud or bankruptcy (b) declared bankrupt (c) a director or partner in a company or partnership which had been subject to insolvency of one kind or another or (d) disqualified under the Company Directors Disqualification Act 1986. The Declaration, which was provided by Synergy on each renewal, was thus directed at declinature and certain kinds of moral hazard. I will return to consider this Declaration further later, in the context of Synergy’s and the brokers’ argument that, by requiring this Declaration and no more by way of written declaration of material facts, the insurers effectively waived any further disclosure.

Mr Willetts then conducted a survey on the Bristol premises on 23 June 2003 and another surveyor, Mr Stuart Smith, conducted a survey on the Sheffield premises on 31 July 2003. These surveys were satisfactory and contained the same sort of comments about the insured and its business as in the Derby survey. Two of the Risk Improvements at Sheffield should be noted. The first was a similar Risk Improvement to the one at Derby about testing of electrical installations and certification.

The other concerned the external storage of metal cages of soiled linen which the surveyor saw as increasing the risk of arson. He asked that no combustible materials be stored within five metres of the building and that cages be secured in position. This was for immediate action. In the event it emerged that Synergy was having considerable difficulties in complying with this risk improvement because the land sloped away and the cages had to be chained to the building to prevent movement. Mr Garbutt explained this to the surveyor as “a client who understands our concerns but cannot come up with a logical way of resolving the problem”.

However, a stalemate developed because the surveyor then insisted on the erection of a firebreak wall which Synergy regarded as too expensive and impractical. At the renewal in March 2004, Mr Garbutt was concerned that Fusion would lose the account unless a compromise solution was agreed. The proposed compromise consisted of an extension of the fire alarm system and upgrading of glazed panels linked to a minimum two metre clearance. Mr Garbutt discussed this with his boss in London, Mr Mike Watts. In the event, after further evidence was put forward by Synergy of site security, Mr Garbutt agreed to accept the position without further risk improvement.

Without going through the detail of all the other Risk Improvements and their implementation, a clear pattern emerges. It is noticeable that the insurers never made compliance with the Risk Improvements a condition of cover, either at the time that they were imposed or at any renewal. That is not to say that the insurers did not regard the implementation of the Risk Improvements as important. They clearly did, but rather than imposing contractual conditions, their approach was to chase the insured, via the brokers, for confirmation that Risk Improvements had been implemented and, if such confirmation was not provided, to chase again, until confirmation was provided.

The other aspect of this which should be noted is that, although on occasions, Synergy was slow in implementing Risk Improvements, there was no question of its refusing to do so. In due course, the Improvements would be implemented. Fusion regarded Synergy as a good quality risk, particularly on the property damage and business interruption insurance, where there had been no claims before the fire. Employers’ Liability (“EL”) posed some problems, with an increasing claims history, but it is clear that Fusion regarded Synergy as having a responsible attitude to risk management and as being willing to work with the insurers to reduce exposure to such claims. Overall, Fusion considered Synergy a well run business and a good insured, which it would be loath to lose to rival insurers. This is reflected in Mr Garbutt’s report to Mr Watts at the 2004 renewal about the impasse at Sheffield, to which I have already referred. It is also reflected in Mr Garbutt’s internal memorandum to Mr Smith dated 25 April 2005 at the time of the second renewal, when Mr Smith had referred the matter to him. Notwithstanding his concerns about deteriorating EL claims experience, Mr Garbutt stated: “Overall the account is of quality and we do not wish to lose the connection”.

On 6 May 2005 soon after the renewal of the insurance with effect from 30 April 2005, Mr Hawkins of the brokers sent an email to Mr Smith asking the insurers to add plant and equipment at Dunstable to the value of £3.8 million with effect from 23 May 2005. Mr Hawkins told Mr Smith the premises would not be occupied until July. Mr Smith replied on 18 May 2005 asking questions about various aspects of the premises including construction and security and seeking urgent clarification as to why the premises were unoccupied until July. Mr Smith also indicated that Fusion would be arranging to carry out surveys at the two premises in Derby, Sheffield, Bristol and the new premises at Dunstable. The further surveys at the existing premises reflected Fusion’s policy of re-surveying premises every two years.

Mr Hawkins asked Miss Harrison of Synergy the following day whether a Redcare alarm was operational at Dunstable or whether there were other security arrangements. The reference to “Redcare” was to signalling via a BT line to a central monitoring station to ensure a rapid response to any break-in at the premises.

Mr Smith chased Mr Hawkins in an email of 20 May 2005, from which it is apparent that Mr Hawkins had told him that the reason for cover being required was that contractors were going to be delivering equipment to the premises, but Synergy would not be occupying them until July. In view of the fact that the premises would be unoccupied for a couple of months, Mr Smith said that insurers might only be able to offer restricted perils on the machinery. No doubt this reflected what Mr Smith accepted in cross-examination, that insurers do not like insuring unoccupied premises.

Also on 20 May 2005, Mr Smith put in an urgent survey request to Mr David Thomas, the Fusion surveyor with responsibility for the South East. In the event it was decided that the survey would be carried out by Mr Willetts who was carrying out the surveys of the other premises (and who as noted above had carried out some of the original surveys in 2003) and that he would be accompanied on the Derby surveys by Mr Darren Fairest, the health and safety specialist amongst Fusion’s surveyors. This was because there had been a number of EL claims over the previous two years since the insurers first came on risk. Although Mr Willetts and Mr Fairest surveyed the Derby locations in July 2005, the premises at Dunstable were not in fact surveyed until 15 September 2005, despite the urgent survey request. Mr Willetts said in evidence that it was not possible to arrange it sooner because of other commitments (including holidays) and finding a date convenient to Synergy.

On 24 May 2005, Mr Hawkins gave Mr Smith details he had obtained from Miss Harrison about the construction of the building. He said that details of the alarm were to follow but mentioned that the landlord provided 24 hour site security with monitoring of CCTV and regular site patrolling. On 27 May 2005, Mr Smith confirmed to Mr Hawkins verbally that the insurers would provide full cover for Dunstable, with a survey to be arranged. On 31 May 2005, Mr Hawkins conveyed this in an email to Miss Harrison and said he looked forward to hearing from her about the intruder alarm.

It is thus apparent that the insurers came on risk in respect of plant and machinery at Dunstable without a survey having been conducted and without knowing whether an alarm had been installed. Two aspects of this are of some relevance to the issues in the case. First, it is to be noted from the Schedule of Rates that Mr Smith rated the plant and machinery at Dunstable at 0.133%, the same rate as was applicable to plant and machinery at the other premises, where intruder alarms were installed. His explanation in evidence was that the occupation was the same as at the other premises, namely a laundry and he had rated it “according to the final risk” in other words on the basis that the alarm would be installed if there were not one in place. He accepted that, given his experience of Synergy and its responsible risk management he would have had no reason to think the insured would not bring Dunstable up to the same standard as the other premises.

Second, Mr Garbutt said in evidence that it was Fusion’s practice to conduct surveys of all new risks and re-surveys at regular intervals on existing risks, all of which is apparent from what happened here. He also said that where there had not been time to carry out a survey before coming on risk, it was his practice to make cover subject to survey, for the obvious reason that if the survey revealed the risk was unsatisfactory to insurers, they could come off risk. However, it is notable that Mr Smith does not seem to have consulted Mr Garbutt about the addition of Dunstable in May 2005. Certainly Mr Garbutt had no recollection of having been consulted and nothing in Fusion’s file suggests he was. Furthermore, Mr Smith did not make cover subject to survey when he agreed full cover on Dunstable on 27 May 2005. It seems to me that this reflects Fusion’s perception of Synergy at the time as a good quality risk, with a well-run business and responsible management.

When Kate Harrison sent an email to Sue Cowley, the operations manager at Dunstable on 31 May 2005 inquiring what type of alarm they had installed at Dunstable, Ms Cowley replied that they had discovered the previous week that what they had thought was an existing alarm system had been disconnected and was nothing but fascia. She said that she had obtained a quote for an alarm and “will be progressing asap”. She asked how much Derby paid for their system to see whether the quote she had was good value. The quote referred to was from Chubb who visited the premises on 26 May 2005 and quoted the following day a total of £5,642 plus VAT for installation of a Redcare intruder system.

On 3 June 2005, Mr Smith sent Mr Hawkins the endorsement to the policy adding Dunstable and asked him to confirm the details of the alarm there urgently. Mr Smith chased again on 17 June 2005 saying he really could do with the details of the alarm at Dunstable. Mr Hawkins spoke to Ms Cowley on 22 June 2005. By this stage, as she told Mr Hawkins, she had received two further quotes for the alarm system (these were from Bell at £5,180 plus VAT for installation and from ADT at £3,994 plus VAT for installation). Ms Cowley told Mr Hawkins that it was “top priority to proceed”.

When Ms Cowley was asked in cross-examination why, if it was top priority to install the alarm, she had not done so, she said that there were a lot of top priorities at the time, with the fitting out of new premises. The installation didn’t get done because there were so many other things for her to do. She accepted that it was important, but said that the absence of an alarm did not affect the day to day running of the business and there was always something more pressing to deal with. However, it was also her clear evidence which I accept that if she had ever known that the insurers had imposed a deadline for installation (as Mr Willetts did in his survey report to which I return below, but of which she was unaware at the time) she would have ensured that the alarm was installed by the deadline, irrespective of budgetary restrictions or processes.

Mr Hawkins conveyed the information from Ms Cowley to Mr Smith by email on 22 June 2005, saying that Synergy had three quotations for a NACOSS Redcare alarm and that he had spoken to the operations manager at Dunstable and had been assured that getting an alarm installed was a top priority. He referred again to the landlord having 24/7 security patrols and continuously monitored CCTV. In the same email, Mr Hawkins said that Dunstable was now operational in a limited way and asked Mr Smith to add stock cover for £175,000 immediately, increasing to £475,000 with effect from 1 August 2005. Accordingly, at this stage, Mr Smith knew that there was no intruder alarm in place. In due course on 22 July 2005, he sent an endorsement adding stock as requested.

On 5 July 2005, Mr Willetts (together with Mr Fairest) resurveyed the Derby locations, on 6 September 2005 they resurveyed the Bristol premises and on 8 September 2005 they resurveyed the Sheffield premises. Immediately after each of those resurveys, Mr Smith received a Survey Report from Mr Willetts, together with Risk Improvements. As before, it is not necessary to deal with those Risk Improvements in detail, but two of them should be highlighted, as they are of some relevance to the issues relating to avoidance (and in particular inducement) with which I will deal later in the judgment.

In relation to the Derby premises, Risk Improvement 2005-01 related to the Fire Alarm System at Newmarket Drive and provided as follows:

“2005-01 Fire Alarm System

The Newmarket Drive premises benefit from a good fire alarm system with smoke detectors throughout the system needs to be linked into the remote signalling link on the intruder alarm giving early central station signalling in the event of a fire and therefore prompt brigade response with potential minimisation of fire damage.

Implementation by 5^th September 2005”

Apart from the implementation date, this Risk Improvement was word for word the same as Risk Improvement 2003-02 following Mr Willetts’ original survey at Derby in 2003. This is rather strange since, after Fusion had chased in December 2003 for confirmation that this and other Risk Improvements had been implemented, on 9 January 2004 Mr Jacques had written to the brokers with an update of progress on implementation. In relation to this Risk Improvement, he stated:

Fire Alarm is not linked to intruder alarm system but has an independent ‘Redcare’ system which reports faults/activations to a central monitoring station. Either the General Manager or the IT Director are then contacted automatically. We believe that this complies with your requirements, please advise if this is not the case.

In an email of 29 January 2004, Mr Patrick Moriarty, the underwriter responsible for underwriting the risk before Mr Smith came on the scene at the time of the 2005 renewal, confirmed that this position was acceptable. Mr Willetts’ Risk Improvements Measures prepared following his 5 July 2005 survey record that these Risk Improvements were discussed with Messrs Jacques, Andrews and Caley at the time of the survey. In the circumstances, it is rather surprising that none of them said, when he reiterated the requirement he had imposed in 2003, words to the effect that they thought that the existing separate Redcare system had been regarded as satisfactory by the insurers (which it had), so why was he imposing the same Risk Improvement again. It is equally surprising that the same point was not made upon receipt by Synergy of the 2005 survey report. None of the Synergy witnesses could shed any light upon this anomaly in the case.

Equally, in re-imposing this Risk Improvement, Mr Willetts does not seem to have been aware of the letter from Mr Jacques or of Mr Moriarty’s email response, nor (on that basis) does he appear to have raised an eyebrow that the Risk Improvement he had imposed for implementation by June 2003 had still not been implemented by July 2005. Again, Mr Willetts was unable to assist about this mystery when I asked him about it in evidence.

Overall, it seems to me that the position with regard to this Risk Improvement remains unexplained, probably because until the present trial, no-one at either the insured or the insurers had focused upon it and, given that one is concerned with events five to seven years ago, no explanation is now forthcoming. In these circumstances, it seems to me that it would be unwise to place much, if any, reliance, upon the ostensible non-compliance with Risk Improvement 2005-01 at the time of the 2006 renewal.

The other Risk Improvement which is relevant was at the Sheffield premises following the survey there on 8 September 2005. This concerned the electrical installation and systems (which had been the subject of a Risk Improvement at the time of the 2003 survey) and provided:

“2005-01 Electrical Installation and Systems

To ensure that electrical installations within the premises are maintained in safe condition and also to comply with the requirements of the Electricity at Work Regulations 1989, a test and inspection by a qualified electrical contractor has been undertaken.

Remedial works designated Priority 1 and 2 are to be rectified by a qualified electrician within the timescales indicated on the inspection certificate.

A Completion Certificate is to be issued by the electrical contractor on completion of the work and a copy sent to Fusion ..via your broker.

Implementation by 31^st December 2005.”

Mr Willetts attended at the Dunstable premises for a survey on 15 September 2005. In his witness statement he said the survey followed his usual practice. His evidence about it was not challenged by Mr Eklund QC for Synergy, no doubt because Ms Cowley had no independent recollection whatsoever of Mr Willetts’ visit, although she accepted it had taken place. Mr Willetts described it as having taken two hours, the first 45 minutes in Sue Cowley’s office, followed by his walking round the premises and then discussing his assessment of the site with her. She explained that there was no intruder alarm but that they were in the process of getting one installed. She said that there was already a quote from ADT and produced the alarm specification. From the document in the trial bundle it seems as though it may have been faxed through by ADT during Mr Willetts’ visit.

Mr Willetts reviewed the specification and it was similar to what he would have expected for such a site. He said in his oral evidence that he would have said something to Ms Cowley like: “that’s pretty much what we’re looking for”. He also explained in evidence that it was because he found the specification acceptable that he stated in the Risk Improvement that implementation was already in hand.

In the Survey Report, which Mr Smith received by email the same day as the survey, having described the business generally and the premises, which Mr Willetts said were in excellent repair, Mr Willetts described a number of positive features, including the presence of a full fire alarm system (AFA) with smoke/heat detection and infra red beam coverage with remote Redcare signalling. It is not necessary to describe the other features in detail. In the “Theft” section of the report, the box “Inadequate” next to “Security” has a cross in it. Although the body of the text then said “Security is acceptable with contents other than computers being of little obvious attraction”, Mr Willetts explained that this meant security would be acceptable after the installation of the intruder alarm. In relation to the intruder alarm, the Survey Report said: “No intruder alarm at present with installation in hand with ADT including redcare GSM and sequential verification-see risk improvements”.

The “Private and Confidential” Report, similarly to earlier such Reports, described Synergy’s quality of management as “Good standard of management with premises well laid out and clean and tidy with good responses to all discussions on risk management issues”. Under the “Summary/Acceptability” section of this Report, Mr Willetts stated, again as with earlier such Reports:

“Expanding and well run medical textile and equipment suppliers here operating a recently opened large laundry from a non combustible industrial property on the edge of Dunstable having management, housekeeping, security and health and safety to a good standard subject to risk improvements which were all discussed and agreed during the survey”

The Report also ascribed Risk Grades to the Material Damage and Employers’ Liability sections of the risk of 1 and 2 respectively and of 1 overall. This grading system was explained in a document described as “Survey Standards and Definitions” produced as guidance for Fusion’s surveyors in conducting surveys. Risk Grades ran from 1 to 4 with 1 being the best, described as follows:

“Risk Grade 1-Above Average

The insured displays an above average attitude to managing risk, and/or risk controls/protections are better than average. No undue adverse exposure features.”

Risk Grade 2 was described as follows:

“Risk Grade 2-Average

Management and/or risk controls/protections are satisfactory for the risk presented. No undue adverse risk exposures. Only a small number of risk improvements considered necessary for acceptance”

This allocation of Risk Grades 1 for Material Damage, 2 for Employers’ Liability and 1 overall corresponded to the grades which Mr Willetts had allocated in relation to the other premises he had resurveyed. The grade 2 in relation to Employers’ Liability reflected the slight increase in EL claims, which was why Mr Fairest had attended the survey at Derby. A range of health and safety related risk improvements were to be implemented at each of the locations to seek to address the EL claims experience. Although it is not necessary to deal with that in detail, it was not suggested that Synergy was not cooperative in relation to all those Risk Improvements. Mr Willetts fairly accepted that, otherwise, the allocation of Risk Grade 1 reflected that Synergy displayed an above-average attitude to managing risk, indeed he accepted that their attitude was quite high. Mr Smith and Mr Garbutt also accepted this assessment of the insured at the time.

Mr Willetts produced a list of Risk Improvements as well. These contained the rubric at the top which I have already quoted earlier. Then, in relation to the intruder alarm, said this:

“2005-01 – Intruder Alarm

The premises are to be protected by an Intruder Alarm system, designed maintained and installed by a company that is ISO 9002 certificated and approved by a UKAS accredited inspectorate.

The system is to conform to EN50131-1 in accordance with PD6662:2004 for a grade 3 system. Notification is to be by audible sounder together with RedCARE GSM or Dualcom Plus to an alarm receiving centre conforming to BS5979.

Confirmation of activation is to be by sequential means in accordance with DD243:2004.

The method of setting/unsetting of the system is to be in accordance with DD243:2004 excluding clause 6.4.4.

A copy of the system design proposal and specifiers risk assessment is to be sent to Fusion...for approval prior to installation.

Implementation by 15^th November 2005 and already in hand”

Mr Willetts’ evidence was that the reference to implementation being “already in hand” was an acknowledgment that the insured had quotations and a specification from ADT which he had approved at the time of the survey and the system was going ahead. He explained that the penultimate paragraph was a standard provision included in all such Risk Improvements. The reference to “specifiers risk assessment” was to the assessment of the grade of alarm by the installers as required by the Association of Chief Police Officers. He said that in this instance the provision was included more in hope than expectation, by which he meant that since he had approved the ADT specification at the time of his survey, if the insured had gone ahead and installed that alarm, he would have thought that the insured would not bother to send the specification.

Having said that, as Mr Willetts explained, the reference to “Dualcom Plus” was to an alternative signalling system which was slightly cheaper than Redcare. Even then, I detected from Mr Willetts’ evidence that whilst theoretically if the insured changed the specification in that way, it should send it to insurers for approval, in practice such specifications and specifiers’ risk assessments are rarely sent by an insured in compliance with this provision. It was also Mr Smith’s evidence that, although a Risk Improvement for alarm installation will include this standard provision, the insurers would very rarely get sent the specification or assessment.

At the same time as sending the full Survey Report to Mr Smith, on 15 September 2005, Mr Willetts sent the Risk Improvements by email to Mr Harris, asking him to send them to Synergy in order that they could proceed with implementation. Aside from the installation of the intruder alarm, the other Risk Improvements were all health and safety measures similar to those at the other locations designed to reduce EL claims.

Mr Harris forwarded the Risk Improvements to Mr Hawkins. On 19 September 2005 Mr Smith wrote to Mr Hawkins enclosing endorsements relating to the insurance of stock at Dunstable and asked for further advice on the progress on risk requirements at Dunstable, saying that the majority required immediate attention. Mr Hawkins then forwarded the Risk Improvements to Mr Jacques, copied to Dr Andrews, under cover of a letter of 28 September 2005. The letter stated:

“The risk improvements which are required show specific dates for implementation and I would be pleased to receive confirmation that arrangements have been made to put the required measures into effect by the date indicated.

With regard to the request for a copy of the Intruder Alarm specification to be forwarded to Fusion by 15^th November 2005, could I request that this is forwarded via ourselves.”

Mr Jacques said in evidence that, although he would have read the letter and the Risk Improvements, he would not have taken any steps to implement them, since that was the responsibility of Dr Andrews as Operations Director. Dr Andrews’ evidence about the letter and the Risk Improvements was rather vague and unsatisfactory. Although he said that he would have read the Risk Improvements and would have forwarded them to Ms Cowley, it is quite clear that neither he nor anyone else in senior management forwarded the Risk Improvements to her. As I have already said, her evidence, which I accept, is that if she had ever known about the deadline of 15 November for implementation, she would have ensured the alarm was installed regardless of budgetary restrictions or processes.

In an email sent by Dr Andrews on 18 March 2007 after the fire and when Synergy management were trying to ascertain why the alarm had not been installed, he said that he was “made aware of the requirement in late November”. If that is right, it suggests that although he received the Risk Improvements under cover of a copy of the letter of 28 September 2005, he did not in fact read them at the time, which would explain his not having sent them to either Ms Cowley or Mr Caley who was going to take over as operations manager at Dunstable when she left.

This also ties in with Dr Andrews’ evidence that he took over responsibility for implementation of Risk Improvements at some point in November 2005. This is at odds with Mr Jacques’ evidence that Dr Andrews was already responsible for the implementation of Risk Improvements at the time the letter was received in September 2005, which suggests some internal confusion at Synergy (or perhaps confusion in Dr Andrews’ mind) as to who was responsible for implementation. It is clear that the business of Synergy was expanding rapidly at the time and Dr Andrews was busy on other matters, but it still seems unlikely to me that, if he had actually read the Risk Improvement at the end of September 2005, he would not have done something to action it, if only by sending a copy to Ms Cowley or Mr Caley. It is much more likely that he did not read it until the end of November 2005.

Miss Cowley tendered her resignation to Mr Isles on 4 October 2005, on the basis she was leaving on 30 December 2005. In fact she was away on holiday from 28 October to 21 November 2005 and left Synergy on 16 December 2005. Mr Nick Caley who had been operations manager at Derby came down to Dunstable to take over when she went on holiday and they were then both there for a hand over period when she came back from holiday and before she left the company. Neither of them had received a copy of the Risk Improvements.

On 12 October 2005, Mr Smith chased Mr Hawkins for feedback on the implementation of the various Risk Improvements following the recent surveys. Mr Hawkins left a voicemail message for Dr Andrews the following day to say he would like to discuss progress with the Risk Improvements and Dr Andrews called back on 14 October 2005 and said he was chasing this up. In fact it is unclear what, if any, chasing up he did at that stage. It appears to have been around this time that the brokers handed over chasing the client to their Risk Management Department and, specifically, to Mr Mark Williams.

On 3 November 2005, Mr Hawkins asked Mr Smith to hold covered on buildings at Dunstable for £1.8 million. On 10 November 2005, Mr Smith sent Mr Hawkins an endorsement to the policy adding the buildings at Dunstable. He also asked Mr Hawkins to “urgently forward confirmation of the risk improvements from the various surveys as these are very urgent and we must have a reply.” Mr Smith followed this with a chasing email to Mr Harris on 22 November 2005 asking him to discuss the matter with the relevant person at Synergy “with a view to getting an update on whether [the Risk Improvements] have been completed, or, if not, what has been done so far and what sort of timescale is expected for full completion”.

Mr Harris emailed Dr Jacques on 2 December 2005 saying that “insurers are becoming increasingly concerned on risk improvements and I need to update” and asking for a meeting about that and the acquisition of Shiloh and how it impacted on insurance. Mr Jacques asked his personal assistant to arrange a meeting with the brokers in the week of 19 December, saying that Dr Andrews would need to attend part of the meeting in relation to the update on Risk Improvements and claims. In the event, when the meeting took place on 21 December 2005, Dr Andrews was already away on holiday.

On 6 December 2005, Mark Williams of the brokers’ Risk Management Department telephoned Dr Andrews for a Risk Improvement update. Dr Andrews said he was in the process of sending the brokers a letter and also said that most of the Risk Improvements were done and he would forward confirmation during the coming week. In his evidence, Dr Andrews maintained that this conversation (of which the written file note from the brokers’ disclosure which he exhibited to his witness statement has the signature “MW”) was with Maria Warren, the personal assistant of Paul Dudley the managing director of the brokers. However, with respect to Dr Andrews, this makes no sense and the conversation was clearly with Mr Williams.

At all events, on the evening of the following day, 7 December 2005, Dr Andrews sent an email with a draft letter attached to Mr Isles, Mr Caley and Mr Darren Haddock, the operations manager at Sheffield. The email refers to the fact that a meeting with the brokers had been arranged for the week of 19 December “as a review of this year and to start the process of agreeing next year’s cover”. The email continued:

“Attached the draft of a memo to THB Clowes with what I think is a minimum response. Can you please either add to it or tell me that the statements are true for your site. A quick response is essential.”

The draft letter attached stated so far as relevant:

“I can confirm the following actions have been taken by Synergy staff:

Dunstable

Intruder Alarm

Installed and completed. The design was sent to Fusion Insurance Services.”

The draft letter also dealt with Bristol and Sheffield and health and safety Risk Improvements at all locations. In relation to the Sheffield Risk Improvement concerning electrical installation and systems, the draft stated:

“The 5 year inspection was completed and remedial work will start 10 December 2005. A completion certificate will be supplied when all the works are finished.”

The draft letter did not deal with the Risk Improvements at Derby (and specifically the Redcare connection for the fire alarm) at all.

When asked in cross-examination how he came to say installation at Dunstable had been completed, Dr Andrews’ answer was that he had assumed that the Dunstable alarm had been installed because he knew that the specifications had been obtained, that colleagues had been progressing it and that he had expected that it had been completed. It would appear from that answer that, at this stage at least, he had read the Risk Improvement. Mr Caley replied first thing the following morning, 8 December 2005, saying, inter alia:

“Dunstable still do not have an activate intruder alarm system. I will review the work to date”.

Dr Andrews replied about an hour later saying that completion of the intruder alarm was required by Fusion by 15 November. He asked Mr Caley to give him an expected completion date. He then set out the terms of Risk Improvement 2005-01 Intruder Alarm, which he said in evidence he thought he had cut and pasted from the attachment to the original email enclosing the Risk Improvements. It seems to me that this is a further indication that Dr Andrews had not previously sent the Risk Improvements to Mr Caley (or for that matter Ms Cowley) and was aware of that at the time, otherwise he would have simply referred Mr Caley to the copy of the Risk Improvements which he had previously sent.

At the end of the email, he asked Mr Caley to let him know how much of the work had been done. Mr Caley’s response about twenty minutes later was: “Sue is working on this and will hopefully be closed out before she finishes. I have forwarded below so she knows the specification required”. At one point in his evidence, Mr Caley suggested that this response was informed by what he had been told by Dave Louis of ADT, the alarm suppliers, at a meeting prior to the email, but he later accepted that this was not correct and that the only meeting he had with Mr Louis was on 14 December 2005, after this email.

Of course, as far as Dr Andrews was concerned, Sue Cowley was leaving the company at the end of December. Indeed in evidence he seemed genuinely surprised when it was put to him that she had in fact left on 16 December. It was no doubt his belief that there were still three weeks or so until she left (even allowing for Christmas) that led him to alter the wording of the letter to be sent to the brokers to read:

“I can confirm the following actions have been taken by Synergy staff:

Dunstable

Intruder Alarm

This will be completed by end December.”

In relation to the Sheffield electrical installation and systems, the letter to be sent to the brokers provided as set out in his original draft, as quoted above, but with the addition after “when all works are finished” of the words “expected by the end of December”. This addition evidently followed some discussion with Mr Haddock, the operations manager at Sheffield.

During Dr Andrews’ evidence the issue arose as to what if anything else he had done to establish whether the alarm at Dunstable would be installed by the end of December, other than taking what Mr Caley said at face value together with his (mistaken) belief that Ms Cowley was not leaving until the end of the month.

Dr Andrews said in cross-examination by Mr Wynter QC that he had not taken any steps to satisfy himself that the work on installing the alarm had in fact started and accepted that he did not believe at the time that work had started. He said that he thought that he had had telephone conversations with Mr Caley after the email exchange. However, Mr Caley did not refer to any such conversation in his evidence and there is no record of it in Synergy’s documents. It seems to me if such conversations had taken place, Dr Andrews would inevitably have found out that Ms Cowley was leaving on 16 December. I find that no such telephone conversations took place.

Dr Andrews also accepted in cross-examination that he had redrafted the letter without knowing that he had not approved a specification or capital expenditure (CAPEX) approval (which would be required if this was an unbudgeted expenditure). He could not remember whether this item was in the budget for that year (i.e. 2005/6). In fact it was not, because all that was budgeted for was apparently maintenance of an alarm which Synergy had assumed was in place at Dunstable at the time of preparing the relevant budget. It must follow that, at the time of redrafting the letter, Dr Andrews did not know whether the expenditure on installation of the alarm had been authorised.

On the other hand, his evidence was that, at the time, he believed that they were able to appoint a supplier who was capable of completing the work before the end of the month. He embellished that evidence somewhat by claiming that he had spoken to some suppliers to ask how long they required to install an alarm system and they confirmed that it was entirely possible to complete everything within two weeks. I am not sure I accept that evidence, but at all events, he said that he accepted the assurance of his colleague [i.e. Mr Caley] that it would be started and would be completed by the end of December, and that I do accept. Dr Andrews said more than once that the statement in the letter reflected his honest expectation that the work on installing the alarm would finish by the end of December. Ultimately, neither the insurers nor the brokers suggested that this was not his honest expectation at the time that he amended the letter, although that is a different question from whether when the letter was received by the insurers later it contained a misrepresentation (an issue to which I will return later in the judgment).

Dr Andrews forwarded the redrafted letter to Mr Jacques on the evening of the same day, 8 December 2005. Mr Jacques sent it to both Mr Hawkins and Mr Harris on 9 December 2005 under cover of an email. Whether because it had been mis-dated or because, when it was printed out, the relevant computer dated it accordingly, the draft bears the date 13 December 2005, although it is clear that the letter was in fact drafted on 8 December 2005. The covering email asked the brokers whether this draft letter regarding Risk Improvements addressed the outstanding points or whether the brokers required further details. Mr Jacques also asked the brokers to note that Dr Andrews would not be at the forthcoming meeting due to annual leave.

The meeting between Mr Jacques and Miss Harrison of Synergy and the brokers took place on 21 December 2005. Mr Hawkins and Mr Harris both attended. Mr Hawkins had noted that the draft letter did not deal with two outstanding Risk Improvements at Derby and said he would email Dr Andrews about those. Mr Hawkins also sought Mr Jacques’ express permission to send the letter to the insurers. He said in evidence that he had done this because the letter was a draft. Mr Jacques gave that permission. In cross-examination, he said he had done this “consciously” by which he meant he had done so deliberately having thought about it.

Following that meeting, on 28 December 2005 Mr Hawkins sent Mr Smith the letter from Dr Andrews under cover of an email which stated:

“I am enclosing the reply from Geoff Andrews in connection with the outstanding risk control requirements and recommendations. I think this addresses all outstanding matters except the ones relating to the Fire Alarm System at Newmarket Drive and the External Combustible Storage at Ascot Drive which we are chasing up.”

Mr Smith’s evidence was that he read the statement in the letter “This will be completed by end December” as saying that the work would be completed by the end of December, as it was already underway and it was just a matter of finishing it off, so that by this stage towards the end of December, it was in its final stages. It was certainly not saying that the work hadn’t been started. In my judgment, Mr Smith was entirely justified in reading the letter in that way, given that it was sent to him on 28 December, under cover of Mr Hawkins’ email, with only two working days to go to the end of the month. Mr Garbutt said he would not have seen the letter at the time and would only have seen it at renewal when Mr Smith left him the file on 29 March 2006 and he would have reviewed the file, including the letter.

I will deal in a later section of the judgment with the issue of whether there was a material misrepresentation and, if so, when, but for the present simply observe that the reality on the ground was very different from what Mr Smith believed it to be. Contrary to what Mr Caley had told Dr Andrews in his email reply on 8 December 2005, he never forwarded Dr Andrews’ email of 8 December 2005 which set out the terms of Risk Improvement 2005-01 to Ms Cowley. This was perhaps because she was leaving the company only a week or so later. Whatever the reason for not doing so, given her clear evidence that if she had known about the 15 November deadline she would have taken steps to get the alarm installed, it is likely that if he had forwarded the email to her, she would have said they had to arrange installation straightaway.

In contrast to Ms Cowley’s evidence as to what she would have done if she had been aware of the deadline, Mr Caley does not seem to have had the same sense of urgency, notwithstanding that, by 8 December 2005, unlike her, he was aware of the deadline and that it had been passed. His evidence was that when he saw Dr Andrews’ email of 8 December 2005 he thought that he had “better get on with it”. However, what he did not do was immediately to arrange the installation or ask Ms Cowley to do so. Instead, he arranged for Dave Louis of ADT to visit the Dunstable premises again on 14 December 2005. In his witness statement, Mr Caley said that, after he had explained the operations to Mr Louis, some of the areas covered by the previous specification were removed, because to get to those areas would have triggered the alarm elsewhere, so that coverage of those areas was unnecessary. It would seem from what he says in his email of 6 January 2006 that cost considerations came into this exercise. Accordingly, ADT was asked to requote for installation, which it did on 21 December 2005, quoting a much lower figure than before, of £2,132 plus VAT for installation.

Mr Caley claimed in evidence that he and Sue Cowley had seen Mr Louis on 14 December and that at that meeting a target date of the end of December was set. Her evidence, which I much prefer, was that on 14 December 2005, she had simply introduced Mr Caley to Mr Louis and handed over to Mr Caley, which is much more likely, given that she was leaving two days later. It is quite clear that she was completely unaware of any deadlines. I also doubt that any target date of the end of December was set at the meeting as Mr Caley alleged. Quite apart from the fact that there is no hint of that (or indeed of any sense of urgency) in ADT’s quotation dated 21 December 2005, Mr Caley’s reaction to the fact that the deadline set by insurers of 15 November had been exceeded was not the same as Ms Cowley’s would have been. He does not seem to have appreciated the urgency of the matter, which may explain why, in his witness statement he describes 15 November 2005 as “the initial date proposed by insurers”, which of course it was not. He did not immediately arrange for installation irrespective of budgetary constraints. Rather he worked within those constraints. Not only had he sought a cheaper quote from ADT, but he said in evidence that he had to apply for Capex approval before contracting for the installation of the alarm.

Mr Caley never did apply for Capex approval before the end of December, or indeed at all. It follows that by the time that the letter was passed to the insurers on 28 December 2005, no Capex approval had been sought and no steps had been taken to enter a contract for the installation of the alarm, let alone start that installation. It would have been totally impossible to complete installation by the end of December.

On 28 December 2005, the same day as Mr Hawkins sent the letter to the insurers, he also emailed Dr Andrews telling him that, as agreed at the meeting on 21 December, he had forwarded the letter to Fusion and would advise Dr Andrews of their reply in due course. He then asked Dr Andrews to advise in relation to the two Derby requirements “which have been outstanding for some time”. Dr Andrews accepted in cross-examination, as he really had to, that on 28 December 2005, he knew that his letter had been sent to the insurers.

On 3 January 2006, Dr Andrews replied to Mr Hawkins in relation to the Derby Risk Improvements. In relation to the fire alarm at Newmarket Drive, he said:

“I raised the orders some months ago for the fire alarm system to be connected to Redcare but Chubb have been extremely slow. The BT link has been made. Chubb need to [do] their part. Will chase up this week and confirm.”

That message was passed on almost verbatim in an email from Mr Hampton of the brokers to Mr Smith. It was not a matter which Mr Smith seems to have chased up subsequently.

What then happened is that three days later, on 6 January 2006, Mr Caley sent an email headed “Dunstable Security” to Dr Andrews, Mr Isles and Dr Steeves. He also intended to send it to Mr Jacques, but unfortunately failed to spot that his predictive address book on his email system picked out Mr Graham Jackaman (someone at Synergy who had nothing to do with this particular matter) rather than Mr Jacques, presumably because his name came up first if you typed in “Jac”. It was the failure to send this email or any of the subsequent email exchanges to Mr Jacques which ultimately led to the problem in the present case.

The email provided as follows:

“This issue is still outstanding from our insurance company.

I reviewed this before Xmas and came up with a better cost option to protect the premises:

-Decided to use ADT, most competitive

-Alarms cover all offices, main entrance, server room, engineers work shop & boiler room.

-To install will cost £2192.

-Annual service charge [and] monitoring centre charges are £811.

Please advise if you want to go ahead now or plan for the new financial year.”

Mr Caley’s evidence about why the email was sent to the people to whom he sent it was that Mr Isles was his direct line manager, Dr Andrews had been involved in the previous correspondence about the alarm and Dr Steeves would need to approve this unbudgeted expenditure. When he was asked about the last paragraph of the email, he said that they would have been preparing the budget for the 2006/7 year at around that time. Although the budgets were not disclosed in these proceedings, in an email sent after the fire Mr Caley said that provision had been made in the 2006/7 budget for the installation of the alarm. What that last paragraph of his email of 6 January 2006 does demonstrate is a lack of appreciation on Mr Caley’s part that there was any urgency about installation, notwithstanding that the insurers’ deadline of 15 November 2005 had passed. This lack of appreciation seems to have been shared by the other actual recipients of the email.

Mr Isles was the first to respond to the email about half an hour later, copied to all recipients:

“I believe you need to do this now [too] much of a risk to have so much equipment left without security, one break in could be a disaster.”

Mr Isles’ evidence was that this opinion was not prompted by concern about insurance, but general security concerns. He too did not spot that Mr Caley’s email should have gone to Mr Jacques but did not.

Dr Andrews responded only to Mr Isles not to Mr Caley or the other recipients. He raised a query about the alarm coverage:

“The alarm seems to cover only the office block-what about the production floor, should that not also be covered?”

He was reluctant to accept in cross-examination that he had mistakenly pressed “Reply” rather than “Reply to all” on his email system, maintaining that the query was directed to Mr Isles. On the other hand, Mr Isles’ evidence was that he did not reply to Dr Andrews’ query because he thought that the query was directed to Mr Caley and that he couldn’t have answered the query anyway because he did not have the alarm specification. He did not notice that Dr Andrews’ query was only sent to him and thought that this was for Mr Caley and Dr Andrews to deal with.

In the circumstances, I consider it much more likely that the query was intended to be directed to Mr Caley, who was the person who would know about the alarm specification, not Mr Isles, and that Dr Andrews either pressed “Reply” by mistake, rather than “Reply to all”, or at the very least did not notice that his query had not been sent to Mr Caley. Dr Andrews did not receive any response to his query and left the matter there. He tried to explain this away in cross-examination by saying that his responsibilities had moved on by January 2006, but this was not correct. His function did not change until April 2006. I suspect his failure to follow this up was oversight on his part.

Dr Andrews accepted in cross-examination that he had appreciated when he saw Mr Caley’s email that, contrary to the letter he had written which had been sent to the brokers and sent on by them to the insurers, the alarm had not been installed by the end of December. He accepted that he should have corrected the information given, as a simple matter of keeping people updated, of telling them the truth. He could only explain his failure to do so as oversight, thinking that he had delegated this matter to other people and possibly that he had not noticed that Mr Jacques was not copied in on these emails.

This comedy of errors did not end there. 6 January 2006 was a Friday. On the next working day, Monday 9 January, the chief executive, Dr Steeves, returned to work, having been abroad visiting his wife’s father who was dying. He responded to Mr Caley’s original 6 January email saying “Do we have a group deal? Should we have?” to which Mr Caley responded the same day:

“We don’t have any group deal that I am aware of, the laundries deal with local companies.

Do you want to talk to the Shiloh purchasing chap first. I’ll put this on hold until advised otherwise.”

Nothing further happened. Mr Caley’s evidence was that he was expecting a response from Dr Steeves to his email in due course. He had not focused consciously on the fact that the only person he had told that he had put the alarm on hold was Dr Steeves. He had never followed the matter up with Dr Steeves. He accepted that during 2006 (i.e after the email exchange and before the fire) he was aware that there was no alarm, but said that he wasn’t consciously thinking about it and had never thought that they should sort out the alarm.

Dr Steeves’ evidence was that at the time of the email exchange, he did not know about the letter which had been sent to insurers. Contrary to what his email exchange with Mr Caley actually said, he had assumed that Mr Caley would look into whether Shiloh had a group deal for alarm installation and maintenance. It was clear from his demeanour in the witness box that he considered that this was not something he would have got involved with, effectively beneath him. As he said in answer to a question from me as to whether as chief executive he would have expected somebody else in the organisation to have woken up to the fact that the alarm needed to be installed: “there is nobody waiting for the chief executive to authorise putting in an alarm, at the end of the day”.

After the fire, on 9 March 2007, Mr Harris of the brokers sent an email asking why the alarm had not been installed. Mr Caley’s response was as follows:

“Sue and myself obtained a number of quotes ranging from £4 to £6k. I’m sure these have been tabled before but like most expenditure on items like this they are hard to get approval. If we remember around this time we had a tight budget to install the Dunstable laundry so that would suggest why it was not approved. I cannot remember exactly the details of the proposal and decline.”

When he was asked about this email in cross-examination, Mr Caley said that not all of it was correct. Although he did not elaborate on that answer, I deduce that he meant that it was not correct that approval had been sought for this expenditure and declined. What he did accept though was that he and Mr Isles had made provision for the installation of the alarm in the 2006/7 budget, which would have been prepared after the email exchanges in January 2006.

Understandably, the fact that budgetary constraints were mentioned after the fire has led insurers to question whether financial considerations did have a part to play in the failure to install the alarm. It is certainly the case that, when Mr Caley became aware of the Risk Improvement upon receipt of Dr Andrews’ email of 8 December 2005, he did not immediately action the installation, it would appear because he did not appreciate the urgency. Instead he arranged the further visit of Mr Louis on 14 December and the re-quotation which was cheaper than ADT’s original quotation. However, there was nothing sinister in this, nor was anything of the kind suggested. Mr Caley was simply doing his job in obtaining the cheapest quotation he could for whatever alarm was considered necessary. If the alarm had then been installed within a matter of weeks, there would have been no basis for any complaint by insurers.

I am quite satisfied that financial or budgetary constraints had no bearing on the failure to install the alarm, for three principal reasons. First, the evidence of Ms Cowley, to which I have already referred, that if she had ever been made aware of the 15 November deadline in the Risk Improvement, she would have gone ahead with installation promptly, irrespective of budgetary constraints or procedures, in other words irrespective of whether Capex approval had been obtained in advance. Second, it is clear from the evidence of Dr Steeves, to which I have also already referred, that he thought that his staff would have arranged the installation of the alarm without consulting him and that as far as he was concerned, financial considerations would not have come into the picture.

Third and perhaps most important of all, there is the evidence of Mr Jacques, the finance director, who was, as I have said, an impressive and straightforward witness. Because of the mix-up between his email address and that of Mr Jackaman at the beginning of the email exchanges on 6 and 9 January 2006, he never saw any of these emails at the time and so was unaware that, contrary to what was stated in the letter which he had authorised to be sent to insurers, not only had work on the alarm not been completed by the end of December, but it had not even started.

His evidence about his reaction when he did see the email exchange for the first time after the fire and saw what had gone wrong was that “it was putting it mildly” that he was somewhat disappointed. He was firm in his evidence, which I accept, that if he had been one of the recipients of the email exchanges on 6 and 9 January 2006 (which he would and should have been had it not been for the comedy of errors to which I have referred):

“I would have made sure that we got the work done, and we would have needed to have corrected our position that we’d represented to the broker…I think both would have needed to be dealt with straight away.”

When considering the history of what went wrong here, there is an obvious temptation to conclude that this somewhat sorry saga demonstrated a slapdash attitude to risk management, certainly on the part of Dr Andrews, contrary to the impression both Mr Willetts and the underwriters had that this insured had an above average attitude to risk management. This was certainly how Mr Wynter put the matter in a helpful written note on the sequence of events which he produced at the end of the trial. Dealing with what a full explanation of all these matters would have revealed to Mr Garbutt if disclosed at renewal, he submitted that it would have revealed:

“serious deficiencies in the Claimant’s internal management, a rigid internal procedure for necessary capital expenditure and a clear moral hazard in terms of the reliability of the information which the Claimant was providing”.

Although there is considerable force in the submission, I cannot accept it. It seems to me to place too much emphasis on the deficiencies of one man, Dr Andrews. It is certainly true that his failure to ensure that the alarm was installed by 15 November 2005 and then by the end of December 2005 and, in order to do so, to ensure that the staff on the ground (specifically Ms Cowley and Mr Caley) were aware of the terms of the Risk Improvement and its urgency, left quite a lot to be desired. As I have said earlier, it may have been an appreciation on his part that this was so, but an unwillingness to accept in his own mind the extent to which he was at fault, which was the explanation for the somewhat inflexible and defensive manner in which he gave his evidence.

However, having considered all the written materials and witness evidence carefully, I am quite satisfied that none of this was deliberate on his part. He was clearly very busy on other matters at the time as Synergy’s business was growing rapidly and in effect he “dropped the ball” on this matter. Equally, for the reasons I have already given, financial constraints were not the reason why the installation never took place. As I have said, it is quite clear that, if Mr Jacques had been made aware in early January 2006 of what was going on (and he was not aware only because of the mix-up between “Jackaman” and “Jacques”) he would immediately have corrected what had been said to insurers and ensured that steps were taken to install the alarm.

In all the circumstances, there is no question of the installation of the alarm having been “put on hold” by Synergy deliberately. This was all inadvertent and, in my judgment, whilst there was undoubtedly carelessness on the part of various individuals, there was not some systemic failure on the part of Synergy’s management. Rather the confusion and error was innocent. This conclusion has a significant bearing on the issue of inducement, which I will consider below.

On 23 January 2006, Mr Harris and Mr Hawkins of the brokers had a meeting with Mr David Johnson, formerly the group accountant of Shiloh, but after the takeover employed by Synergy, who now had responsibility for all insurance matters. As is clear from Mr Hawkins’ note of the meeting and as he and Mr Harris said in evidence, this was essentially a meeting for the brokers to find out about Shiloh. It was followed by another meeting with Mr Johnson on 26 January 2006, but again, apart from some discussion about the sterilisation units which Synergy had in various hospitals, this also focused on Shiloh.

At neither of these meetings was there any discussion about renewal of the insurance so far as the Synergy premises were concerned, nor did the brokers take steps to ascertain what, if anything, Mr Johnson knew about the details of Synergy’s previous insurance arrangements or current requirements. There was certainly no attempt to discuss with him the position with regard to the implementation of the Risk Improvements.

In the event, there was no further meeting between the brokers and Synergy prior to the renewal of the risk on 30 April 2006. The next meeting took place immediately post-renewal on 4 May 2006 and, in many respects, that meeting and the subsequent meeting on 23 May 2006 resembled renewal meetings in terms of the matters discussed. However, by that stage the insurance had been renewed, so that much of what might have assumed a greater urgency pre-renewal no longer had the same urgency so far as the insured was concerned.

Mr Harris’ explanation for the failure to have a specific renewal meeting with the client before renewal occurred was that the brokers had sought a meeting before renewal, but it was not possible to see the client before because of diary commitments and that 4 May was the earliest date available. This may be the case, although I note that this was not put to Mr Johnson or Mr Jacques in cross-examination. Whilst it is not necessary to reach a definite conclusion as to why the meeting which took place on 4 May 2006 did not take place before renewal on 30 April 2006, it seems to me the more likely explanation is that (as set out in more detail below) both the brokers and Fusion were in effect in a “bidding war” with other brokers, Aon, and the insurers they had approached as to who would secure Synergy’s insurance for 2006/7. This was not resolved until Synergy decided to renew via the brokers on the afternoon of 29 April 2006, which was in fact a Saturday. There would not have been much point in having a detailed meeting until the brokers knew for sure they had secured the business.

So far as dealings with Fusion are concerned, the renewal process began with a meeting on 6 March 2006 between Mr Smith and Mr Simon Phipps (Regional Sales Manager of Fusion) and Mr Harris and Ms Shirley Martin of the brokers. Before that meeting, at some stage in February 2006, Mr Smith completed a standard form Renewal Review Checklist. In the box headed “R/I o/s” [Risk Improvements outstanding] he circled “N” for No but added in manuscript “But check everything fully completed. (Newmarket Drive AFA connection o/s”)”.

Mr Smith’s evidence was that, when he prepared this checklist, he would have gone through his underwriting files to see what, if any, Risk Improvements were outstanding. He would have seen Dr Andrews’ letter dated 13 December 2005. So far as both the Dunstable alarm and the Sheffield electrical installation were concerned, he would have considered that in December, work was underway, so that would have been completed by the end of December. Accordingly, apart from the fire alarm at Derby, he thought all the other Risk Improvements (including the intruder alarm at Dunstable) were up to date, which was a good feature of the risk. As I have already indicated (like the other witnesses) he was unable to help as to why the Risk Improvement at Derby was still said to be outstanding in 2005 when Fusion had been satisfied with the separate Redcare system for the fire alarm in early 2004. He had obviously not spotted this anomaly at the time.

Before the meeting on 6 March 2006, Mr Smith also prepared a short agenda of matters to be discussed at the meeting. These included the run off experience of claims for previous insurers, details of the premises and claims experience of Shiloh, what the competition via Aon (who were Shiloh’s brokers) was doing, as well as the AFA connection at Newmarket Drive. In the event, the minutes of the meeting do not show that there was any discussion of the apparently outstanding Risk Assessment at Newmarket Drive, although it appears from Mr Smith’s subsequent memorandum of 29 March 2006 to Mr Garbutt, that the brokers had agreed to check whether this Risk Improvement had been completed. In fact, as Mr Smith accepted in cross-examination, he had not had confirmation that this Risk Improvement had been completed prior to renewal.

The meeting on 6 March 2006 concentrated on Shiloh and the claims experience of Synergy. It was agreed that it would be beneficial for Fusion to arrange surveys of the Shiloh premises and it was left at the end of the meeting that the next steps would be for such surveys to be arranged and for Fusion to be sent the updated presentation and the relevant claims experience by the brokers.

On 10 March 2006, Ms Martin sent Mr Smith an email attaching the presentation. This presentation consisted of lists of the various Synergy and Shiloh premises and the insurance values required for each, together with a combined presentation for Synergy and Shiloh setting out insurance requirements and details of wages and turnover. It did not include any description of the premises themselves or any claims experience. The email referred to two issues regarding the two main Shiloh premises in these terms: “I believe that there may be an issue with the sprinklers at Lion Mill regarding the stacking heights and the police response to the alarm has been withdrawn at Larch Mill”. The email concluded that the brokers were waiting for the claims experience to come in.

So far as surveys of the Shiloh premises are concerned, Mr Smith’s evidence was that because of time constraints it was not possible to get surveys done on all the Shiloh premises before renewal, but a survey was carried out of Lion Mill in Oldham, which was regarded as the most important premises to survey because it was an old mill which was thought to have wooden floors and which had a number of tenants, posing an obvious fire risk. In fact, the survey report was more favourable than expected, as Mr Smith reported to Mr Garbutt in his memorandum of 29 March 2006. The floors turned out to be brick arch not timber, the premises had an up to date sprinkler system and housekeeping appeared very good.

However, as Mr Smith also pointed out in his memorandum, Fusion had still not received the claims experience, although the brokers had now confirmed that they had received it and the brokers had apparently yet to request the run-off experience from the previous insurers of Synergy, all of which information the insurers were evidently wanting to receive because of concerns about deteriorating EL claims experience, notwithstanding Synergy’s good risk management and the fact that Shiloh was an unknown both as regards claims experience and risk management. Mr Smith made the point that Fusion were a long way from being able to provide terms, although he noted that the brokers were discussing having quotes in by 6 April 2006.

In his reply memorandum the same day, Mr Garbutt noted that there was still some way to go on the EL aspect of the risk to bring the rating up to acceptable levels and that to some extent this would be influenced by the Shiloh claims experience. Mr Garbutt also expressed concern in relation to the survey report on Lion Mill that there had been an arson attack in the past and asked if this were associated with the riots in Oldham a few years previously. On 12 April 2006, Mr Smith confirmed with the surveyor who had undertaken the survey at Lion Mill that, in fact, the arson attack had been nothing to do with the riots, but had been an opportunistic type of attack by someone seen on CCTV (though never caught) setting fire to a building which was several hundred yards from the main building. There was good perimeter security and a NACOSS alarm with Redcare. The surveyor felt that there was no increased risk of arson above the normal.

On 17 April 2006, Mr Smith presented Fusion’s renewal terms in writing to Mr Harris and Ms Martin, evidently at a meeting. Although there was no other record of this meeting, Mr Harris did not dispute the notation on Fusion’s copy of this document: “Terms presented to Paul Harris and Shirley Martin at Clowes 17/4”. It is striking that, although Mr Smith and Mr Garbutt appear to have been agreed at the end of March that there was a long way to go (in the sense that a lot more information was required) before the insurers could provide a quote, the insurers in fact quoted in this document without having received any further information since the end of March other than the reassurance from their own surveyor as to the level of risk of arson at Lion Mill.

Having set out the sums insured for each location and section of insurance and the premiums quoted, the document then quoted a total premium of £268,406.02 net plus tax. The document then set out what were described as “General Terms” as follows:



Standard Fusion Insurance Policy wording [F002 (03/06)] - as you know this includes most but not necessarily all of your clauses and/or limits listed in your presentation. Unless specifically stated otherwise, cover is based on our standard wording only.



Subject to a five-year confirmed claims experience



Compliance with our Declaration of Material Facts



100% Minimum Premiums under the Liability Sections (declaration adjustments)



Excluding Terrorism



Standard Credit Terms



Satisfactory Survey and/or implementation of any risk improvements within specified timescales. We reserve the right to amend terms of cover should either condition not be satisfied.



Confirmation all premises are protected by a NACOSS approved alarm with signalling to an ARC via BT Redcare and receiving level 1 police response



In respect of Larch Mill where there is no police response to the alarm a professional key holding company that are NSI registered and comply with BS 7984: 2001 and be ISO 9000:2000 accredited must be appointed as first keyholder.

Although in his witness statement, Mr Johnson was inclined to accept that he had received a copy of this document from the brokers under cover of a letter dated 21 April 2006, as the evidence emerged at trial, it became clear that the brokers never in fact sent this document (and in particular the General Terms) to Synergy. The report enclosed with Mr Harris’ letter of 21 April 2006 was the lengthy document headed “Renewal Report and Recommendations on the Insurance Arrangements for Synergy Healthcare Plc and Shiloh Plc” prepared by Mr Harris. Page 19 of that document contained rates of premium for the different categories of insurance required from existing insurers and page 20 showed alternative quotes for EL and for Public/Products Liability from other insurers. So far as Material Damage/Business Interruption, EL and theft cover provided by Fusion was concerned, the premiums quoted were somewhat lower than those quoted by Fusion in the document handed to Mr Harris on 17 April. This seems to have reflected the fact that Mr Harris had asked Fusion to reduce its quote. After much internal discussion between Mr Garbutt, Mr Phipps and Mr Smith, Fusion agreed to reduce its premium by £25,000 to £243,406 net plus tax and Mr Harris was advised of this on 21 April 2006 before he sent his report to Mr Johnson.

It is no doubt because the reductions in premium agreed meant that the premium figures in the document handed over by Mr Smith to Mr Harris on 17 April had been superseded that that document was not included with the letter to Mr Johnson of 21 April 2006. However, that does not explain why the brokers did not send their client a copy of Fusion’s General Terms, which at least on the face of it contained various important subjectivities on the basis of which Fusion were prepared to contract. The failure to provide Synergy with a copy of those General Terms was a surprising omission by the brokers, although for reasons I will elaborate later in this judgment, it was not causative of any loss to Synergy.

At the same time as the brokers were providing their Report and quotation to Synergy, Aon were providing a rival quotation from other insurers. Details of what that quotation was have not been disclosed, but it is apparent from an email of 26 April 2006 from Mr Phipps to Mr Smith that Aon were trying to undercut the brokers’ quotation by offering reductions in commission and premium. Synergy indicated that each broker would now be given only one further opportunity to amend their terms, which were to be submitted by 10 a.m. the following day. In those circumstances, Fusion gave Mr Harris a leeway to reduce the premium further by up to £10,000 and left it to him to negotiate what he felt were the best terms on that basis, as was reflected in an email later on 26 April 2006 from Mr Phipps to Mr Harris.

Thereafter, although the brokers were more expensive than Aon, they retained Synergy as a client, but the question then arose as to whether the EL insurance would remain with Fusion or be placed by the brokers with the alternative insurers from whom they had obtained a quotation. As is set out in a file note from Mr Garbutt to Mr Smith dated 28 April 2006, the total premium had been reduced to £215,590. The non-EL premium (in other words the Material Damage/Business Interruption and Theft sections) was £90,242. Fusion could either renew the insurance or underwrite the EL Section as well at a premium of £125,000. As Mr Garbutt said in evidence, that was the option which Mr Harris was giving him.

In his file note, Mr Garbutt said that this was “not an easy case or an easy decision. We are in an extremely soft market and I have taken the view that we should retain the business as a package this year and look to increase rates and terms as the market allows in the future.” He considered this decision could be justified on the basis of the loss ratio on five years’ EL claims experience but asked Mr Smith to split the premium £130,000 to EL and £85,590 to non-EL. As he explained in evidence, part of his thinking in retaining the EL despite the claims experience is that, if it were placed with other insurers and the claims experience continued to deteriorate, in the following year those other insurers would say they wanted the profitable non-EL insurance. In other words, continuing to write it as a package was a way of fighting off opposition in future years.

In the event, the insurance actually renewed on terms which were yet more favourable to the insured in two respects. First, the premium agreed with Synergy was £215,000, as discussed in a conversation between Mr Harris and Mr Phipps and confirmed in an email from Mr Harris to Mr Smith at 18.25 hours on 29 April 2006. Second, evidently because the insurers with whom Aon would have placed the risk were quoting on the basis of an excess of £5,000 rather than the £10,000 excess upon the basis of which Fusion were quoting, Mr Phipps also agreed to the reduction of the excess to £5,000 for no extra premium. Mr Smith and Mr Garbutt only found out about this later, but it was accepted by them, albeit with some reluctance.

As noted above, in an email on the evening of 29 April 2006 (which was in fact the Saturday of a bank holiday weekend) Mr Harris confirmed to Mr Smith that the policy was to renew at £215,000 plus tax to include all covers. Mr Smith responded on the next working day, Tuesday 2 May 2006, at 08.16 hours, that this was great news. Then, on 3 May 2006, Mr Smith sent Ms Martin an email enclosing the “renewal docs”, in other words the Renewal Schedule, asking her to advise if this was ok, in which case he would issue the documentation. He also raised various points which had been mentioned in the renewal terms, i.e. the “General Terms” handed over on 17 April, including confirmation that there was a professional keyholding company for Larch Mill and confirmation that all Shiloh premises were protected by a NACOSS approved alarm with Redcare. Although the General Terms themselves had asked for confirmation that all premises were protected by such an alarm, the evidence of Mr Smith and Mr Garbutt was that they were only in fact seeking confirmation in respect of Shiloh premises (which of course apart from Lion Mill had not been surveyed), which is clear from this email, and which is also how Mr Hawkins viewed the matter.

The meeting to which I have already referred then took place on 4 May 2006 between Mr Harris for the brokers and Messrs Jacques and Johnson and Ms Keeling from Synergy. It is not necessary to set out what was discussed in detail, but only a few matters relevant to the issues in the case. Mr Harris discussed alarms and the fact that the insurers needed confirmation that the premises had Redcare (from which it appears that, as confirmed by his evidence, Mr Harris thought that the relevant provision in the General Terms referred to all the premises, not just to the Shiloh premises which had not previously been surveyed). At the meeting Mr Johnson handed over an up to date list of Shiloh premises and said that a list of Synergy premises would follow shortly.

A further meeting between the brokers and Synergy was arranged for 23 May 2006. Before that meeting took place, on 11 May 2006, Mr Smith sent Mr Hawkins an email setting out outstanding issues which he asked Mr Hawkins to address at that meeting with Synergy. These were confirmation that the draft renewal documents were in order, confirmation that the Shiloh premises were all protected by NACOSS approved alarms with Redcare, contact details of those premises so that Fusion could arrange surveys, confirmation about the professional keyholder at Larch Mill and confirmation that the Risk Improvements at Lion Mill were under way.

Mr Harris and Mr Hawkins attended the meeting on 23 May 2006 at Lion Mill with Mr Johnson. The brokers handed over the new Insurance Register and documents described as Statements of Demands and Needs and Suitability which Mr Hawkins had prepared. The latter document raises as so-called “Significant Conditions/Obligations” the various confirmations Mr Smith had sought in his email of 11 May, including confirmation that the Shiloh premises were protected by NACOSS approved alarms with Redcare. Notwithstanding this, at the meeting, when Mr Johnson said he was preparing a list of all Synergy locations, Mr Harris said that Fusion had requested confirmation that all premises (i.e. not just Shiloh premises) were protected by NACOSS approved alarms with Redcare. Mr Hawkins’ evidence was that, although it was his understanding that the confirmation Mr Smith was seeking related only to the Shiloh premises, at the meeting he deferred to Mr Harris, which is understandable given that Mr Harris was his boss.

Following the meeting, Mr Hawkins sent Mr Smith an email enclosing a marked up copy of the renewal documents showing various amendments which were required. He also said that the brokers were chasing confirmation on the NACOSS approved alarms at all locations and dealt with other outstanding matters. It is not clear exactly when Fusion issued the final policy documentation for the 2006 year. However, it is striking that whenever it was issued, the wording did not incorporate the “General Terms” included in the Terms Conditions and Benefits document handed to the brokers on 17 April 2006, notwithstanding that, as is apparent from the face of those General Terms, several of them purported to be subjectivities or conditions subsequent to continued cover.

Accordingly, whatever the status of those General Terms contractually before the final policy wording was issued (which might have been a nice question had it arisen), it seems to me that once the policy wording had been issued, those General Terms had no contractual effect. The fact that Fusion did not insist on those General Terms being incorporated into the contract wording is consistent with the fact that, as I have previously observed, matters such as implementation of Risk Improvements were dealt with by Fusion not as contractual conditions, but essentially by a parallel process of chasing Synergy until they were complied with.

A further example of that parallel process in operation is the confirmation eventually provided in June 2006 that the requirement for Redcare connection on the intruder alarm at Newmarket Drive, Derby, had been complied with. On 7 June 2006, Mr Hawkins sent Dr Andrews an email asking for confirmation that the fire alarm at Newmarket Drive which “was on the verge of completion in January” had been connected to Redcare. Dr Andrews replied the same day: “Done!” and on 14 June 2006, Mr Hampton in the brokers’ Risk Management Department emailed Mr Smith saying that confirmation had been received that the alarm was connected to Redcare.

At the meeting on 23 May 2006, it had been agreed that all Synergy units would be made aware of the warranties in the Fusion policy with which they had to comply and that the brokers would provide a suitable document for issue. To that end, on 10 July 2006, Mr Hawkins sent Mr Harris a draft summary of warranties and motor insurance requirements which Mr Harris forwarded to Mr Johnson the same day. In the draft, under “Property Insurance Intruder Alarm Installation” mention was made, inter alia, of the requirement that the alarm and signalling must be set whenever premises were closed or left unoccupied.

On 31 August 2006, a further meeting took place between Mr Harris and Mr Hawkins of the brokers and Mr Johnson of Synergy. At that meeting the brokers confirmed that a survey programme was underway by Fusion and that they had been asked to provide a list of the premises they wished to survey and dates. It seems fairly clear that this related to Shiloh premises. Mr Johnson handed out a list of group properties and contact details. The draft summary the broker had sent on 10 July 2006 was also discussed at that meeting and it was agreed that a revised version including a section on vehicle security would be prepared.

That revised version was sent by Mr Hawkins to Mr Johnson under cover of an email of 6 September 2006 which described what the brokers were trying to produce as “a brief guide for local managers’ reference to enable them and their staff to be aware of and to comply with insurers’ requirements”. Mr Johnson does not seem to have forwarded this document to operations managers at the various locations, including Mr Caley at Dunstable. Sight of that requirement might well have reminded Mr Caley that the alarm still had to be installed.

On 3 February 2007, the fire at Dunstable occurred. Not long after that, on 12 February 2007, Mr Garbutt sent a memorandum about renewal to Mr Phillip Clifford, who was taking over responsibility for the Synergy risk from Mr Smith. In that memorandum, he referred to the fact that the net premium on the risk was £220,000 and said “it is therefore a very important connection for us”.

On 16 March 2007, Mr Aaron Turner, senior claims negotiator with Fusion wrote to Dr Steeves at Synergy stating that Fusion had learnt that the premises were not protected by an intruder alarm system. That letter referred inter alia to the letter from Dr Andrews received by the insurers on 28 December 2005 and asked for documents showing that a contract had been entered into with the installer and that the work was scheduled to finish by the end of December 2005. The letter also asked why Synergy had not disclosed to Fusion prior to renewal that the alarm had not been installed. At the end of the letter there was an express reservation of rights.

Mr Jacques wrote in reply explaining the position, including that, at the time of his letter, Dr Andrews had believed that the alarm would be installed by the end of December. Mr Turner wrote back on 4 April 2007 saying that notwithstanding the explanation, Fusion believed the insurance had been procured by misrepresentation or non-disclosure. He said that they would give Synergy one further opportunity to address Fusion’s concerns, but all rights were reserved in the meantime.

Although Mr Garbutt did not see this correspondence, he accepted in cross-examination that, at the time, he had been aware that the intruder alarm had not in fact been installed and that Fusion were making allegations of non-disclosure and misrepresentation and had reserved their rights. Notwithstanding that, Mr Garbutt supported renewal of the risk at the end of April 2007, which he referred to his underwriting manager in London. He accepted in cross-examination that he would not have recommended renewal unless he was satisfied with Synergy’s attitude to risk management. In the event, the risk was renewed, but on 15 May 2007, Fusion wrote to Synergy avoiding the 2006-7 policy for material non-disclosure and the present dispute crystallised.

Throughout the trial, Synergy disputed the materiality of the fact not disclosed or misrepresented at renewal, namely that the intruder alarm had not been completed by the end of December 2005 and had not been installed at all by the time of renewal. The question which arises is whether that fact was material, in the sense that it would have influenced the mind of a reasonably prudent underwriter in exercising his underwriting judgment as to whether to renew the insurance.

Both Synergy and the insurers called expert evidence on this issue, from Mr Paul Johnson for Synergy and Mr Peter Sangster for the insurers. During the course of Mr Johnson’s evidence, it became increasingly apparent that he was having the utmost difficulty maintaining the position that this was not a material fact. Indeed, it seemed to me that several times in his evidence, he effectively admitted that it was. Had it been necessary to reach a decision as to which expert evidence I preferred, I would have much preferred the evidence of Mr Sangster.

Ultimately of course, materiality is a question for the court and although the court is usually assisted by the opinions of experienced underwriting experts as to the question of materiality, there are cases (of which it seems to me that this is one) where the court will conclude for itself, even without expert evidence, that the fact in question was material. As Scrutton LJ famously and pithily put the point in Glicksman v Lancashire and General Assurance [1925] 2 KB 593 at 609: “I entirely agree with Roche J, that the nature of the facts may be such that you do not need anybody to come and say, This is material”. In any event, in his closing submissions on behalf of Synergy, Mr Eklund QC sensibly and realistically conceded materiality.

Mr Wynter QC on behalf of the insurers put the case on the alternative bases either that there was a material misrepresentation by Synergy to the insurers in December 2005 which was never corrected and therefore was a continuing misrepresentation or was impliedly repeated at renewal or that there was non-disclosure at renewal of a material fact, namely that the intruder alarm had not been installed. In most cases, it is of little or no significance whether there has been a non-disclosure or a misrepresentation. Indeed, as Lord Mustill said in Pan Atlantic Insurance v Pine Top Ltd [1995] 1 AC 501 at 549: “in practice the line between misrepresentation and non-disclosure is often imperceptible”.

The reason why the distinction matters in the present case is that Synergy and the brokers contend that (i) on analysis, there was no misrepresentation on renewal and that the insurers’ case is one of non-disclosure or nothing and (ii) the insurers cannot make out a case of non-disclosure because any further disclosure was waived by virtue of the insurers requiring and receiving the so-called Declaration of Material Facts completed by Synergy. I shall consider these contentions in turn.

In considering whether there was a misrepresentation at renewal, the initial question is whether there was any misrepresentation made by Synergy, through the brokers, to the insurers in December 2005, when Dr Andrews’ letter was sent to Fusion. Mr Eklund submits that when the letter was written (and indeed when its contents were conveyed to the insurers) the words: “This will be completed by end December” were not a statement of fact but a representation as to future intention. As such, the words were no more than a promissory representation, in other words a representation as to expectation and belief. The Marine Insurance Act 1906 (which applies to all insurance) provides by section 20(5) that a representation as to expectation or belief is true if it is made in good faith. As Mr Eklund rightly points out, it has not been alleged that Dr Andrews acted in bad faith and his own evidence was that the statement in the letter reflected his honest expectation, which was not challenged by the defendants.

The legal principle upon which Mr Eklund relies cannot seriously be in doubt. The only case which suggests that a promissory representation as such is actionable, the old case of Dennistoun v Lillie (1821) 3 Bligh 202, albeit a decision of the House of Lords, was either implicitly overruled by section 20 of the Marine Insurance Act or is, on a proper analysis, a case where by the time the representation was actually communicated to underwriters it was a statement of past fact: see the discussion in Arnould’s Law of Marine Insurance & Average 17^th edition paragraphs 17-33 to 17-41.

Where I cannot accept Mr Eklund’s submissions on this part of the case is as to the status of the words in the letter. It is important to have in mind that the question whether a misrepresentation was made to the insurers is to be judged not as at the date the letter was written, 8 December 2005, but as at the date the representation was made to the insurers, which was not until 28 December 2005, when the letter was sent to Mr Smith. It seems to me impossible on that date to construe the words: “This will be completed by end December” as no more than a statement of future intention. It seems to me that necessarily implicit in that statement when made to the insurers on 28 December at 15.24 hours (a Wednesday, so that there were only two working days left until the end of December) is a representation that the work was in fact underway and was about to be completed. This was how Mr Smith said he interpreted what the letter said in his evidence and in my judgment he was entitled to do so. That representation that the work was underway and was about to be completed was a representation of fact and was simply not true. Accordingly, there was a misrepresentation to the insurers on 28 December 2005.

As Mr Eklund rightly points out, it is only a material misrepresentation made “during the negotiations for the contract” which may entitle the insurers to avoid the contract, if they were induced by it: see section 20(1) of the Marine Insurance Act. Any misrepresentation made on 28 December 2005 was not made during the negotiations for renewal, since the renewal process did not begin until some time in March 2006. This is no doubt correct, but the insurers do not need to rely exclusively on the representation made on 28 December 2005.

Rather, the insurers’ case is that the representation made on 28 December 2005 was a continuing representation which persisted at renewal or, not having been corrected by Synergy prior to renewal despite the fact that it was clearly untrue, was impliedly repeated at renewal. In answer to that contention, Synergy and the brokers relied upon a passage in MacGillivray on Insurance Law (11^th edition) para 16-054:

“A representation made in the course of previous negotiations unconnected with the particular insurance in question cannot be relied upon by the insurer as a continuing representation so as to affect the contract.”

The only authority cited in support of that statement is the old case of Dawson v Atty (1806) 7 East 367. That case is reported very briefly and it seems to me a pretty insecure basis for any general principle such as that stated in MacGillivray. Although it concerned a representation made on a previous occasion, it is entirely unclear from the report when that previous representation was made or even whether it was made to the same underwriters. Furthermore, the representation in question appears to have been true. As Mr Wynter rightly pointed out in his closing submissions, the judgment of Lord Ellenborough CJ as reported is only six lines long and somewhat Delphic.

I consider that, where, as in the present case, a representation is made to the insurers four months before renewal about a matter which is material to the risk and to its renewal and that representation is a misrepresentation, then if it is not subsequently corrected at renewal, the misrepresentation is implicitly repeated at renewal. Nothing in Dawson v Atty runs counter to that proposition, for which, in any event, support is to be found in the modern context, in the decision of Moore-Bick J in Glencore International AG v Alpina Insurance Co Ltd [2004] 1 Lloyd’s Rep 111 at 131-2:

“If nothing had passed between the parties that had any bearing on the issue of throughput, I think it would have been difficult for Alpina to argue that Glencore had impliedly represented that the estimate of throughput in the 1995-96 year given almost a year earlier continued to apply in relation to the coming year. In my view the nature of a trader’s business is so inherently variable that one could not reasonably draw that inference. I am unable, therefore, to accept Mr Blaber’s suggestion that in a matter of this kind a statement made 12 months earlier is to be taken to have been impliedly repeated if nothing more is said. No doubt that may be true of some kinds of statements, but not one which relates to a matter as prone to variation as this.”

[The learned judge then set out the various matters relating to throughput raised by the brokers during negotiations and went on]

“by proposing that cover be renewed at the same premium as under the expiring policy I think that Glencore was impliedly representing that its estimate of throughput was substantially the same as that which had been given the previous year. This representation was false ...”

As Mr Wynter pointed out, the present case was not one where the brokers were completely silent about matters relating to the risks covered by the policy during the renewal process. Indeed, on 10 March 2006, following the meeting with Mr Smith of 6 March 2006, Ms Martin expressly drew the attention of Mr Smith to the fact that there was an issue with the sprinklers at Lion Mill regarding the stacking heights and to the fact that the police response to the alarm at Larch Mill had been withdrawn. These were exactly the sort of concerns which were likely to be made the subject of Risk Improvements on any subsequent survey.

In my judgment, by not correcting the representation made in the letter sent to the insurers on 28 December 2005 as regards the Risk Improvement regarding the intruder alarm at Dunstable, Synergy was impliedly repeating that representation, which was a misrepresentation.

Given my conclusion that there was a material misrepresentation at renewal, it is not strictly necessary to consider Synergy’s case of waiver of disclosure, since it relates only to the insurers’ alternative case that there was a material non-disclosure. However, I will consider Synergy’s submissions, in case this matter goes further. Synergy’s primary submission in relation to waiver is that, by only requiring the insured to complete the Declaration of Material Facts which related to moral hazard and previous declinature, the insurers waived disclosure of any other material facts, specifically anything relating to the installation (or not) of the intruder alarm at Dunstable.

In this context, Synergy relies by analogy on cases concerning the extent to which, by asking certain questions in a proposal form or insurance application, the insurers waive disclosure of answers to other questions that are not asked. Although the insurers in the present case did not require the completion of a proposal form, I can see that the analogy between the Declaration of Material Facts and a proposal form is an apt one and am content to proceed on the basis that the cases dealing with proposal forms provide guidance as to how I should approach the question of waiver here.

The law in this area was considered in Doheny v New India Assurance [2005] Lloyd’s Rep IR 251; [2004] EWCA Civ 1705 by Longmore LJ in the Court of Appeal in paragraphs 17-20 of his judgment:

“17.

There can be no doubt that, when a proposal form is submitted to the insured who answers the relevant questions, authority has laid down that an insurer as a result of asking certain questions may show that he is not interested in certain other matters and can, therefore, be said to have waived disclosure of them. The matter is variously put in the authorities but they are, in my view, accurately summarised in the passage of MacGillivray part of which was relied on in 1983 by Woolf J in Hair's case and still reads as follows:—

17-17 Effect of questions in proposal form

“17-17 The questions put by insurers in their proposal forms may either enlarge or limit the applicant's duty of disclosure. As a general rule the fact that particular questions relating to the risk are put to the proposer does not per se relieve him of his independent obligation to disclose all material facts. Thus, if a burglary insurance proposal form asks questions chiefly concerned with the nature of the proposer's premises and the business carried on there, this will not of itself relieve him of his duty to disclose material facts relating to his personal experience, such as the possession of a criminal record.

17-18 It is possible that the form of the questions asked may make the applicant's duty more strict. The applicant may well be reminded by a particular question that the general duty of disclosure enjoins him to state material facts in his possession relating to the subject-matter of the question but outside its ambit.

17-19 It is more likely, however, that the questions asked will limit the duty of disclosure, in that, if questions are asked on particular subjects and the answers to them are warranted, it may be inferred that the insurer has waived his right to information, either on the same matters but outside the scope of the questions, or on matters kindred to the subject matter of the questions. Thus, if an insurer asks, “How many accidents have you had in the last three years?” it may well be implied that he does not want to know of accidents before that time, though these would still be material. If it were asked whether any of the proposer's parents, brothers or sisters had died of consumption or been afflicted with insanity, it might well be inferred that the insurer had waived similar information concerning more remote relatives, so that he could not avoid the policy for non-disclosure of an aunt's death of consumption or an uncle's insanity. Whether or not such waiver is present depends on a true construction of the proposal form, the test being, would a reasonable man reading the proposal form be justified in thinking that the insurer had restricted his right to receive all material information, and consented to the omission of the particular information in issue?”

18.

Mr Turner drew our particular attention to the judgment of Asquith in Schoolman v Hall [1951] 1 Lloyd’s Rep 139 where it was held that detailed questions about the trading nature of the insured's business did not waive the obligation on the part of the insured to disclose that he had had criminal convictions. Asquith LJ formulated the principle in the following words:—

“It is unquestionably plain that questions in a proposal form may be so framed as necessarily to imply that the underwriter only wants information on certain subject-matters, or that within a particular subject-matter their desire for information is restricted within the narrow limits indicated by the terms of the question, and, in such a case, they may pro tanto dispense the proposer from what otherwise at common law would have been a duty to disclose everything material.”

The dispensing of the duty to disclose is here put in terms of “necessary implication” from the questions asked. Cohen LJ preferred the formulation of Mathew J in Laing v Union Marine Insurance Company (1895) 1 Com Cas 11 at page 15 that the insured is not bound to give information

“which the underwriter waives as to which the assured may reasonably infer that the underwriter is indifferent.”

Birkett LJ contented himself with relying on the 3rd edition of MacGillivray where it was said merely that “the form and nature of the questions, or the declaration by the assured, or the conditions in the policy may substantially modify the duty of disclosure”.

19.

These extracts only show that different judges sometimes formulate the same concept in somewhat different terms. In that particular case none of the lords justices had any difficulties in deciding that, whatever the words of the declaration, they did not excuse the failure to disclose a criminal conviction. Taking into account the different formulations in that case and the other cases cited by MacGillivray, I see no reason to qualify the test set out in the last sentence of paragraph 17–19 which has existed in its present form since, at least, the 6th edition of that work.

20.

Nor do I see any reason to confine the reasoning of that paragraph to what may be called insurance contracts with consumers as opposed to business insurance contracts. It is not desirable in principle that the law about inferences from proposal forms or declarations should differ in the one sort of contract from the other.”

Applying the test at paragraph 17-19 of MacGillivray on Insurance Law approved by Longmore LJ, the question is whether on a true construction of the Declaration of Material Facts, a reasonable man reading that document would be justified in thinking that the insurers had restricted their right to receive all other material information and consented to the omission of information about the non-installation of the intruder alarm at Dunstable.

It seems to me that question only allows of one answer: the insurers were not restricting their right in that way. It may well be that by requiring the Declaration to be completed, the insurers waived any further disclosure of other matters not the subject of express declaration, which related to the issue of moral hazard, but there is nothing in the wording of the Declaration to suggest that the insurers only wanted disclosure of matters concerned with moral hazard and declinature and were waiving disclosure of other facts material to the risk generally.

Whilst the way in which the insured and its brokers conducted themselves may not be strictly admissible in relation to the question of what is the true construction of the Declaration of Material Facts, it is of some assistance in determining how a reasonable man would have read the Declaration, that neither Synergy nor the brokers appear to have thought for one minute that the signature of the Declaration relieved them from the obligation to make disclosure of material facts generally. The draft Service Agreement included by the brokers in the Renewal Report and Recommendations sent to Synergy on 21 April 2006 reminded Synergy of its duty to disclose to insurers all facts material to the risks being placed, as did the Terms of Business included within the Register of Insurance prepared by the brokers and handed to Mr Johnson at the meeting on 23 May 2006.

Furthermore, it is clear from the evidence of both Mr Johnson and Mr Jacques that they were both well aware of the duty to disclose all material facts. It is striking that Mr Jacques’ evidence was that, if he had become aware at any time prior to renewal that the letter given to insurers had been wrong and the installation had not been completed by the end of December, or even started, he would have disclosed that to the insurers. There was no question of his having thought he would not need to do so by virtue of the impending signature of the Declaration.

Synergy advanced an alternative argument in relation to waiver that, since the General Terms in the insurers’ renewal quotation included provisions for satisfactory surveys, with risk improvements to be carried out within specified time scales and a right to amend the terms of cover should either condition not be satisfied, the insurers waived the requirement for disclosure of any information relating to those matters and instead reserved the right to amend cover. Mr Eklund submits that this analysis of waiver at the time of renewal is not affected by the fact that, ultimately, the insurers did not make these “General Terms” terms of the insurance contract.

It seems to me that there are two answers to this argument. First, and fundamentally, the question of waiver only arises where there has been a fair presentation of the risk. This is clear from the judgments of the majority of the Court of Appeal in Container Transport International v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1984] 1 Lloyd’s Rep 476, per Parker LJ at 511-2 and Stephenson LJ at 529. In the subsequent decision of the Court of Appeal in WISE Ltd v Grupo Nacional Provincial SA [2004] 2 Lloyd’s Rep 483; [2004] EWCA Civ 962, at paragraph 110, Longmore LJ approved the following passage from MacGillivray at paragraph 17-083 which, as he noted, is based on the majority judgments in CTI v Oceanus:

“The assured must perform his duty of disclosure properly by making a fair presentation of the risk proposed for insurance. If the insurers thereby receive information from the assured or his agent which, taken on its own or in conjunction with other facts known or presumed to be known to them or which they are presumed to know, would naturally prompt a reasonably careful insurer to make further inquiries, then, if they omit to make the appropriate check or inquiry, assuming it can be made simply, they will be held to have waived disclosure of the material fact which that inquiry would necessarily have revealed.”

Having cited that passage with approval, Longmore LJ went on at paragraph 111:

“So the question becomes (a) was there a fair presentation of the risk? And (b) was the insurer in the course of that presentation in the words of Parker LJ

“put on inquiry by the disclosure of facts which would raise in the mind of the reasonable insurer at least the suspicion that there were other circumstances which would or might vitiate the presentation?””

This analysis of the law on waiver was approved and supported by Peter Gibson LJ. Rix LJ in the minority took a somewhat different view as to the law on waiver, but the decisions of the majority of the Court of Appeal in both CTI v Oceanus and WISE v Grupo Nacional are binding on this court.

Applying the test approved by the majority in WISE v Grupo Nacional, the starting point is to ask the question whether there has been a fair presentation of the risk by Synergy. In circumstances where, by definition, Synergy had failed to disclose that not only had the installation of the intruder alarm at Dunstable not been completed by the end of December 2005, but it had not even been started by the time of renewal, it seems to me the answer to the question must be, no, there had not been a fair presentation of the risk.

Accordingly, the second question, whether in the course of a fair presentation, the insurers were put on enquiry, does not arise, but in any event the answer to that question is no as well. To the extent that Synergy relies on the fact that Fusion never received the alarm specification and risk assessment referred to in the Risk Improvement, that is a false point for the reasons set out in the next section of the judgment. Other than that, it seems to me there could be no basis for saying the insurers were put on enquiry about the alarm not having been installed. Clearly Mr Smith thought, on the basis of the letter, that it had, as demonstrated by his completion of the Renewal Review Checklist.

The second reason why I cannot accept that the General Terms amounted to a waiver of disclosure of the fact that the alarm had not been installed, is that although those General Terms referred to “Satisfactory Survey” and “Confirmation all premises are protected by a NACOSS approved alarm” etc, the background to all this was that it was only the Shiloh premises which had not been surveyed and in relation to which the insurers were seeking the confirmation, having surveyed all the Synergy premises and believing on the basis of Dr Andrews’ letter, that outstanding alarm issues at those premises had been resolved.

Although the wording of these provisions is general and not limited to Shiloh, not only did Mr Smith and Mr Garbutt intend them to be referable only to Shiloh premises, but this is clearly how Mr Hawkins, who had day to day responsibility for the account, understood the provision. The General Terms were never of course sent to Synergy so they never had to interpret them. Although Mr Harris maintained in his evidence that he thought that the provision related to all premises, including Synergy premises (which is supported by what he said at the meeting on 23 May 2006) I am far from convinced that he ever turned his mind to whether the insurers were really requiring these provisions to be complied with in relation to all premises.

Had he done so, he would surely have queried with insurers that, at the meeting on 6 March 2006, they had only raised the requirement of surveys at the Shiloh premises and that they already had surveys and confirmation of alarm installation for Synergy premises, so why would they need it again, to which of course their response would have been that they did not, because they intended the provisions in the General Terms only to apply to Shiloh premises. Because against the relevant background, the particular provisions of the General Terms upon which Synergy seeks to found its case of waiver were only referring to Shiloh premises, that is another reason why the waiver argument fails.

Section 18 (3)(b) and (d) of the Marine Insurance Act 1906 provide as follows:

“In the absence of inquiry the following circumstances need not be disclosed, namely:–

...

(b)

Any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know;

…

(d)

Any circumstance which it is superfluous to disclose by reason of any express or implied warranty.”

Synergy contends that there was no duty to disclose at the time of renewal the fact that the intruder alarm had not been installed, since the insurers are presumed to have known that the alarm had not been installed because they never received the alarm specification and/or risk assessment referred to in the Risk Improvement. Mr Wynter pointed out that, somewhat surreally, this argument became a more and more significant aspect of Synergy’s case as the trial wore on. However, as I see it, there are two fatal flaws in the argument. First, as Mr Willetts confirmed, the provision in the Risk Improvement was a standard provision included in all such Risk Improvements as a matter of course. He had in fact seen and approved the alarm specification during his survey on 15 September 2005. Although Mr Caley in fact changed the specification subsequently as a consequence of Mr Louis’ visit on 14 December 2005, Mr Willetts was unaware of this and the insurers were not expecting to be sent some further copy of the specification.

Second, Mr Smith’s evidence, which I see no reason not to accept, was that it was unusual for an insured to comply with the request that the alarm specification be provided to Fusion for approval. This tied in with Mr Willetts’ evidence that the provision was included by him more in hope than expectation. In the light of all that evidence it seems to me wholly impossible to say that the insurers should have known “in the ordinary course of business” that the alarm had not been installed, because the specification had not been received.

Synergy and the brokers also rely on section 18(3)(d) of the Act. The argument here is that the provision in the General Terms providing for confirmation that all premises were protected by a NACOSS approved alarm with Redcare made it superfluous for Synergy to disclose that no such alarm had been installed at Dunstable. There is a fundamental fallacy in this argument. Quite apart from the fact that, for reasons I have already given, the provision only related to Shiloh premises, section 18(3)(d) by its terms only applies where there is an express or implied warranty. The purpose of the statutory provision is clear, as appears from paragraph 17-082 of MacGillivray on Insurance Law:

“Where a matter is covered by a warranty or condition, it is not necessary for the assured to disclose facts only relevant to the matter so warranted or stipulated. This is conditional upon the insurers having full protection in the warranty.”

Contrary to the submissions of Synergy and the brokers, this passage does not assist them. As the second sentence quoted makes clear, disclosure is only excused where the insurers have the full protection of the warranty, in other words, material facts do not have to be disclosed if those facts will amount to a breach of warranty enabling the insurers to avoid liability. However, for reasons I have already given, the provisions in the General Terms never in fact became terms of the contract at all, let alone warranties, and that is the short answer to this point.

Even where there has been material non-disclosure or misrepresentation, the insurers will only be entitled to avoid or rescind the contract if they show that the underwriters who wrote the risk, here Mr Smith and Mr Garbutt, were induced to do so by the facts misrepresented or not disclosed. The question is whether the insurer would have underwritten the risk on precisely the same terms had disclosure been made of all material circumstances. At the outset, it seems to me important to stress two points. First the question is necessarily a hypothetical one, since the court is seeking to establish what the underwriters would have done if full disclosure had been made, which by definition it was not.

Thus, although, as Rix LJ put it in WISE v Grupo Nacional, the test of inducement is not a heavy one, the Court should approach with care and caution the evidence of the underwriters as to whether they were induced, for the reasons given by Colman J in North Star Shipping v Sphere Drake Insurance [2005] 2 Lloyd’s Rep 76:

In evaluating the underwriters’ evidence it is important to keep firmly in mind that all their evidence is necessarily hypothetical and that hypothetical evidence by its very nature lends itself to exaggeration and embellishment in the interests of the party on whose behalf it is given. It is very easy for an underwriter to convince himself that he would have declined a risk or imposed special terms if given certain information. For this reason, such evidence has to be rigorously tested by reference to logical self-consistency, and to such independent evidence as may be available.

The second point is that the hypothetical full disclosure which is under consideration is such disclosure as would ordinarily be made on a fair presentation of the risk, here disclosure before renewal by Synergy (probably through Mr Jacques) that Dr Andrews’ letter had inadvertently misrepresented the position, that in fact the alarm had not been installed yet but that he, Mr Jacques, wanted to correct the misleading impression given to insurers and had instructed the staff at Dunstable to get the alarm installed straightaway. That it seems to me would have been a fair presentation and the insured need not have gone further and disclosed the detailed “warts and all” forensic analysis contained in Mr Wynter’s document produced in closing headed “Summary of true position in relation to the installation of the alarm at Dunstable”.

Mr Smith’s evidence was that if he had been told either on 12 January 2006 or any other time prior to renewal that Mr Jacques had just found out that the information in the letter was incorrect and that he had instructed staff to correct the position and install the alarm, he would have referred the matter to Mr Garbutt. That much one can accept, but at the end of the day, it is the conclusion the court reaches as to what Mr Garbutt would have done if faced with that information which is critical, because he would have made the ultimate underwriting decision.

Mr Eklund made the point that, in his witness statement, Mr Garbutt did not really deal with what he would have done if a fair presentation along the lines of what is set out in paragraph 187 above had been made. Mr Garbutt said at paragraph 17 of his statement that if he had been informed prior to renewal that the Dunstable premises did not have an intruder alarm he would have made further investigations as to why it had not been installed. In paragraphs 18 and 19 of his statement he then deals with what can fairly be described as two extremes.

At paragraph 18 he says that if his investigation had revealed that the alarm had not been installed due to circumstances beyond the control of Synergy, he would have made renewal subject to a condition that the alarm be installed within 30 days. At paragraph 19, he then deals with the opposite extreme, that if the reason for the non-installation was attributable to Synergy, for example lack of money or an apparent unwillingness to address the issue, he would have been so concerned about Synergy’s attitude to risk that he would not have renewed the insurance.

Even taking that evidence at face value, as Mr Eklund pointed out to Mr Garbutt in cross-examination, he had not dealt in his statement with the position on the basis of the real explanation for what had occurred, which was not lack of money or unwillingness to address the issue, but the series of errors which I have described above. Mr Garbutt fairly accepted in cross-examination that, although in paragraph 20 of his witness statement he had dealt with what his reaction would have been if he had been informed of the internal email exchange within Synergy in early January 2006, that was on the basis, as set out in that paragraph, that those emails demonstrated that Synergy had decided not to install the alarm. In fact of course, there was no question of any such “decision” but rather a series of errors which meant that senior management, specifically Mr Jacques, was unaware that the alarm had not been installed, whereas if they had been aware, they would have remedied the situation promptly.

It follows that Mr Garbutt’s evidence in chief in his witness statement did not deal with what his reaction would have been to the true factual explanation as to why the alarm had not been installed prior to renewal, not exactly a promising start in relation to the issue of inducement. Mr Garbutt sought to remedy that shortcoming by asserting in cross-examination that, even if the true, innocent (albeit “comedy of errors”) explanation for the non-installation had been forthcoming prior to renewal, he would still have sought to impose a condition that the alarm be installed prior to renewal.

Although as I have said, I accept that Mr Garbutt was an essentially honest witness trying to assist the Court as to what he would have done if the true position about non-installation had been disclosed, I have to approach his evidence about that on the basis that it is inevitably a hypothetical construction as to what he would have done, to be approached with some scepticism. When I test that evidence rigorously, looking for logical self-consistency and independent evidence to support Mr Garbutt’s position, as Colman J rightly said one should, it seems to me it is distinctly lacking and Mr Garbutt’s position as to what he would have done, however genuinely believed, cannot be sustained.

As I have already noted, Mr Garbutt had not dealt in his witness statement with what his reaction would have been if the true position, of a series of errors rather than anything deliberate, had been disclosed to him. He fairly recognised this in cross-examination, but still maintained that even if the explanation for the misrepresentation and non-disclosure had been an innocent one (as it indeed was) he would have agreed cover subject to the alarm being installed in a tight timescale. The reason why he considered that this situation would have been different from previous ones, where he had been prepared to extend deadlines for compliance with Risk Improvements without imposing any contractual condition, was that in this case Fusion had been told (in the letter from Dr Andrews) that the installation was going to be completed.

In cross-examination, Mr Southern QC for the brokers tested this evidence by asking what Mr Garbutt would have done if Mr Smith had come to him on 3 January 2006, literally days after the letter was received by Synergy and had said the brokers had just told him that the installation had not been completed by the end of December, that the finance director had just found this out and was making sure it was done straight away. Mr Garbutt insisted that even in those circumstances, he would have imposed a condition of cover.

Although I have no doubt that Mr Garbutt genuinely convinced himself that this is what he would have done, this does seem to me an extreme position, as Mr Southern put it to Mr Garbutt: “that’s really going it a bit” and inevitably casts doubt on his evidence that he would in fact have imposed a condition, whether on 3 January 2006 or on renewal at the end of April 2006. It seems to me that there are a number of matters which suggest that, whatever he now says in hindsight, he would not have imposed a condition.

First, there is no doubt that, as Mr Garbutt fairly accepted in evidence, he regarded Synergy as a well-managed risk and that was clearly his state of mind at the time. Given that, as I have held, the explanation for what happened with the alarm at Dunstable was not some endemic failure of risk management, I do not consider that if Fusion had had the true position disclosed to it prior to renewal, that would have led it to doing something that it had never previously done with this insured, namely impose a contractual condition that the Risk Improvement be completed.

Second, the fact that Fusion was prepared to be as flexible as it was in reducing the premium in order to retain the Synergy account suggests strongly that faced with an innocent explanation for what had happened about the Dunstable alarm, Fusion would not have wanted to do anything that might endanger Synergy renewing the risk with Fusion. Mr Garbutt sought to refute this by saying that, whilst he was always willing to negotiate on premium for a quality risk, he was not willing to negotiate on an underwriting feature that was crucial to him as this one was. It seems to me that evidence really was given with the benefit of hindsight and that, at the time, if Mr Jacques had given the explanation for what had happened and said he was sorting it out promptly, there is really no reason why Fusion should have treated this Risk Improvement in a fundamentally different way from any other.

I consider that one gets a good clue as to how Fusion and Mr Garbutt would in fact have reacted, if Synergy had disclosed the true position about the Dunstable alarm prior to renewal, from the way in which they reacted to another outstanding Risk Improvement, that relating to the fire alarm at Newmarket Drive. This was required to be done by 5 September 2005 in Mr Willetts’ survey of 5 July 2005 and yet, four months later, on 3 January 2006, Fusion was informed that the alarm had still not been connected to Redcare because Chubb were being very slow. Dr Andrews said he would chase it up that week and confirm, but he never did. Fusion did not follow up this loose end prior to renewal and it was not until some time after renewal, on 14 June 2006, that Mr Smith received confirmation that this Risk Improvement had been completed.

Mr Garbutt sought to explain this away by saying that the delay was the fault of Chubb and “so this seems to be outside the control of a conscientious client” and thus very different from the position with the Dunstable intruder alarm. I was not impressed with this suggested distinction. Synergy never provided a coherent explanation as to why it had taken so long to set up the full Redcare connection, which cannot have been referable only to Chubb’s slowness. However, it is striking that neither the email of 3 January 2006 nor the later one of 14 June 2006 provoked a response from Fusion enquiring why this had all taken so long.

The truth is that what Fusion’s treatment of this Risk Improvement demonstrates is that, whilst Synergy sometimes took a while to complete Risk Improvements and had to be chased, Fusion had confidence that this client would comply with the Risk Improvements without any need to impose contractual conditions. Despite Mr Garbutt’s protestations to the contrary, I do not consider that Fusion would have adopted any different attitude to the Risk Improvement relating to the Dunstable alarm if the true position had been disclosed prior to renewal.

Finally, it seems to me there is force in Mr Eklund’s submission that Mr Garbutt’s agreement to renew the policy in April 2007, notwithstanding the allegations of misrepresentation and non-disclosure, is somewhat inconsistent with his assertion that if the true position had been disclosed to him prior to the 2006 renewal, he would have imposed a contractual condition. Had this point stood alone, it does not seem to me it would have negatived inducement, as I can see that an insurer might well renew for commercial reasons notwithstanding concerns about the previous year’s presentation, but it does not stand alone. Taken with the other matters I have mentioned, it does seem to me that this is a case where the insurers have failed to show inducement. For that reason, the insurers were not entitled to avoid the insurance and Synergy is entitled to an indemnity under the policy.

Given that I have concluded that Synergy’s claim under the policy succeeds, it is not strictly necessary to deal with the alternative claim against the brokers, but since it was fully argued and lest the case goes further, I will deal with it.

The scope of the brokers’ duties to Synergy was not seriously in dispute between the parties and can be summarised as follows:

The nature of the duties in relation to disclosure has recently been analysed by David Steel J in Jones & Environcom Ltd v MS Plc [2010] EWHC 759 (Comm) as follows:

“54

In short, a broker:

a)

must advise his client of the duty to disclose all material circumstances;

b)

must explain the consequences of failing to do so;

c)

must indicate the sort of matters which ought to be disclosed as being material (or at least arguably material);

d)

must take reasonable care to elicit matters which ought to be disclosed but which the client might not think it necessary to mention.

All this flows from the requirement that the broker should take reasonable steps to ensure that the proposed policy is suitable for the client’s needs. By definition, a policy which is voidable for non-disclosure is not suitable.

55.

Moreover it was, or became, common ground that where a change in personnel led to a new person being responsible for insurance matters in the client’s organisation, the broker must ensure that an appropriate understanding of questions of materiality is held by that person….

56.

The rationale for the imposition of these duties on a broker is that it is an unusual obligation for a contracting party, and an area of the law which can have harsh consequences, not least because any non-disclosure relied upon by the underwriter to avoid the policy may have no causative significance as regards the claim that will as a result not be paid. This makes it all the more important that the lay client is told of the paramount duty to disclose and what it involves. Further, in case the client does not appreciate what may be material, (as will often be the situation) he needs to be advised to err on the side of caution so as to disclose anything that might impinge on the judgment of a competent underwriter in assessing the risk and be helped to unearth such matters.”

Nonetheless, I agree with Mr Southern that there must be a limit to the scope of the brokers’ duty to make enquiries. The context in which brokers have been held to be under a duty to make enquiries and to elicit information is where the questions which should have been asked are ones which a competent broker might have been expected to ask in the circumstances: McNealy v Pennine Insurance [1978] 2 Lloyd’s Rep 18 and The Moonacre [1992] 2 Lloyd’s Rep 501 are obvious examples. However, as the editors of Jackson & Powell on Professional Liability (6^th edition) point out at para 16-059 a broker will not be negligent if he fails to ask questions about the risk which he had no reason to ask or if he does ask appropriate questions and the insured does not disclose important information to the broker.

So far as the alleged breaches of duty by the brokers are concerned, Synergy has pleaded a multitude of breaches in its Re-Amended Particulars of Claim, but these can essentially be distilled into five allegations which I will consider in turn:

Mr Eklund on behalf of Synergy relied upon the fact that at no stage had the brokers advised Synergy as to the importance of complying with Risk Improvements and in particular that failure to comply might jeopardise cover. As he pointed out, Mr Harris accepted in cross-examination that no such advice of that kind was given, specifically in relation to the Dunstable intruder alarm. Whilst this allegation is undoubtedly factually correct, as a causative breach of duty it is a non-starter because, as Mr Southern correctly points out and as I have already found earlier in this judgment, the Risk Improvements did not have a contractual status and therefore the insurers were never entitled to contend that non-compliance with any Risk Improvement, including that relating to the Dunstable alarm, relieved them from liability. Furthermore, they have not advanced that argument; rather their case is that there was non-disclosure or misrepresentation at renewal in relation to the fact that the alarm had not been installed.

Synergy sought to contend that if the brokers had given specific advice as to the importance of installing the alarm at Dunstable, then the alarm would have been installed. However, in my judgment, none of the Synergy witnesses supports that conclusion. The reason why the alarm was not installed during the course of December 2005 has nothing to do with any shortfall in the advice from the brokers. Rather, as I have already set out, the reason was the internal breakdown of communications, specifically the failure of Dr Andrews to pass the terms of the Risk Improvement imposed by Mr Willetts to management at Dunstable and the extraordinary comedy of errors with the internal emails in early January 2006, the blame for none of which can be laid at the brokers’ door.

So far as the second allegation is concerned, it is quite clear that Mr Johnson’s knowledge of Synergy and its insurance affairs was very limited, notwithstanding that he had been put in charge of insurance generally prior to the renewal. Specifically he knew nothing about the Dunstable alarm or the letter sent to the insurers by the brokers on 28 December 2005. It seems to me that Synergy can legitimately say that the brokers failed to ascertain the extent of his knowledge. Indeed Mr Harris admitted that he proceeded on the assumption that Mr Johnson was aware of all matters, which was a false and, as he accepted, dangerous assumption to make.

However, as with the first allegation, the real issue is whether the breach of duty in that regard was causative of the loss which, on this hypothesis, Synergy has suffered. I accept Mr Southern’s submission that, even if the brokers were at fault for failing to investigate more closely how much Mr Johnson knew about the insurance affairs of Synergy, that cannot stretch to a failure to ask him whether the Risk Improvement in relation to Dunstable had been complied with, unless the brokers should have been aware, at the time of their dealings with him prior to renewal, that it had not been complied with. In other words, this point really adds nothing to the criticism, encompassed within the third allegation with which I deal below, that the brokers should have asked a specific question, prior to renewal, of whoever they were dealing with (be it Mr Jacques or Mr Johnson) as to whether the installation of the Dunstable alarm had been completed by the end of December, as Dr Andrews’ letter had said.

Mr Eklund also sought to make much of the fact that the brokers had failed to give oral advice either to Mr Jacques or Mr Johnson concerning the effect of any non-disclosure or misrepresentation. He relied upon the evidence of Synergy’s expert broker, Mr Wood, as to the importance of giving such advice and the endorsement of that view by David Steel J in the Jones & Environcom case. It seems to me that there are two answers in the present case to any attempt to rely upon a failure to give such advice as a causative breach. First, I do not read that judgment as laying down that it is an immutable requirement, in order to comply with their duty, that brokers should have given such oral advice and, to the extent that Mr Wood was suggesting that such oral advice must be given, I reject that evidence as too inflexible.

Whilst it may be advisable to give such oral advice in a particular case, whether it is necessary to do so and whether the failure to do so is a breach of duty, will depend upon the circumstances. In the present case, there had been a long history of dealings with this client and the Risk Register sent to the client spelt out the duty of disclosure in clear terms. Furthermore, although in Mr Johnson the brokers were dealing with a new person responsible for insurance, it is quite clear from his evidence that Mr Johnson was well aware of the need to comply with the duty to make disclosure of all material facts and of the serious consequences of failing to do so. Equally, there is no doubt that Mr Jacques, who was the person with ultimate responsibility for insurance, was also well aware of the need to comply with the duty of disclosure and the consequences of not doing so.

Second, even if it had been a breach of duty to fail to give such oral advice, I am simply not satisfied that such breach was in any sense causative of any loss which Synergy might have suffered. If the insurers were entitled to avoid the contract of insurance, that was not because any personnel at Synergy were unaware of the duty of disclosure and its importance. Indeed the whole thrust of the evidence of Mr Jacques, which as I have indicated I found particularly impressive, was that if he had discovered that the alarm had not been installed, he would have disclosed that to insurers straight away. Furthermore there was nothing in the evidence of Mr Johnson, who ultimately would have reported on such matters to Mr Jacques, to suggest that if he had had the duty emphasised to him orally, he would have conducted some investigation internally which would have revealed that the alarm had not been installed, and even if he had suggested that, I would have rejected that evidence as thoroughly implausible.

The reality is that the reason for the failure to correct the misrepresentation or to disclose to insurers that the alarm had not been installed was nothing to do with a lack of appreciation on the part of Synergy as to the importance of not misrepresenting the position and of disclosing all material facts, but everything to do with the internal breakdown of communications which meant that neither Mr Jacques nor Mr Johnson was aware of what they both would have realised was material to be disclosed, a failure which once again cannot be laid at the brokers’ door.

The third allegation of breach of duty is that the brokers failed to discuss and review with the insured at renewal outstanding Risk Improvements. It is correct that, leaving to one side for the moment the true position of the alarm at Dunstable, there were other Risk Improvements which had not been finally completed at the time that Dr Andrews’ letter dated 13 December 2005 was sent to the brokers, namely the remedial works on the Sheffield electrics referred to in that letter and the Redcare connection of the Newmarket Drive fire alarm system of which Mr Hawkins reminded Dr Andrews at the time. In cross-examination, both Mr Harris and Mr Hawkins accepted that they had never had any discussion with Mr Johnson about those outstanding matters or checked with him or anyone else at Synergy prior to renewal whether those outstanding Risk Improvements had been completed.

The explanation for that failure may be that nothing which could be described as a traditional renewal meeting between the brokers and their clients took place prior to renewal or indeed until 4 May 2006, partly because of people’s business commitments, partly no doubt because of the uncertainty as to whether the brokers or Aon were going to procure the business. However whilst that may be the explanation, it is not an excuse and I consider that in failing to check up and clarify those matters prior to renewal, the brokers fell short of what would be expected of a reasonably competent broker in these circumstances. However, any breach of duty in that regard cannot have been causative of the loss Synergy might have suffered, save to the extent that Synergy can demonstrate that at the same time as checking and clarifying those matters, the brokers should have checked and clarified the position in relation to the intruder alarm at Dunstable.

The evidence of Mr McGrath, the brokers’ own broking expert, was that a reasonably competent broker would not have checked the position in relation to the alarm at Dunstable prior to renewal. Mr Eklund submitted that, on analysis, this did not help the brokers because it proceeded on the basis of how Mr McGrath would have interpreted the letter, whereas the relevant question was what a reasonably competent broker with the understanding of Mr Harris as to Dr Andrews’ letter would have done. Mr Eklund relied upon Mr Harris’s evidence that he understood that the letter contained a statement of what was to happen in the future and that “potentially yes” he ought to have asked Mr Johnson if the alarm had actually been installed. Later in his evidence he accepted in effect that “potentially yes” meant yes.

Mr Southern contended that the brokers were entitled to take the letter, the authority given at the meeting on 21 December 2005 to send it to insurers and the fact that Synergy never informed the brokers thereafter that the alarm had not been installed, as confirmation that the installation had been completed and that there was nothing to be clarified prior to renewal. This accorded with the clear and firm evidence of Mr Hawkins that, having had permission to send the letter and given the timing of the letter, he did not have any doubt that the installation would be completed by the end of December. Because of those factors, he did not think he needed to check later whether it had in fact been installed.

Mr Southern made the point, quite correctly, that it was Mr Hawkins who had the day to day conduct of the account, who had received the draft letter, who sought the confirmation at the meeting on 21 December that it could be sent to insurers, who sent the letter to insurers on 28 December and who then raised with Synergy the Newmarket Drive Risk Improvement not mentioned in the letter. Accordingly, if any list of outstanding Risk Improvements had been drawn up prior to renewal, it would have been Mr Hawkins who drew it up and it would not have included the Dunstable intruder alarm because he regarded that matter as closed.

In relation to Mr Harris’ evidence, Mr Southern adopted Mr Wynter’s description of him, with which I have already said I agree, as “suggestible” and submitted that I should approach his evidence with care. In paragraph 32 of his first witness statement, Mr Harris said:

"As a result of what was said in Dr Andrews' letter I believed that an intruder alarm would be installed by the end of December."

When he was cross-examined about this by Mr Eklund, a series of questions were put to him about how he viewed the letter in these terms:

“Q. Your understanding, as you tell us from paragraph 32 of your witness statement, is that the alarm would be installed by the end of December.

A. Yes.

Q. That was a matter of your expectation from that particular letter?

A. I believe that's as we were told; that's what was going to happen, yes.

Q. That, so far as you were concerned, obviously was a matter that was going to happen in the future?

A. By the end of December, Yes.

Q. Plainly, at the time that you received that letter, was or was not a statement of fact that the alarm had been installed?

A. Correct.

Q. You would appreciate, as an experienced broker, I think, the importance of establishing that something actually has been done?

A. That would normally be the case, yes.”

It was this evidence which Mr Eklund relied upon in support of his submission as to Mr Harris’ understanding of the letter. However, as Mr Southern rightly pointed out, these questions were all directed to how Mr Harris understood the letter in December, not even at the end of December when the insurers received it, but when the brokers received it on 13 December. The proposition that was being put to Mr Harris that, at that stage, installation of the alarm was something which was going to happen in the future was pretty well unanswerable. However, as Mr Southern also pointed out, that was not dealing with how Mr Harris had viewed the letter at the somewhat later stage, prior to renewal at the end of April 2006, about which Mr Eklund did not ask Mr Harris.

However, Mr Harris had dealt, at least by implication, with the reason why he did not clarify with Synergy prior to renewal whether the intruder alarm had been installed at Dunstable in his supplementary witness statement at paragraph 7, where he said:

"I did not at this stage advise Synergy that if they did not confirm that the Dunstable premises were protected by an NACOSS-approved alarm with signalling the insurers might be entitled to terminate cover. This was because I had been led to believe by Synergy that an alarm had already been installed at the Dunstable premises and, accordingly, it would not have been necessary or appropriate to provide any such advice."

That evidence related specifically to why he had not advised Synergy about the consequences of not complying with the Risk Improvement, but the reasoning must equally provide the explanation as to why he did not seek to check with Synergy prior to renewal whether the alarm had been installed.

As to what it was which led him to believe by the time of renewal that the alarm had been installed, he was asked about this by Mr Wynter in cross-examination:

“Now, when you say you'd been led to believe by Synergy that an alarm had been installed, you are referring, are you not, to the letter that you've read, the letter of December 2005?

A. Yes.

Q. And the complete silence thereafter about anything to do with the alarm at Dunstable?

A. Yes.”

In re-examination, Mr Harris confirmed that after December 2005, he thought that the alarm had been installed because had it not been, he would have expected Synergy to inform him:

“Q. If the installation of the intruder alarm at Dunstable had not been completed by Synergy by the end of December, as their letter stated it would be, what would you have expected Synergy to do in January?

A. To inform me.

Q. If they had informed you, what would you have done?

A. If they'd actually told me that the alarm hadn't been installed, I would have actually informed Fusion.

Q. Now, did you ever hear from anyone at Synergy again about this intruder alarm, after December 2005?

A. No.

Q. At any rate before the fire?

A. No.

Q. Did that have any influence on the way that you then moved forward with this account, in respect of outstanding matters?

A. No.

Q. Was the intruder alarm something that was still something that needed to be dealt with?

A.

I don't believe so, no, I was told that it was going to be done, so I believed that it would.”

I agree with Mr Southern that the whole line of questioning in cross-examination where Mr Eklund got Mr Harris to accept that he should have clarified with Synergy, prior to renewal, whether Risk Improvements had been completed, failed to distinguish between Risk Improvements which were understood at that time still to be outstanding and Risk Improvements which were thought at that time to have been dealt with. Viewing Mr Harris’ evidence overall, at the time of renewal in April 2006, as opposed to at the time of receipt of Dr Andrews’s letter on 13 December 2005, the Risk Improvement in relation to the intruder alarm at Dunstable clearly fell into the latter category. Whatever Mr Harris may have accepted in relation to his understanding in December he never did resile from the evidence in his supplementary statement, reiterated in cross-examination by Mr Wynter and in re-examination, that his understanding at the time of renewal was that the alarm had been installed.

It follows that, on a proper analysis of Mr Harris’ evidence and contrary to Mr Eklund’s submissions, Mr Harris never accepted that, with the understanding that he had prior to renewal in April 2006, he should have clarified with Synergy whether the alarm had been installed. However, even if he had accepted that criticism, that would not have been determinative of the question of whether the brokers were in breach of duty as alleged in Synergy’s third allegation. If necessary, I would prefer the clear and forceful evidence of Mr Hawkins on this point as establishing that, on the basis of the brokers’ understanding at the time of renewal that the alarm had been installed, the fact that the brokers did not query with Synergy whether it had been installed did not amount to a breach of duty. Ultimately, in my judgment, this third allegation of breach simply fails on the facts.

The fourth allegation of breach is that the brokers failed to draw the attention of Synergy to the General Terms which were part of the insurers’ renewal quote provided to the brokers on 17 April 2006, specifically the term requiring confirmation that all premises were protected by a NACOSS approved alarm. This was, to say the least, a surprising omission given that, taking the document at face value, these were the terms upon which the insurers were indicating that they were prepared to renew the policy. It may be that, in view of the concern as to whether Aon rather than the brokers would be awarded the business, Mr Harris in particular lost sight of the need to inform his client of these terms, but again whilst that may be an explanation, it is no excuse and this was a clear breach of duty by the brokers.

However, the real question is whether that breach caused Synergy any loss, on the hypothesis that the relevant loss was that the policy turned out to be voidable. It seems to me that the answer to that question is clearly no. Whatever Mr Harris may have understood the term requiring confirmation that all premises were protected by a NACOSS approved alarm to mean, it is quite clear that the insurers intended it only to be referable to Shiloh premises. There is no suggestion that the brokers did not inform Synergy about the requirement for confirmation immediately after renewal, at the meetings in May 2006 or that the insurance could have been or was avoided for failure to provide that confirmation in relation to Synergy premises at any stage. For the reasons I have given earlier in this judgment, the General Terms never in fact had any contractual effect. Accordingly, any breach was wholly non-causative.

The final allegation of breach of duty is that the brokers failed to obtain a policy which was suitable for the insured’s needs. Since I have concluded anyway that the policy is valid and not voidable, this allegation does not arise, but even if I had concluded that the policy was voidable, this allegation of breach adds nothing to the other allegations, all of which I have held fail. The reality is that if the policy had been voidable, the effective cause of it being voidable would not have been any breach of duty by the brokers but the internal breakdown in communications within Synergy which led to insurers not being informed of the true position, in circumstances where the person ultimately responsible for proper disclosure to insurers, namely Mr Jacques, did not need to be educated by the brokers as to the scope of the duty of disclosure and would have disclosed the true position to insurers had he been made aware of it by his own colleagues.

Given that I have held that the policy was valid and that even had I concluded that the policy was voidable, there was no causative breach of duty by the brokers, I can deal with the brokers’ fall back position that any loss Synergy suffered was caused in whole or in large measure by their own contributory negligence, relatively shortly.

Synergy sought to counter the defence of contributory negligence by relying on cases such as the decision of Moore-Bick J in Bollom v Byas Mosley [2000] Lloyd’s Rep IR 136, in which the courts have set their face against accepting a defence of contributory negligence where the alleged fault of the claimant consists of an omission to guard against the failure of the defendant to carry out his legal obligations to the claimant. In that case, the claimant relied upon the broker to draw important matters to its attention and had no reason to suppose the broker would not do so. Moore-Bick J formulated the reason why contributory negligence would not run in such a case as follows:

“When a person engages a professional man to provide specialist services the law will not ordinarily impose a duty on that person to take steps to protect himself against negligence on the part of someone who has himself undertaken to act with reasonable skill and care. Negligence involves a failure to guard against a risk that is reasonably foreseeable and there cannot therefore be contributory negligence in a case of this kind unless the plaintiff ought reasonably to have foreseen that his adviser might fail to carry out his responsibilities.”

I agree with Mr Southern that the approach in that case and other such cases has to be tempered in the light of the decision of the Court of Appeal in Sahib Foods v Paskin Kyriakes Sands [2003] EWCA Civ 1832; [2004] PNLR 22 in which, at paragraph 70, the Court endorsed the approach of the High Court of Australia in Astley v Austrust Limited [1999] HCA 6, (1999) 161 ALR 155 that, even in cases where the defendant’s duty is to protect the claimant against the very damage that has occurred, there is no rule of law that contributory negligence is not available as a defence.

However on analysis the present case does not fall into that category in any event because Synergy did not act as it did because it assumed that the brokers had done their job properly. Synergy was never relying on the brokers to relieve it from the consequences of its own internal breakdown in communications.

In my judgment, Synergy was at fault within the meaning of the Law Reform (Contributory Negligence) Act 1945 in a number of ways which can be summarised as follows: (i) At the meeting on 21 December 2005, Synergy authorised the brokers to send Dr Andrews’ letter to the insurers without a proper check that it could comply with the deadline it gave in the letter or subsequently ensuring it did comply with it; (ii) although the email from Mr Caley of 6 January 2006 reminded the recipients of that email that the issue of installation of the alarm was still outstanding from insurers and others within Synergy knew what the insurers had been told, no-one got on with the installation and no-one told the brokers that installation had not been completed by the end of December, let alone that it had been put on hold; (iii) Mr Johnson failed to prepare a list of all Synergy locations with details of alarm installations at each location; (iv) Mr Johnson failed to circulate to operations managers at each location the document prepared by the brokers summarising the warranties in the policy.

I consider that in respect of each of those aspects of fault on the part of Synergy, there is no question of the brokers being under a duty to protect Synergy from its own fault. In a very real sense, Synergy was entirely to blame for the situation in which it would have found itself if it had suffered a loss as a consequence of the policy being voidable. If it had been necessary to apportion blame and make a deduction from Synergy’s damages for its own contributory negligence, I would have made a deduction of 90%.

However, given my conclusion that the insurers are liable to indemnify Synergy under the policy, all those questions of breach by the brokers and contributory negligence of Synergy are entirely academic.

Synergy’s loss under the material damage section of the policy is agreed at £4 million excluding interest. So far as the claim for business interruption is concerned, the policy provides cover in respect of loss of gross profit due to (a) reduction in turnover and/or (b) increase in cost of working. The relevant provision of the policy is as follows:

“ Gross Profit/Estimated Gross Profit The insurance under this item is limited to loss of Gross Profit due to a) reduction in Turnover and b) increase in cost of working and the amount payable as indemnity thereunder shall be

in respect of reduction in Turnover: the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall fall short of the Standard Turnover in consequence of the Incident

in respect of the increase in cost of working: the additional expenditure (subject to the provisions of the Uninsured Working Expenses) necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover which but for that expenditure would have taken place during the Indemnity Period in consequence of the Incident but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided

less any sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business payable out of Gross Profit as may cease or be reduced in consequence of the Incident.”

It is agreed between the forensic accountants in the present case that Synergy incurred an increase in the costs of working, net of saving, of £2,853,509. However, two points, essentially ones of principle, remain in dispute, which affect the total loss.

The first of these concerns the alternative arrangements made after the fire for the work of the laundry at Dunstable to be transferred to Derby pending reconstruction. Prior to the fire, the work at Derby was carried out in two shifts a day, five days a week, with maintenance work on the Kannegiesser industrial washing machines being carried out after hours. During the period after the fire until December 2007, Derby operated three shifts a day on a continuous 24 hour basis five days a week, with maintenance carried out at weekends.

Synergy’s case is that this additional continuous working of the Derby machines increased the maintenance costs substantially because of the lack of daily maintenance and that these additional costs continued even after the operation had transferred back to Dunstable and Derby had reverted to two shifts a day. In support of that contention, Synergy relies upon a letter from Kannegiesser UK dated 17 May 2010 which states that: “This [the additional working] inevitably raised the parts usage by a similar proportion, and the level of spare usage continued at a high level after the 24 hour processing ceased due to the high level of wear on slow wearing parts.” Kannegiesser UK assert that this high level of spare parts usage has continued into 2010, although Synergy’s expert forensic accountant Mr Thompson only supports the claim up to December 2008 but no further.

The defendants (who joined forces on these damages questions and shared a forensic accounting expert, Ms Rawlin) challenged this approach on two grounds. First they contended that the additional expenditure on spare parts for the machines at Derby is only recoverable for the Indemnity Period under the policy, of eighteen months after the fire. Second they contended that the increased maintenance costs are not recoverable beyond the time when the machines would, in any event, have done the number of running hours they had done when the operation transferred back to Dunstable.

So far as the first ground is concerned, this is a question of the correct construction of the relevant provision of the policy, which I have set out above. In my judgment, the words “during the Indemnity Period” in paragraph (b) of that provision are qualifying the words “the reduction in Turnover which but for [the] expenditure would have taken place”, but not the words “the additional expenditure…necessarily and reasonably incurred” which precede those words. It follows that I prefer Synergy’s construction of the provision, which I regard as a more principled construction, not least because it recognises, in an appropriate case, that the insured may necessarily and reasonably incur expenditure in avoiding or diminishing the reduction in Turnover, which expenditure lasts beyond the Indemnity Period. A good example of that is the one which Mr Eklund gives in Synergy’s written closing submissions, of the lease of a replacement building whilst repairs are undertaken to the insured’s building, but the landlord will only grant a two year lease, although the indemnity period is only eighteen months. It seems to me that in principle the costs incurred in leasing the building for two years should be recoverable, even though the reduction in turnover can only be recovered for eighteen months.

However ultimately it may not matter, in the present case, who is right about that first ground of construction, since I am very firmly of the view that the defendants are right on the second ground, from which it follows that the relevant additional expenditure had ceased before the Indemnity Period came to an end in August 2008. The extra shifts for the Derby machines lasted from shortly after the fire until December 2007, a maximum period of 47 weeks during which the machines therefore ran for 705 shifts rather than the 470 shifts they would have run in that period but for the fire. However, but for the fire, those machines would have done 705 shifts on the basis of 10 shifts a week in 70 ½ weeks, in other words by the middle of June 2008 at the latest.

However, Kannegiesser UK’s letter contends that high maintenance costs for the Derby machines continued into 2010, the best part of two years later. No explanation has been put forward by Synergy as to why the additional shifts in 2007 could justify a claim for these continuing high costs of maintenance, well into the current year, long after the 705 shifts in question would have been incurred in any event, irrespective of the fire. I accept the defendants’ submission that a claim on that basis cannot be justified and, indeed, the reality is that Mr Thompson did not seek to justify a claim for such maintenance costs beyond December 2008.

Ms Rawlin has prepared a calculation to arrive at the additional spare parts costs which assumes that, contrary to Synergy’s claim based on the Kannegiesser UK letter, in the financial year 1 April 2009 to 31 March 2010 the relevant maintenance costs were unaffected by the fire, on the basis that this period commences nearly a year after the machines would have run the number of shifts anyway, irrespective of the fire. She then compares the costs in that year with those in the year before the fire to arrive at an average annual increase in spare parts costs which would have occurred anyway through age and use of the machines irrespective of the fire.

Mr Eklund contends that Ms Rawlin’s approach is without evidential support, which frankly is not a strong point, given that, apart from the bald assertion of Kannegiesser UK, there is no evidential support for Synergy’s own claim that the additional maintenance costs caused by the continuous 24 hour working during the week for the remainder of 2007 after the fire continued into 2010.

Despite Synergy’s criticism of Ms Rawlin’s approach, I consider that it is much to be preferred to that of Synergy and its forensic accounting expert. The only caveat I would enter (although there is no specific evidence to this effect) is that as a matter of common sense, I can see that running machines “flat out” for 705 hours may have led to their being in need of more maintenance than if they had run those 705 hours more gradually, with two shifts rather than three shifts a day. Whilst it must be very doubtful whether that detrimental effect could have lasted into the period 1 April 2009 to 31 March 2010, I am prepared to assume some modest proportion of the additional maintenance costs inevitably incurred with older machines in that annual period, say 15% maximum, was attributable to the “flat out” running of the machines during the period after the fire until the operation transferred back to Dunstable. On that hypothesis, I accept Mr Southern’s submission that the maximum claim under this head of damages is £85,000. I should add in parenthesis that I regard this as extremely generous to Synergy.

The second issue of principle in relation to the business interruption claim concerns the extent to which depreciation not deducted as a consequence of the fire should be brought into account as a saving, reducing the amount of indemnity to which Synergy is entitled under the policy. The point arises in the following way. In relation to the machines at Dunstable, the financial statements of Synergy showed depreciation over the projected life of the machines. As Mr Southern submitted, this was not just an accounting convention, but reflected the commercial reality: if any company treated the whole capital cost of machinery as reducing profit only in the year of account in which that capital cost was incurred, the profit in that year would be artificially reduced and the profits in subsequent years of account would be artificially inflated because they would not reflect the expense of using and owning the machinery.

Synergy ceased making a deduction in its accounts for depreciation of plant and machinery at Dunstable after the fire. The defendants submit that if Synergy does not give credit for what might be described as the cessation of depreciation, for the period until new machines were installed and depreciation resumed in subsequent accounting periods, Synergy will recover an indemnity for more than its actual loss in respect of business interruption. This is for the simple reason that, had the fire not occurred, Synergy could not have earned its gross profit (by reference to which any indemnity under the business interruption section of the policy is calculated) without having the use of the machines, in respect of which a sum for depreciation would be deducted from the gross profit in each accounting period.

It seems to me that, as a matter of principle, this analysis is unanswerable and plainly correct. On that basis, to the extent that, during the Indemnity Period, the deduction in respect of depreciation ceased to be made, that was a saving against what would otherwise have been the charges and expenses of Synergy’s business. It follows that, in principle, that saving should be off-set against any claim under the business interruption section of the policy, unless the wording of the policy requires some different conclusion.

Synergy submits that credit does not have to be given against its business interruption claim for any saving in respect of depreciation, on two grounds which it submits are the consequence of the correct construction of the policy. First, it is submitted that if it was intended that the “sum saved during the Indemnity Period in respect of…the charges and expenses of the Business” in the closing phrase of the provision quoted above was intended to include savings in respect of depreciation, the provision could and would have said so. Reliance is placed upon the fact that, in other provisions of the policy where it is intended that depreciation should be taken into account, express reference is made to depreciation. Thus, Synergy refers to the definition of Gross Profit in the policy which provides as follows:

“Gross Profit shall mean the amount by which:

the sum of the amount of the Turnover and the amounts of the closing stock and a work in progress shall exceed

the sum of the amount of the opening stock and work in progress and the amount of the Uninsured Working Expenses

The amount of the opening and closing stocks (including work in progress) shall be arrived at in accordance with the Insured’s usual accounting methods due provision being made for depreciation.”

It does not seem to me that this point has any real force for two reasons. First, given that the definition of gross profit itself contemplates a deduction for depreciation, it would be very odd if the savings made during the indemnity period, which would reduce gross profit but for the insured event, somehow excluded a matter which, because of the insured event, was no longer a deduction from the gross profit. Second, it seems to me that there is no reason for the closing phrase of the insuring provision to expressly identify a saving in respect of depreciation as a saving in respect of the charges and expenses of the business, any more than any other saving.

More formidable is the second ground upon which Synergy submits that any saving in respect of depreciation does not have to be brought into account upon the true construction of the policy. This is that depreciation is simply not a charge or expense “payable” out of gross profit within the meaning of the provision. Synergy submits that the word “payable” connotes something that would be “paid” to somebody, whereas depreciation is never paid in that sense. Rather it is an accounting exercise that spreads the cost of assets over a number of years.

The defendants seek to counter that argument, by contending that the correct approach to the provision is that it is unlikely that the word “payable” was used with the intention of only requiring certain types of saving to be deducted from any claim, so that other types of saving did not have to be deducted, with the consequence that the insured recovered more than a full indemnity. Rather, the likelihood was that “payable” was used not as a word of limitation but because the sort of expenses which would ordinarily be deductible for this insured’s business such as electricity and washing powder would be “payable” in the ordinary sense.

Although the defendants’ construction stretches the word “payable” somewhat, it seems to me that it is to be preferred to Synergy’s construction, which leaves the saving in respect of depreciation out of account. My principal reason for that conclusion is that it seems to me that, as a matter of principle, a policy should be interpreted as providing an indemnity for the loss suffered not for more than such an indemnity. Of course if the wording is incapable of any other construction, a court might be driven to the conclusion that something in excess of a full indemnity was intended, but given the unlikelihood and unreasonableness of such a conclusion, the court should not arrive at it unless no other conclusion is possible.

It seems to me that Synergy’s construction would lead to that unreasonable conclusion, but that construction is not inevitable if “payable” is given a purposive meaning. Synergy sought to counter the suggestion that it would otherwise recover more than a full indemnity by contending that depreciation had not in fact been saved, because it had been accelerated due to the write off of damaged assets following the fire. The short answer to that point is that, on the basis that the policy has responded (as I have found it must), the insurers will have indemnified Synergy for the cost of replacement of the machines on a reinstatement basis, meaning that Synergy is better off to that extent.

Furthermore, in my judgment the word “payable” does not have as inflexible and narrow a meaning as that for which Synergy contends. I agree with Mr Southern that, whilst accountants might not ordinarily refer to depreciation being payable, in accounting terms depreciation is a charge or expense deducted from gross profit to arrive at net profit and to that extent, as Ms Rawlin said, something payable out of gross profit. Thus an accountant would understand why a saving in depreciation was a saving in respect of charges and expenses of the business payable out of gross profit.

Accordingly, in my judgment, Synergy has to deduct from its business interruption claim the savings it has made in respect of depreciation.

Finally, in relation to the sums which I have held are recoverable under the policy, the question arises as to the appropriate rate of interest on those sums. Synergy relied upon the rates of interest it had paid for borrowing since the fire as set out in Dr Jacques’ second statement, which ranged from 4.5% to 6.37%. There were a number of flaws in those interest calculations which it is not necessary to go into in detail, as ultimately Synergy did not seek to recover interest at those rates but rather to rely upon that evidence to justify an award of interest by the court at 2% above base rate rather than the rate of 1% above base rate which would normally be applicable for a company such as Synergy. Having considered that material, I can see no justification for departing from the normal rate of interest applicable for a claimant of the stature of Synergy, on any view a substantial company, of 1% above base rate.

As to the period for which interest should be payable, Synergy contended that it should be payable from the date of the fire. I consider that the insurers were entitled to a reasonable period in which to investigate the loss before interest should be payable, even if technically they were in breach of contract from the date of the fire. In my judgment, interest at 1% above base rate is payable from 1 April 2007 to date.