Dalecroft Properties Ltd v Underwriters Subscribing To Certificate Number...

Since August 2007, the claimant (“Dalecroft”) has been the freehold owner of a mixed commercial and residential property at 254-258 North Down Road, Margate, Kent (“the Property”). Dalecroft insured the property with the Defendants (“the Underwriters”) under a property owner’s policy initially taken out in July 2007, which was renewed in August 2008. The policy covered a number of risks, including fire. On 16 May 2009 a fire (“the Fire”) caused severe damage to the Property, leaving it in such a state that it needed to be demolished and rebuilt. Dalecroft made a claim under the policy: but, by letter dated 15 September 2009, the Underwriters purported to avoid the policy and tendered the return of the premium.

In this action, Dalecroft claims an indemnity under the policy against its losses resulting from the Fire. The Underwriters counterclaim for a declaration that they were entitled to avoid the policy on the grounds of misrepresentation and/or non-disclosure and/or have been discharged from liability by breaches of warranty on the part of Dalecroft. The misrepresentations and/or non-disclosures relied upon by the Underwriters principally (though by no means exclusively) relate to the description and condition of the Property. The breaches of warranty relied on principally relate to the commercial un-occupancy conditions of the policy.

In respect of all save one of the allegations of misrepresentation, Dalecroft denies that what it said was untrue. It also says, in relation to all of the allegations of misrepresentation and of non-disclosure, that the matters relied upon by Underwriters were not material and/or did not induce the making of the relevant contract of insurance. In particular, Dalecroft says that that contract was not made until November 2008, when Underwriters issued a revised Certificate Schedule headed “Cancel and Replace”. By then the residential part of the Property was unoccupied, and scaffolding supporting a “tin hat” roof had been erected: and Dalecroft argues that most of the alleged misrepresentations and non-disclosures had therefore by then become irrelevant. Alternatively, Dalecroft argues that the risk is divisible and that, since the alleged misrepresentations and non-disclosures relate only to the residential part of the Property, it is entitled to an indemnity against its losses in relation to the commercial part. Finally, Dalecroft denies the alleged breaches of warranty.

Dalecroft was incorporated in 2005 as a property investment vehicle. The sole director and shareholder of Dalecroft was and is Mr Zalman Horowitz (“Mr Horowitz”). Dalecroft was and is a family business, and both Mr Horowitz’s wife, Caroline, and his uncle also acted at times for Dalecroft.

The Underwriters are a number of syndicates at Lloyd’s, represented by JR Clare Underwriting (Agencies) Ltd (“JR Clare”). The policies issued to Dalecroft were written by Carter Middleton Limited trading as LIG Commercial Insurance Specialists, eLet Insurance and Tristar Underwriting (“Tristar”), which held a Binding Authority from the Underwriters. The principal of Tristar was Mr Elwyn Isted (“Mr Isted”).

Dalecroft dealt with Tristar through Dalecroft’s broker, Ms Miriam Ostreicher (“Ms Ostreicher”) of Oster Insurance Services (“Oster”).

The trial of this action took place over 4 court days, between 27 and 30 March 2017. Closing submissions were made in writing. Dalecroft was represented by Mr George Spalton. Ms Jessica Stephens represented the Underwriters. I am grateful to both counsel for their assistance.

I heard evidence from the following witnesses of fact:

I also heard expert evidence on the issue of materiality from Mr Grahame Pipe (“Mr Pipe”), instructed by Dalecroft, and from Mr Trevor Clegg (“Mr Clegg”), instructed by the Underwriters.

In forming my views (where the evidence of the witnesses conflicted) as to which parts of the factual evidence to accept, and which to reject, I have of course paid close attention to the demeanour of the witnesses in the witness box as they gave their evidence to me. I have, however, also borne in mind the fact that the events with which this trial is concerned took place between 8 and 10 years ago and that it is inevitable that memories have faded and been made less reliable by the passage of years. I have therefore been careful to test the evidence of each of the witnesses against all of the other materials available to me, bearing in mind the helpful observations of Robert Goff LJ (as he then was) in The Ocean Frost (Footnote: ¹):

Overall, my impression was that most of the witnesses of fact were doing their best to tell the truth to the court, as they now remembered it. However, the recollections of some of the witnesses were not always reliable. Specifically:

As for the underwriting expert evidence, both Mr Pipe and Mr Clegg were impressive witnesses, with long practical experience of writing the sorts of risks at issue in this case. On the important issues, the disagreements between them proved largely to be matters of emphasis and reasoning. I shall return to these matters, where relevant, later in this judgment

Prior to the Fire, the Property extended over 5 floors:

Until 2005 the Property, had been owned by a Mr and Mrs Scheiner. It was then owned and run by Mr Harmer, though a company that went into administration early in 2007.

The accommodation on the upper floors of the Property, when first used as a hostel, required to be registered as a House in Multiple Occupation (“aHMO”). From 2006 onwards it required a HMO licence from TDC (Footnote: ²). A survey dated 15 November 2001 (which was carried out on the instructions of Mr Harmer) recorded that the accommodation had been registered with TDC on 9 April 1999. However, when Dalecroft purchased the Property in August 2007, no HMO licence was in force. The documents which I have seen indicate that the forms to apply for a HMO licence had been sent to Mr Harmer by TDC in September 2006, but that Mr Harmer had not carried the application process through.

The Property was marketed by an estate agency called Europeak Ventures Limited (“Europeak”), and was introduced to Mr Horowitz by another agency, P4i Ltd (“P4i”) in about June 2007. The particulars produced by Europeak described the property as a “rarely available part-investment part-development deal”, comprising “3 large retail units on the ground floor and basement, and what used to be a hotel on the first, second and third floors, which is over 10,000 ft² of space”. According to these particulars, “The council have indicated they are prepared to accept any planning scheme to convert this hotel into residential units and a plan for this conversion into 12 self-contained flats is currently being prepared”.

In an email dated 27 June 2007 sent by P4i to Mr Horowitz, the accommodation on the upper floors was listed as:

First floor: managers flat with 3 bedrooms kitchen bathroom with access through hostel and rear staircase. 5 letting rooms kitchenette bathroom self-contained former disco hall.

Second floor: 13 letting rooms 3 bathrooms 4 toilets kitchenette

Third floor: 9 letting rooms 2 bathrooms 2 toilets kitchenettes

Outside: small yard area

The hostel is heated by 2 gas-fired heating boilers

There is an elevator to the rear but it is currently un-operational and requires remedial work

Dalecroft exchanged contracts to buy the freehold of the Property on about 29 June 2007 at a price of £1,100,000.00. Completion took place on 14 August 2007. The purchase was funded by an advance of £323,940.50 from Nationwide Building Society (“Nationwide”), secured by a charge over the ground floor shops and basement, and by an advance of £934,901.00 from Clydesdale Bank plc (“Clydesdale”), secured by a charge over the upper floors. These two advances together totalled £1,248,841.50, and the Completion Statement records that a sum of £158,538.50 (including deposit monies of £45,000) was paid to Dalecroft following the transaction.

Gill & Penfold, Chartered Surveyors, prepared valuation reports for both Nationwide and Clydesdale before those lenders made their advances. Copies of these reports were supplied to Dalecroft.

Initially, Mr Horowitz intended to run the commercial and residential parts, and to develop the vacant part. To that end, he incorporated 2 companies: Allford Estates Ltd (“Allford”), which was to run the residential parts, and Maxitime Developments Limited (“Maxitime”), which was to develop the Disco Building by converting it into residential flats. Mr Horowitz was the sole director of both Allford and Maxitime. He continued to be a director of Allford until 21 December 2007.

On completion, Dalecroft granted to Allford a long lease of the residential parts for 125 years at a rent of £250 per annum (doubling every 25 years), plus a maintenance rent amounting to a reasonable proportion of the relevant costs and expenses. Under the terms this lease, Dalecroft agreed to maintain and keep the main structure and common parts of the Property in good repair and condition, to re-decorate the exterior and common parts every three years, and to insure the Property. Allford agreed to maintain the residential parts that were let to it.

Mr Horowitz also made an informal arrangement with Mr Harmer, under which Mr Harmer would continue on a temporary basis to manage the hostel, to deal with the tenants, to collect the rent, and to organise the maintenance of the residential parts on behalf of Allford

As Mr Isted explained in his evidence, Tristar at that time used an on-line underwriting system (“the Platform”) to generate and issue quotations and policy documents. The Platform was programmed to give effect to the criteria, terms and rates set out in the 2007 Rating Guide for Commercial Let Properties (“the Underwriting Guide”) agreed between Tristar and JR Clare.

In most cases, a broker wishing to obtain a quotation from Tristar would access the Platform directly on-line, using confidential log-in details and a password. The Platform would then present the broker with an online form, and the broker would complete the fields in that form to generate the quotation. Particular answers in particular fields might generate drop-down options for further answers. If all the answers given by the broker corresponded precisely with the criteria in the Underwriting Guide, the Platform would automatically generate a quotation document, incorporating the rates and clauses specified for that type of risk in the Underwriting Guide. The quotation document produced would include a Quotation Schedule, a Proposal/Statement of Facts and a Policy Summary. This would then be sent in hard copy to the broker, for the broker to check.

If, however, the answers given by the broker did not correspond exactly with the criteria, the Platform would not automatically provide the broker with a quotation. The quotation request would instead be referred, usually to Mr Isted, for decision. In difficult cases falling outside the normal criteria in the Underwriting Guide, Mr Isted might refer the matter on to JR Clare for a final decision. However, I accept Mr Isted’s evidence that, in most such cases, he would simply himself take the decision to decline the risk, without referring it on.

By no means all of the brokers who dealt with Tristar were comfortable in 2007-2008 with using the Platform directly on-line. Such brokers would provide Tristar with the necessary information in writing or by telephone, and Tristar’s staff would themselves input that information into the Platform in order to generate a quotation.

Ms Ostreicher was such a broker, who preferred to deal with Tristar in writing rather than online. She had acted as a broker for Mr Horowitz and his companies several times before. On this occasion Mr Horowitz was on holiday in Austria, and telephoned her from there to ask her to obtain a quote for cover for the Property behalf of Dalecroft.

As a result of that conversation, Ms Ostreicher produced a broker’s presentation headed “Commercial Insurance (Prop Form)” (“the Oster Presentation”) and sent it by fax to Tristar. The Oster Presentation, after identifying the would-be insured as Dalecroft and giving the risk address, continued:

Construction of property (floor, walls, roof): standard construction

Number of floors in the property: 4

Are composite panels used in construction or insulation of the building? N

Sprinkler system?

Is the shop terraced (what are neighbouring)? Y

Are the premises multi tenure? N

Are the premises occupied? 3 shops, one is let to Time Tunnel (amusement arcade), one let to café and third is a charity shop which will have their lease taken over by the amusement arcade very shortly. Upper rooms (27) is let on a HMO with shared facilities. Also separate 3 bed flat on first floor which is the live-on manager’s flat.

To rear of shops is a building ex-disco and now vacant to be converted to resi units

Is there a service yard or car park? N

Age of premises c1900

General condition: Good

Are there any interior/exterior building works currently in progress: not yet as not yet received planning.

Building declared value: 1,200,000

Loss of rent: 130,000 per annum

Start date of cover: tba

Leaseholders to be noted: Floors B &C Allford Estates, and first floor to front Pitchford Developers Ltd and rear disco units Maxitime Developments Ltd

Interest noted: Nationwide, Clydesdale, Birmingham Midshires

Terrorism Req: Y

Details of previous claims: new

Existing Insurer:

Is the property in a flood area: Y

The information in the Oster Presentation was input into the Platform by a member of Tristar’s staff, a Ms Collier. Because she put into the “Further Information” box on the form the information about the occupants of the commercial part of the Property that had been given in the Oster Presentation, the platform automatically referred the quotation request to Mr Isted for decision. He, however, authorised the request to be processed without amendment, and the following day Tristar sent the requested quotation to Oster by fax and email. This provided for a premium for the year 2007/2008 of £4,330.45 (including IPT).

The Proposal/Statement of Fact that formed part of that quotation generally followed the information provided in the Oster Proposal, but added some additional assumed facts. In particular:

Curiously, the question “Has it ever suffered from flooding or is it in an area troubled by flooding?” was answered “No”, even though the Oster Presentation had stated that the Property was in a flood area, and even though the quotation incorporated special condition X014 excluding liability for flood damage.

At the top of the Proposal/Statement of Fact was a heading “Disclosure”, underneath which were the words “IMPORTANT NOTICE: Please check this proposal/statement of fact for insurance very carefully”. Underneath that was the following warning:

NON DISCLOSURE WARNING

The following Proposal Form/Statement of Fact together with any other information supplied to the Underwriters will form the basis of the Insurance and any non-disclosure or misrepresentation of a material fact could invalidate all or part of the Insurance contract. A material fact (or material disclosure) is a factor likely to influence Underwriters’ acceptance and assessment of the risk. This applies both before the policy commences and during the policy. Furthermore all answers or statements on the Proposal Form/Statement of Fact, Claim Form or other Material Documents are the responsibility of the Proposer/Insured and the Proposer/Insured should therefore carefully check the accuracy of any information provided. Failure to fully comply with the above may prejudice the settlement of any claim. If you are in any doubt as to what constitutes a material fact or material disclosure you should disclose it and/or refer to your insurance advisor for assistance.

Ms Ostreicher sent a couple of queries back by fax, handwritten on a copy of the front page of the quotation. Mr Isted wrote brief answers, and faxed the document back to Ms Ostreicher. Dalecroft then accepted the quotation, and “TriStar Commercial Certificate Schedule” No 755/BA004/2007/OIS/00000282/2007/001 (“Certificate 001”) was issued by Tristar on 1 August 2007. The policy documentation was in materially identical terms to the quotation, and the period of insurance ran from 1 August 2007 to 31 July 2008.

Shortly after the issue of Certificate 001, Mr Horowitz requested Ms Ostreicher to arrange for the Sums Insured for Buildings and for Loss of Rent under Section 1 of the policy to be increased from sums of £1,200,000 and £240,000 to sums of £1,586,200 and £390,000. This was done: and on 16 August 2007, a “TriStar Commercial Certificate Schedule – CANCEL & REPLACE” was issued to Dalecroft (“Certificate 002”). This bore on its face Certificate Number “755/BA004/2007/OIS/00000282/2007/002 replaces existing policy OIS/00000282/2007/001”. The Period of Insurance was expressed to begin on 7 August 2007 and to end on 31 July 2008. The Premium of £1,672.41 (including IPT) stated on the face of Certificate 002 was simply the amount charged for the increase in the sums insured, rather than the total premium for cover for the period of insurance. Including the £4,330.45 (including IPT) already recorded on Certificate 001, that total premium amounted to £6,002.86.

Among the policy terms in Certificate 001 and Certificate 002 were the following:

In early October 2007, the Property was visited by Mr Rowe, as part of an operation being carried out by TDC in conjunction with Kent Police, Kent Fire & Rescue Service (“KFRS”), Kent County Council, UK Border Agency, various utility companies and other agencies. The purpose of this operation was to visit relevant buildings and to identify any potential problems.

Mr Rowe identified a number of potential problems with the fire safety provisions relating to the residential part of the Property, about which he duly notified KFRS. He also noted that the residential part should have been, but was not licensed. This resulted in a letter dated 17 October 2007 being sent to Mr Horowitz by TDC. That letter reminded Mr Horowitz of the requirement for the residential part of the Property to be licensed as an HMO, and enclosed an application form and various explanatory leaflets.

In response, Mr Horowitz signed and submitted a Licence Application dated 27 October 2007. This named Dalecroft as the freeholder, Allford as the leaseholder and gave Mr Harmer’s name as the Manager and proposed Licence Holder. For reasons which were not explained in evidence, this application was not received by TDC until 4 December 2007. When received, various supporting documents were missing, and the application was never carried through. As a result, the residential part of the Property remained unlicensed throughout.

On 21 December 2007, Mr Horowitz sold his shares in Allford (which held the lease of the residential parts of the Property) to Benjamin Gratt (“Mr Gratt”) for £945,000. Mr Gratt was the general manager of Copen Group, a large investment company. Mr Horowitz also resigned as a director of Allford, his wife resigned as the Secretary, and the existing mortgage loan from Clydesdale was refinanced by Mr Gratt, also through Clydesdale. Thereafter, the responsibility for managing Allford and, through Allford, for managing the residential parts of the Property fell upon Mr Gratt.

In January 2008, Maxitime submitted an application for planning permission to convert the Disco Building into flats. This application was refused in April 2008.

On 2 April 2008 the Waste and Recycling Department of TDC wrote to Dalecroft, pointing out that that they had observed “a collection of old furniture, broken electrical goods, old foods and general waste” in the rear courtyard of the Property, and enclosing a formal notice under the Prevention of Damage by Pests Act 1949 s 4 requiring removal of “all accumulations of rubbish and furnishings providing potential food sources and/or harbourage to rats and/or mice”.

In May 2008, one of the occupants of the residential parts of the Property contacted KFRS to say that the fire alarm was broken and that the extinguishers there had been set off. KFRS notified TDC and, after an inspection of the residential parts of the Property, TDC ordered the immediate evacuation of the residential parts of the Property, and served an Emergency Prohibition Order dated 6 June 2008 (“the EPO”) on Mr Gratt on behalf of Allford. The EPO, made under the Housing Act 2004 s 43, prohibited the use of the residential parts of the Property for any purposes whatsoever.

Mr Rowe’s notes from the visit to the Property on 3 June 2008 recorded:

Poor conditions, fire alarm not working separation poor in places, lack of emergency lighting, poor management, windows broken, windows falling out, roof leaking, fire escape rusty, fire escape route to rear via two doors one locked out onto public highway. Difficult to ascertain how many tenants approx 12-16 my opinion very high risk tenants. No access to a kitchen, cooking in rooms. Property in very poor state of repair, drainage to rear in very poor state with ponding water and two constant leaks from overflows. Open basement filled with rubbish and bed bases

Mr Rowe confirmed these observations in his evidence to me, and there is no reason to doubt that what he then recorded accurately described the state of the Property at the time.

On 9 June 2008, scaffolding with netting was installed at the front of the Property, to prevent things falling from the Property and injuring passers-by. Also on 9 June 2008, Mr Rowe sent a copy of the EPO to Dalecroft, together with a Requisition for Information. That Requisition sought details of everyone with an interest in or who was in occupation of the Property. Mr Horowitz answered that Requisition on 3 July 2008, stating that Allford held a long lease of the residential parts.

On 1 July 2008 Dalecroft wrote to Allford, recording a number of complaints from the lessees of the shops on the ground floor of the Property about water leaking from the upper floors. On 10 July 2008 Dalecroft wrote to Allford, advising Allford that TDC had identified that the waste in the ground floor communal area came from the residential area on the first floor and requiring Allford to deal with it immediately.

On 11 July 2008 a police officer was attacked with a fire extinguisher whilst he was attending a reported flood at the Property caused by the theft of pipes and water tanks. According to Mr Horowitz, he was told about this incident by Mr Braun.

On 14 July 2008 Dalecroft wrote to Allford to say that, as Allford had failed to take responsibility for clearing the rubbish, Dalecroft would arrange for its removal and add the cost to Allford’s service charge. On 15 July 2008 Dalecroft invoiced Allford £2,000 for “clearing all the rubbish dumped in the garden by your tenants (4 lorry loads)”.

On 14 July 2008:

On 16 July 2008 the Platform generated a Quotation for the renewal of the insurance covering the Property, at a premium of £5,525.35 (including IPT). The Proposal/Statement of Fact that formed part of that quotation was generally in the same terms as that produced in July 2007. In particular:

However, in the answer to the multiple-choice questions about "What type of tenants occupy the property?", the answer given to "Unoccupied" was "Yes", and all other categories were answered "No".

On 17 July 2008, Ms Ostreicher sent an email to Mr Horowitz, which informed him that she had sought quotations from two other insurers, AXA and Allianz, but both had declined to quote for the risk.

On 17 July 2008 TDC wrote to Dalecroft, alerting Dalecroft to the fact that that “Flats at first and second floor levels at the unoccupied property are currently insecure. Door and window openings, accessible from rear elevation access stairs and walkways, are broken in/insecure”, and asking Dalecroft to make arrangements to have the property secured against unauthorised entry as soon as possible. Again, there is no reason to doubt the accuracy of this contemporary record of the condition of the premises. Mr Horowitz forwarded this letter to Allford on 22 July 2008, with a request that Allford deal with the matter.

On 25 July 2008, Mr Horowitz sent an email to Ms Ostreicher, stating “I have read through the policy. I’m happy to go ahead with these terms”.

On 26 July 2008, Mr Marsh sent an invoice (headed with the trading name Fourtune [sic] Leisure) to Dalecroft, claiming £5,155.42 for expenses and loss of income resulting from the damage to the premises of Time Tunnel caused by the water leaks from the residential premises above.

On 27 July 2008 “TriStar Commercial Certificate Schedule” No 755/BA004/2008/OIS/00000282/2008/003 (“Certificate 003”) was issued by TriStar. The policy documentation was in materially identical terms to the quotation, and the period of insurance ran from 1 August 2008 to 31 July 2009. Specifically, the answers given in the Proposal/Statement of Fact which formed part of Certificate 003 were identical to those in the quotation, as set out in paragraphs 49 and 50 above.

Unlike Certificate 001 and Certificate 002, Certificate 003 did not insure Landlord’s Contents against Theft or attempted Theft and Malicious Acts of Vandalism under Section 2 of the policy. There was, however, insurance under paragraph 11 of Section 1 of the policy (Buildings) against “malicious acts of vandalism”, subject to a limit of £5,000 for any one event if caused by tenants, an excess of £1,000 for every claim, and an exclusion for loss or damage while the building is unfurnished or unoccupied.

The Additional Clauses and Special Conditions of the policy were the same as those in Certificate 001 and Certificate 002 (Footnote: ³), except that Clause X008 - Students, DSS or local authority exclusion was no longer present as part of the policy terms.

Mr Rowe’s notes record that, on 4 August 2008, he received a:

.. call from Vash enquiring about works required, he has a client who is interested in taking building over. Explained there were various issues with the EPO said I would call him back after talking to planning enforcement regarding building use

On 5 August 2008, Mr Rowe received a telephone call from someone who identified himself as Mr Wheeler from Best Solutions. Mr Rowe’s contemporary notes of that call record that Mr Wheeler said that:

.. he worked for the owners and wanted to know what was needed to bring it back into use. He didn’t seem to know who were the owners when I asked him or who was paying for him to call me or in fact who asked him to call me, all very vague. Explained that I was happy to meet the owners on site to discuss the way forward, said he would get back to me.

Mr Rowe’s contemporary notes also record a further telephone call the following day, 6 August 2008, from Best Solutions, saying that:

.. he considered we acted harsh in closing it .. He said that wanted something from Fire Brigade .. He also said that there was 5m at front of property where glass could fall from windows. I explained that there was not 5m but only enough to construct the scaffold on to prevent glazing falling

I explained that I was concerned that he appeared to be defending such a poor condition property .. I also said that there was no kitchen available as it was locked which he disagreed by saying there was a kitchen. I explained that I was there when property closed and the kitchen was not accessible from the inside. Each conversation finishes with him saying I will speak to the owner!

On 13 August 2008, Mr Braun on behalf of Dalecroft wrote to Mr Gratt on behalf of Allford in the following terms

As you are the leaseholder for the upper part of the above property we would ask you to ensure that you secure the property properly. We ask this in light of the incident which happened on Friday 8 August of which the council has probably notified you, where some people broke into the upstairs, broke another tank of water and ripped off part of the roof causing us major losses after we have already spent £7,000 on repairs after water damages.

Would you please take immediate action to ensure the security of the property as we do not want to be forced to charge you for any further damages.

Furthermore you will note that you are breaching the terms of the lease as your payment for ground rent and insurance is long overdue. We would appreciate immediate payment.

Mr Rowe’s contemporary notes record that he visited the Property with Mr Gratt on 18 August 2008, and that:

Property has been empty for approximate 3 months. Pigeons have made themselves at home in several rooms, various water leaks have caused damage to walls, ceiling and potentially floors. Advised that roof, windows, works on EPO notice, heating, kitchen (to comply with commercial) ..

On 13 October 2008, Mr Rowe visited the Property in response to a telephone call from the proprietor of the Beano Café. He noted that a section of the false ceiling had fallen down, but had since been replaced. Mr Rowe’s contemporary notes record “checked kitchen to hotel, door is still open and internal door now open therefore evidence of people gaining access to building”. They also record “scaffold and netting removed did not appear work had been done to prevent falling elements”.

On 4 November 2008 Mr Rowe sent an email to Nationwide, which recorded the following:

The first, second and third floors have now suffered significant damage through vandalism and people illegally entering the premises. Many of the windows to the property are either open or damaged allowing pigeons etc causing further problems. There was scaffold with netting to the front preventing any falling elements onto the public footpath that this has been removed recently and no action has been taken to secure any potential problems.

The roof appears to be leaking in various places which now has saturated the upper floors and ‘flows’ through the building into the commercial areas on the ground floor during wet weather. From what I have seen the second-hand furniture shop has suffered the most followed by the amusement arcade. The arcade in the past has had to turn fruit machines off due to the water coming through, several neon lights have blown. The café has had some water ingress to their toilets but this seems to have been resolved likely temporarily. The water is gradually getting closer to the main power supply in the amusement arcade. I understand the people in the commercial areas have been in the upper floors placing buckets to catch some of the water.

We have had the mains water turned off, electrics isolated and recently the gas supply to the upper floors. People continue to access the upper floors by either a door off the fire escape or via the freeholder’s basement which is open. The basement is large and very full of items including furniture, old fruit machines and general ‘rubbish’ ..

.. There have been several incidents with intruders of the upper floors including a police officer being attacked during one visit, we tend not to go without police presence.

Nationwide responded to this email by writing to Dalecroft on 4 November 2008, threatening to appoint receivers to protect its security. Dalecroft forwarded that letter to Allford under cover of a letter dated 7 November 2008, which stated:

We understand that parts of the property have been vacant for some time. Vandalism has been carried out which has led to the lead being torn off the roof exposing the building to the elements. This has resulted in considerable damage and massive leakage to the building, causing terrible problems to the commercial part of the property. There is also a problem of pigeons which have gained access to the property through the exposed roof and broken windows ..

.. [W]e require you, within the next 7 days, to erect scaffolding with all-over netting to secure the building and in addition to cover the roof and close off the windows to prevent further vandalism, weather damage and pests by pigeons to the building

At some point in early November 2008, South East Architectural Services made drawings of the existing internal floor layouts at the Property for Mr Horowitz. Mr Rowe’s note dated 5 November 2008 records that he “met architects sent by [Mr Horowitz] to measure up”.

On 9 November 2008 solicitors instructed by Dalecroft wrote to Allford and to Clydesdale giving notice that Allford’s lease had been forfeited for non-payment of sums totalling £49,436.55

On 14 November 2008, Mr Horowitz obtained a quotation for the installation of steel window screens at the Property from Secure Site (UK) Ltd. Mr Rowe’s notes for 18 November 2008 record “New scaffold to front and rear being erected supposedly with a cover going over the roof”.

On 19 November 2008 Ms Ostreicher sent an email to TriStar (which he copied to Mr Horowitz) stating that:

The following amendments are necessary

The property should be registered in the name of dalecroft properties ltd

The commercial units are let excluding one rear unit on the first floor which was an ex-disco unit

The leaseholders of the residential units are for the floors B, C, D

The entire residential section is currently vacant, it is secured, utilities turned off and water drained down. Weekly log and visit by agent

Please advise

In response, on 20 November 2008 TriStar issued “TriStar Commercial Certificate Schedule – CANCEL & REPLACE” “No 755/BA004/2008/OIS/00000282/2008/004 replaces existing policy OIS/00000282/2008/003” (“Certificate 004”). The period of insurance ran from 19 November 2008 to 31 July 2009, and the premium was stated to be £0.00. The policy documentation was otherwise materially identical to that comprised in Certificate 003.

Ms Ostreicher responded on the same day, pointing out that TriStar had failed to correct the name of Dalecroft on the policy documentation. In response, on 21 November 2008 TriStar issued “TriStar Commercial Certificate Schedule – CANCEL & REPLACE” “No 755/BA004/2008/OIS/00000282/2008/005 replaces existing policy OIS/00000282/2008/005” (“Certificate 005”). This correctly stated the name of Dalecroft. Otherwise, it was identical to Certificate 004. The period of insurance again ran from 19 November 2008 to 31 July 2009, and the premium was again stated to be £0.00.

On 20^th November 2008 Dalecroft wrote to Allford, informing Allford that Dalecroft had now “instructed our contractors to secure the site by way of boarding up all windows and doors and mounting temporary roofing”. This was followed by a letter dated 26 November 2008, stating that the emergency temporary works had now been completed. That letter enclosed an invoice for £43,125 for scaffolding front and back, temporary roofing, boarding up all windows and installing metal intruder doors (plus a management fee of 15%).

Further letters giving notice of forfeiture were sent on 16 December 2008. In April 2009 there was correspondence between Dalecroft’s solicitors and the solicitors acting for Clydesdale, concerning Clydesdale’s right to apply for relief from forfeiture.

The property was destroyed by fire on the night of 16/17 May 2009. The Fire began in the basement area. Dr Norager visited the site, first on 22 May 2009, and then again on 31 July 2009, before preparing a detailed report dated 17 August 2009. A report dated 28 May 2009 was also prepared by a Mr Andrew Shepherd of Davies Chartered Loss Adjusters, following a visit to the site on 26 May 2009.

On 29 July 2009 Mr Horowitz made a witness statement in proceedings brought by Dalecroft against Allford and Clydesdale in the Thanet County Court. Those proceedings sought a declaration that Allford’s lease had been forfeited by peaceful re-entry on 16 December 2008. In that witness statement Mr Horowitz stated that Dalecroft “now wishes to market the Property and/or grant a new lease of the upper portions of the Property”.

Against that background, I now turn to the various grounds relied upon by the Underwriters as justifying their avoidance of the policy. In Ms Stephens’ written Closing Submissions on behalf of the Underwriters, the allegations in paragraphs 21(19) and 24(2)(c) of the Amended Defence were abandoned. The remaining allegations of misrepresentation and nondisclosure relied upon by the Underwriters are as follows:

The Underwriters also allege that Dalecroft was in breach of the Commercial Unoccupancy conditions set out in special condition X002 (Footnote: ⁴) in that, during the currency of the renewed policy contained in or evidenced by Certificate 003 and/or Certificate 005, Dalecroft had:

There was no material disagreement between the parties as to the legal principles which I should apply in determining these allegations - though the application of those principles to the facts of the present case was hotly disputed.

The events with which this action is concerned took place between 2007 and 2009, well before the Insurance Act 2015 (“the 2015 Act”) came into force with effect from 12 August 2016. The relevant law is therefore that which was in force prior to changes made by the 2015 Act. A helpful summary can be found in the papers produced by The Law Commission and The Scottish Law Commission which led to the passing of the 2015 Act. The following explanation of the relevant principles draws in part on those Commissions’ Third Joint Consultation Paper issued in 2012 (Footnote: ⁵), and their Joint Report of July 2014 (Footnote: ⁶).

The modern law of insurance contracts arose in the eighteenth century, was developed by the courts in the nineteenth century, and was partially codified in the Marine Insurance Act 1906 (“the 1906 Act”). Although the 1906 Act appears to relate only to marine insurance, most of its principles have been taken to apply to all types of insurance, on the basis that the 1906 Act embodies the common law (Footnote: ⁷). As the Law Commissions have pointed out (Footnote: ⁸), the law embodied in the 1906 Act is insurer-friendly. The principles which it embodies were developed at a time when the insured knew his business while the insurer did not, and were designed to protect the fledgling insurance industry against exploitation by the insured. Where a policyholder is in breach of an obligation, the law gives wide-ranging opportunities for the insurer to avoid the contract and refuse all claims, or to treat its liability as discharged, even where the remedy seems out of proportion to the wrong done by the policyholder.

In the present case, the Underwriters rely upon allegations of misrepresentation, non-disclosure and breach of warranty. The law in relation to non-disclosure and misrepresentation (as it was prior to the changes made by the Consumer Insurance (Disclosure and Representations) Act 2012 and by the 2015 Act) is dealt with in sections 17 to 20 of the 1906 Act.

Section 17 of the 1906 Act states:

A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party.

Insurance contracts are therefore one of a small number of types of contract that are of the “utmost good faith”.

One aspect of the duty of good faith is the requirement for a would-be insured to provide the prospective insurer with information about the risk before the conclusion of the contract.

This requirement is set out in section 18(1) of the 1906 Act, which states:

Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. If the assured fails to make such disclosure, the insurer may avoid the contract.

Three initial points, relevant to the present case, should be noted about this requirement:

Subject to the requirement of knowledge or deemed knowledge, the would-be insured is obliged to disclose “every material circumstance”. These are defined in section 18(2) of the 1906 Act, as follows:

Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.

In Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd (Footnote: ¹⁶), the House of Lords confirmed that, on the proper construction of s 18(2), a material circumstance for these purposes is simply one that would have had an effect on the thought processes of a prudent insurer in assessing the risk. The influence need not necessarily be decisive. Lord Mustill (with whom Lord Goff of Chieveley and Lord Slynn of Hadley agreed) explained the position as follows (Footnote: ¹⁷):

.. The next step is to decide what kind of effect the disclosure would have. This is defined by the expression "influence the judgment of a prudent insurer." The legislature might here have said "decisively influence," or "conclusively influence," or "determine the decision," or all sorts of similar expressions .. but the legislature has not done this, and has instead left the word "influence" unadorned. It therefore bears its ordinary meaning .. "Influence the judgment" is not the same as "change the mind." Furthermore, if the argument is pursued via a purely verbal analysis, it should be observed that the expression used is "influence the judgment of a prudent insurer in .. determining whether he will take the risk." To my mind, this expression clearly denotes an effect on the thought processes of the insurer in weighing up the risk, quite different from words which might have been used but were not, such as "influencing the insurer to take the risk".

One important consequence of this, as Mance J noted in Insurance Corporation of the Channel Islands v The Royal Hotel Ltd (Footnote: ¹⁸), is that materiality does not depend on what in the practical world the ordinary insured would or would not be expected to disclose, but on what a prudent underwriter would take into account when assessing the risk (Footnote: ¹⁹).

The question whether a given fact is or is not material is one of fact rather than of law. It is not, however, something that is settled automatically by the current practice or opinion of insurers. Rather, the decision rests on the judge’s own appraisal of the relevance of the disputed fact to the subject-matter of the insurance (Footnote: ²⁰). As Leggatt J observed in Involnert Management Inc v Aprilgrange Ltd (Footnote: ²¹):

.. Although a question of fact as opposed to law, the question whether a particular circumstance is material requires the court to make a value judgment. In deciding whether a circumstance would affect the thinking of a prudent insurer, evidence of how reputable insurers experienced in the relevant class of business exercise their underwriting judgment, and what matters do in fact influence such insurers, is generally helpful and important to ensure that the court’s findings are grounded in commercial reality. But such evidence cannot be conclusive of what the notional prudent insurer would regard as material. That can only be determined by forming a view about whether or not it is rational to take a particular matter into account ..

Section 18(3) of the 1906 Act sets out four exceptions to the general duty of disclosure. Unless the insurer makes an enquiry, an insured need not disclose:

(a)

any circumstance which diminishes the risk;

(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;

(c)

any circumstance as to which information is waived by the insurer;

(d)

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

Section 18(3)(c) of the 1906 Act grants an exception from the duty of disclosure where information is “waived by the insurer”.It has been held that, in the insurance context, an insurer may waive by omission:

.. [T]he insured 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 insured or his agent which, taken on its own or in conjunction with other facts 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 .. (Footnote: ²²)

The doctrine of waiver may also curtail the duty of disclosure in other ways. In particular, an insurer who asks an expressly limited question about a specific matter may be taken to indicate that it has no interest in information on that matter which falls outside the scope of that question. If so, he will be deemed to have waived such information (Footnote: ²³). For example, an insurer whose proposal form specifically asks about claims in the last five years will normally be taken to have waived information about claims made more than five years ago.

In addition to the duty to disclose, a would-be insured is under a duty not to misrepresent material facts. Section 20(1) of the 1906 Act states:

Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it be untrue the insurer may avoid the contract.

As s 20(2) of the 1906 Act makes clear (Footnote: ²⁴), the test of materiality for these purposes is the same as that for disclosure. The remaining sub-sections of s 20 show that the main difference is that liability for misrepresentation does not depend on what the policyholder knew or ought to have known. A would-be insured may make a statement believing it to be true, and with no reason to think it is untrue. If the statement is simply one of “expectation or belief”, it need only be made in good faith (Footnote: ²⁵). However, if the statement is one of fact, the law imposes strict liability. If the representation is not “substantially correct” (in the sense that any difference between what is represented and what is actually correct would not be considered material by a prudent insurer (Footnote: ²⁶)) it is no defence that the misrepresentation was made innocently, in justifiable ignorance of the true position.

An insurer may only avoid a contract on the grounds of non-disclosure or of misrepresentation if he was induced by the non-disclosure or misrepresentation to enter into the policy on the relevant terms, in the sense that he would not have made the same contract if he had known the matters in question (Footnote: ²⁷).

.. In order to prove inducement the insurer or reinsurer must show that the non-disclosure or misrepresentation was an effective cause of his entering into the contract on the terms on which he did. He must therefore show at least that, but for the relevant non-disclosure or misrepresentation, he would not have entered into the contract on those terms. On the other hand, he does not have to show that it was the sole effective cause of his doing so .. (Footnote: ²⁸)

An insurer who wishes to avoid an insurance on the grounds of non-disclosure or misrepresentation therefore faces a two-part test. Such an insurer must establish, on the balance of probabilities, both:

The law relating to breach of warranty is to be found, in part, in ss 33 to 35 of the 1906 Act. In insurance law, a “warranty” is a term of the contract of insurance in the nature of a condition precedent to the liability of the insurer. Typically it is a promissory term whereby the insured promises either that a given state of affairs existed prior to the inception of the insurance or that it will continue to exist during the currency of the risk. The matter warranted need not be material to the risk (Footnote: ²⁹)

Such a warranty must be exactly complied with. A breach (unless waived by the insurer) discharges the insurer from liability under on the policy from the time of the breach, even though the loss has no connection with the breach or the breach has been remedied before the time of loss (Footnote: ³⁰).

In general, a misrepresentation or non-disclosure as to any part of the property insured will avoid the whole policy. Prima facie, a contract of insurance is one and indivisible, and the insurer cannot avoid one part while affirming another. Similarly, a breach of warranty generally discharges the insurer from all liability.

However, if on the true construction of the policy (Footnote: ³¹), the risks covered by the insurance are clearly separable into and described in distinct parts, the policy will be voidable in respect only of those risks which are affected by the misrepresentation or concealment (Footnote: ³²). Similarly, as regards a breach of warranty, if the risks are clearly separable so that the breach does not relate to the risk that has materialised, the insurers will not be discharged from liability in respect of the risk to which the warranty does not relate (Footnote: ³³).

Dalecroft submits that the only relevant policy is that embodied in Certificate 005, the Certificate in force as at the date of the Fire, and that I need only consider whether there were any material misrepresentations or any non-disclosure in relation to that certificate, which was issued in November 2008. Dalecroft similarly submits that I need only consider whether there were any breaches of warranty in the period following the issue of that certificate.

The Underwriters, by contrast, submit that the policy in force at the date of the Fire was that originally embodied in Certificate 003, issued at renewal with effect from 1 August 2008. In the Underwriters’ submission, Certificate 004 and Certificate 005 simply represented amendments to that policy. The Underwriters therefore submit that I should focus primarily on the allegations of misrepresentation and non-disclosure set out in paragraph 76.2 above, which are those that are relevant to that renewal. They also submit, however, that the allegations of misrepresentation and non-disclosure at inception of the risk which are set out in paragraph 76.1 above provide relevant context. Finally, in this context, their fall-back position is that the issue of Certificate 005 was itself procured by misrepresentation and/or non-disclosure. As for their allegations of breach of warranty, they similarly submit that the material period runs from renewal, and not simply from the issue of Certificate 005.

In my judgment, the Underwriters are right in their submissions (a) that the policy in force at the date of the Fire was that originally embodied in Certificate 003, issued at renewal, (b) that the material time for considering the allegations of misrepresentation and non-disclosure is therefore as at the date of renewal, and (c) that the relevant period for considering breaches of warranty runs from the date of renewal, and not any later date.

It is, of course, right that Certificate 004 and Certificate 005 each bore the words “CANCEL & REPLACE” in block capitals as part of the policy number, that the final digit in the policy number advanced by one with each fresh certificate, and that the period of insurance covered by these certificates did not begin until 19 November 2008, nearly 4 months after renewal However, Certificate 004 and Certificate 005 were issued in response to Ms Ostreicher’s email request for “the following amendments” (Footnote: ³⁴). In that email, she was asking for changes to the existing policy, not for a new policy. What she got was a new certificate giving effect to those amendments, not a new policy. That is shown, inter-alia, by the fact that only the final digit of the long policy number changed, and that the premium shown on the new certificates was expressed to be £0.00. What was cancelled and replaced was the documentation embodying the contract of insurance, not the contract of insurance itself.

I therefore turn next to consider the Underwriters’ allegations in relation to the renewal.

The first alleged misrepresentation at the time of renewal on which the Underwriters rely is Ms Ostreicher’s 14 July 2008 email stating that “the residential units are all vacant now for refurb, duration of works as yet unknown” (Footnote: ³⁵).

In the Underwriters’ submission, this statement was misleading on two grounds. First, the reason why the residential units were now vacant was not because the tenants have been evicted by their landlord in order to carry out refurbishment, but because of the EPO made on 6 June 2008, which prohibited the premises from being occupied. Secondly, the only works likely to be carried out in the short term were those required by the EPO – and, even in relation to those works, Dalecroft had no grounds for believing that Allford was likely to do anything in the immediate future.

In my judgment, the Underwriters have failed to make out this first allegation of misrepresentation.

I do not accept the evidence of Mr Horowitz and Mr Braun that, in late June or early July 2008, Allford had already started to carry out refurbishment works with a view to renting the residential part of the Property out as bedsits. That evidence – particularly the recollection of Mr Braun that these refurbishment works included the installation of kitchens in some of the rooms, and were only abandoned by Allford after the incident on 8 August 2008 (Footnote: ³⁶) - seems to me to be entirely inconsistent with what was recorded by Mr Rowe in his contemporary notes (Footnote: ³⁷), which I accept as accurate. There is nothing whatsoever in the contemporary documents to support Mr Braun’s account, and it is improbable that Allford would have carried out any works involving any significant expenditure of money while the state of the Property meant that any such works would be likely to be damaged by water or vermin, or vandalised by intruders.

However, that does not mean that, at the time of renewal, the residential units were not “vacant .. for refurb”, as stated by Ms Ostreicher. On the contrary, it seems to me to be quite likely that, in late July 2008, Mr Gratt did intend to carry out some works of refurbishment to the Property within a reasonably short space of time. Following the EPO, Mr Gratt would have had a strong economic incentive to restore Allford’s income stream from the property. That would necessarily have involved at least some element of refurbishment.

As for the reason why the residential units were then vacant, it is of course correct that the tenants originally left in early June because of the EPO. However, if (as I have held) works of refurbishment were at least in contemplation at the end of July, it does not seem to me to be misleading to say that the reason why the residential units were (still) empty at that time was “for refurb”. The Underwriters’ case on this point involves reading far too much into Ms Ostreicher’s terse statement, about which the Underwriters raised no queries at the time

In my judgment, Ms Ostreicher’s statement of the position in her 14 July 2008 email was therefore substantially correct in what it said at all material times until renewal.

The second alleged misrepresentation at the time of renewal is the answer “Yes” which Dalecroft gave to the question in the Proposal/Statement of Fact “Is it in a good state of repair?” (Footnote: ³⁸).

The underwriters rely upon the evidence of Mr Rowe and the contemporary documents (Footnote: ³⁹) as demonstrating that neither the residential nor the commercial parts of the property were in a “good” state of repair at the time of renewal.

On behalf of Dalecroft, Mr Spalton accepts that “there were clearly aspects of the Property which were in a low-grade and poor state at this time” (Footnote: ⁴⁰). Nevertheless, he contends that Dalecroft’s answer was not, in context, an incorrect one. He points out that it is not alleged that there was any defect in the structure of the Property, and submits that, save for remedying the fire safety aspects identified in the EPO, the Property was lettable and was habitable. He also submits that the answer to this question has to be read in context, including both (a) the nature and location of the Property, and (b) Ms Ostreicher’s 14 July 2008 email. Finally, he submits that Dalecroft’s representation that the Property was in a “good” state of repair was a statement of opinion or belief, rather than a statement of fact, and was made by Mr Horowitz in good faith.

I can deal with this last point very shortly. In the circumstances of this case, Dalecroft’s statement that the Property was in a good state of repair was a representation of fact, not just a statement of opinion. The question did not ask the insured for its opinion, but for a statement of fact: and the statement given in answer to that question was an unqualified one. The material question is therefore whether that statement was, as a matter of fact, substantially correct (Footnote: ⁴¹).

Mr Spalton is, however, correct to submit that what amounts in any particular case to a “good” state of repair has to be judged in context. He is also correct to submit that the relevant context here includes not only the nature and location of the Property (Footnote: ⁴²), but also the fact that the insurers had been told that the residential parts of the Property were vacant because works of refurbishment were likely to take place during the period of cover. In other words, the Property needed refurbishment and either already was, or was going to become, a building site for that purpose.

In my judgment, a “good state of repair” cannot, in that context, sensibly be interpreted as referring to anything other than the condition of the main structure of the property. It makes no sense to interpret this answer as a representation in relation to anything likely to be changed or otherwise affected by the intended works of refurbishment.

It follows that most of the matters relied on by the Underwriters which might, in another context, have falsified a representation of a “good state of repair” do not do so in the circumstances of the present case.

Nevertheless, even when judged against the context which I have just described, the state of repair of the Property recorded by Mr Rowe following his visit on 3 June 2008 (Footnote: ⁴³) could not, in my judgment, properly be described as “good”:

.. windows broken, windows falling out, roof leaking, .. Property in very poor state of repair, drainage to rear in very poor state with ponding water and two constant leaks from overflows ..

There is nothing in the evidence to suggest that the condition of the Property was any better as at the time of renewal, since I have rejected the evidence of Mr Horowitz and Mr Braun that refurbishment works had already been started by then. On the contrary, the evidence of Mr Rowe of what he found at the Property from August 2008 onwards suggests that the condition of the Property had continued to deteriorate between 3 June 2008 and the date of renewal.

The Underwriters have therefore made out their case that this answer given in the Proposal/Statement of Fact at the time of renewal was not substantially correct

As noted in paragraph 94 above, if a representation is not substantially correct, it is no defence that the misrepresentation was made innocently, in justifiable ignorance of the true position. The extent of Dalecroft’s knowledge of the true position is therefore legally irrelevant. However, had it been necessary for me to do so, I would unhesitatingly have found (inter alia, on the basis of the facts recited at paragraphs 44 to 47 and 52 and 54 above) that Dalecroft, through Mr Horowitz and/or Mr Braun was well aware of the true condition of the Property at the material time.

The Underwriters have also made out their case that this answer induced the renewal. Mr Isted’s evidence, which I accept, was that he would not have agreed to underwrite the Property on the terms and at the premium agreed at renewal had the answer to this question been anything other than “good”. Indeed, his evidence went further, and was to the effect that:

.. If I had known what I now know about the Property, I would not have been prepared to renew the Policy under any circumstances. There were so many underwriting issues arising and the Property was in such a bad condition it is hard to see how any underwriter in a right frame of mind would have been prepared to ensure this Property ..

Dalecroft’s answer about the state of repair of the Property did not relate only to the condition of the residential parts of the Property. It concerned the main structure of the Property overall. The commercial elements were affected directly by the water leaks from the residential parts. In any event, this is not a case in which the risks covered by the insurance are clearly separable into and described in distinct parts. On the contrary, it was a single insurance for which a single overall premium was charged.

It follows, in my judgment, that this misrepresentation made at the time of renewal entitled the Underwriters to avoid the insurance as a whole, and to refuse payment of any of the sums claimed in this action by Dalecroft.

The third alleged misrepresentation at the time of renewal is the answer “No” which Dalecroft gave to the question in the Proposal/Statement of Fact “Has it got any flat roof area?” (Footnote: ⁴⁴).

The proportion of the Property that was covered by a flat roof at the material time is not now in dispute. The parties’ Quantum Experts, Mr Potter and Mr Champion (who were not, in the event, called to give evidence before me), produced a very helpful further Joint Experts Report dated 29 March 2017 in the course of the hearing, in which they confirmed that “of all roof areas (measured on plan), the proportion that is flat roof is [255.43m² or] 50.43%”. Of the total of 255m² of flat roof, 168m² was above the Disco Building and 80 m² was above the single story section of the building at ground floor level, occupied by Time Tunnel. According to the experts, "The roof over the occupied commercial area .. as a proportion of the entire roof area.. was therefore 15.8%".

On the face of it, the answer “No” given on behalf of Dalecroft was therefore plainly an incorrect one. Mr Spalton, however, makes two submissions. First, he submits that this answer has to be read in the context of the other answers given by Dalecroft and that, in that context, this answer is ambiguous rather than unequivocally wrong. Secondly, he submits that, if there was a misrepresentation, it was not a material one, because most of the area covered by the flat roof was unoccupied.

In connection with his first submission, Mr Spalton draws attention to the description of the property in the Oster Presentation as being of “standard construction” (Footnote: ⁴⁵), and the answer “Yes” given to the question “Is it built of brick, stone or concrete, and roof made with slate, tiles, metal, concrete or flat roofed with asphalt, bitumen or concrete?” (Footnote: ⁴⁶). Mr Spalton submits that these descriptions, when taken together, leave the issue of whether the Property had any area of flat roof uncertain, and that if this matter was important to the Underwriters they should therefore have requested clarification. In Mr Spalton’s submission, it would be wrong to visit the consequences of that ambiguity on Dalecroft, particularly since the original Oster Presentation contained no representation on this point, and these answers were added by Tristar (Footnote: ⁴⁷).

In my judgment, Mr Spalton’s submissions on this issue are based on a fallacy. Contrary to the fundamental premise of his submissions, there was no inconsistency or ambiguity in the answers given by Dalecroft. The generic description “standard construction” could properly be applied to a property with a flat roof, or to one without. The answer “Yes” to the question “Is it built of brick, stone or concrete, and roof made with slate, tiles, metal, concrete or flat roofed with asphalt, bitumen or concrete?”, would be correct whether the roof of the property was pitched or flat. It is the answer “No” to the specific question “Has it got any flat roof area?” that resolves the uncertainty. That answer was incorrect. Mr Horowitz did not deny that he was aware both of the question about the flat roof, and of the answer given. It is nothing to the point that the answer to that question was originally filled in by Tristar, before being submitted to Dalecroft for confirmation of its accuracy.

The Underwriters have therefore made out their case that this answer given in the Proposal/Statement of Fact at the time of renewal was not substantially correct.

Again, the extent of Dalecroft’s knowledge of the true position is legally irrelevant. However, had it been necessary for me to do so, I would have found that, at least by the time of renewal, Dalecroft knew (through Mr Horowitz and/or Mr Braun) that the property had at least some element of flat roof. Dalecroft had received at the outset a copy of Gill & Penfold’s report dated 24 July 2007, which stated in terms that “The rear additions have flat felt and asphalt covered roofs” (Footnote: ⁴⁸). By the time of the renewal, Mr Braun had visited the Property several times, and would have seen the flat roof areas for himself: and Mr Marsh had already complained directly to Dalecroft of damage to Time Tunnel due to ingress of water from the flat roof (Footnote: ⁴⁹).

Mr Spalton’s second submission, that this answer was in any event not material, is also misconceived. The answer given by Dalecroft related to the entirety of the Property, not just to the occupied parts. In any event, water leaking from the flat roof of the unoccupied parts had already caused damage to the occupied part. Given the nature and layout of the Property, it is simply unrealistic to suggest that the Underwriters would only have been interested in the roof of the occupied part.

Mr Isted’s evidence, which I accept, was that a correct answer (ie that there was an element of flat roof) would have caused the underwriting platform to apply one or other of the available flat roof endorsements, and to increase the premium accordingly. The precise terms and loading would have depended upon the percentage of flat roof. The Underwriters have therefore also made out their case that this answer induced the renewal.

It follows, in my judgment, that this misrepresentation made at the time of renewal also entitled the Underwriters to avoid the insurance as a whole, and to refuse payment of any of the sums claimed in this action by Dalecroft.

The fourth alleged misrepresentation at the time of renewal is the answer “No” which Dalecroft gave to the question in the Proposal/Statement of Fact “Has it ever been subjected to malicious acts or vandalism?” (Footnote: ⁵⁰).

Ms O’Brien, in her Witness Statement, describes “continual disturbances from acts of vandalism and drug taking” starting shortly after she moved into the Property in the late summer of 2007, and increasing from the spring of 2008. According to Ms O’Brien, “After Dave Harmer stopped visiting the address, everyone was basically left to fend for themselves. The acts of vandalism and drug taking increased and I was regularly disturbed by other residents within the building. Communal areas were vandalised and the building fell into complete disrepair”.

Her evidence in this respect is corroborated by that of Mr Marsh, whose Witness Statement records that “Once Dave Harmer moved out of the property .. [v]andalism became an issue and was often caused by the residents who were either drunk or had taken drugs. This usually involved malicious damage being caused such as doors being kicked in, windows broken and fire extinguishers being let off.

Mr Rowe’s notes also record that he was told in a telephone call about the Property on 30 May 2008 that “the Extinguishers have all been set off”.

I accept this evidence. There was also unchallenged evidence of a specific incident which occurred in July 2008 (Footnote: ⁵¹). On 11 July 2008 a police officer was attacked with a fire extinguisher whilst he was attending a reported flood at the Property. Mr Marsh describes the aftermath of the incident in his Witness Statement and says that the flood was caused by “intruders who had ripped out the water tanks, copper piping and radiators upstairs causing significant damage to the Property. As the water supply had not been isolated, this in turn flooded and caused significant damage to the Time Tunnel and [the Charity Shop]”. The incident was also reported in Kent Online, in an article which referred to “intruders ransacking the derelict building and tearing radiators off the wall”.

Under cross-examination, Mr Horowitz disagreed with the suggestion that this July incident amounted to a malicious act or vandalism, since (he argued) its primary purpose was theft rather than the causing of damage. That, in my judgment, is a specious distinction. The intruders who stole the water tanks, copper piping and radiators did not carefully dismantle them before taking them away. They ripped them out, causing significant damage to the property as they did so. That, in my judgment, constitutes both a malicious act and an act of vandalism, within the meaning of the words used in this question in the Proposal/Statement of Fact. The fact that their primary motive in causing this wilful damage was probably theft does not make that damage any less malicious, or any less an act of vandalism. In any event, the people who (as described by Mr Marsh) kicked in doors, broke windows and let off fire extinguishers at the Property do not seem to have been engaged in theft, but were simply and wilfully causing damage.

It follows that the Property had, at the material time, in fact been subjected to numerous malicious acts and acts of vandalism: and that the Underwriters have therefore made out their case that this answer given in the Proposal/Statement of Fact at the time of renewal was not substantially correct.

Mr Spalton, however, submits that this incorrect answer should not, of itself, entitle the Underwriters to avoid the policy.

His first submission is that Mr Horowitz did not receive any report of vandalism until 13 August 2008, after the date of renewal. There are at least two reasons why that submission cannot assist him. First of all, Mr Horowitz’ knowledge is legally irrelevant, since the Underwriters’ case on this point is one of misrepresentation rather than of non-disclosure (Footnote: ⁵²). Secondly, it is factually inaccurate. It is correct that it was not until 13 August 2008 that Mr Braun on behalf of Dalecroft wrote to Mr Gratt on behalf of Alford referring to an incident of vandalism (Footnote: ⁵³). However, that letter makes clear that it was prompted by an incident which occurred on Friday 8 August 2008, not by the earlier incident on 11 July 2008. I am satisfied that, by the date of renewal, Mr Horowitz on behalf of Dalecroft was already well aware that the Property had been subject to malicious acts and/or vandalism. In paragraph 13 of the Witness Statement which Mr Horowitz made on 29 July 2009 in connection with forfeiture proceedings concerning the Property, he admitted as much, by asserting that on 17 July 2008 Dalecroft received a notice from TDC requiring Dalecroft to secure the premises at the Property “as they had been vandalised”. I am also satisfied that, by the time of renewal, Mr Horowitz was aware of the incident on 11 July 2008, not least because Mr Marsh had complained to him about it and, on 26 July 2008, had submitted an invoice to Dalecroft for the damage caused to his business by that incident (Footnote: ⁵⁴).

Mr Spalton’s second submission is that this answer, even if incorrect, was not material and so did not induce the renewal. Certificate 003 excludes cover for malicious acts or vandalism in the unoccupied part of the Property (Footnote: ⁵⁵): and (according to Mr Spalton) the relevant acts all relate only to the unoccupied part. The Underwriters therefore would have had no reason to be concerned about the history of vandalism, since it could not give rise to a claim. Mr Spalton also relies upon the evidence of Mr Pipe to the effect that “malicious acts or vandalism would not be material here in circumstances where steps have been taken to ensure that any such acts were not repeated, for example, by boarding up and would not have influenced a prudent underwriter in setting policy terms and conditions”.

I do not accept this submission. The unchallenged evidence was that, had a correct answer been given to this question, the Platform would automatically have referred the proposal for manual determination: and that that would have resulted in the proposal either being immediately declined by Mr Isted, or (as required by the Underwriting Guide) referred on by him to Mr Phillips at JR Clare. Mr Isted’s evidence, which I accept, was that he would simply have declined renewal on his own initiative. Mr Philip’s evidence, which I also accept, is that he would likewise have declined cover in the event that (contrary to Mr Isted’s evidence) the matter had been referred on to him.

In my judgment, Mr Isted and Mr Phillips would have been acting entirely reasonably and rationally in declining renewal. Although Mr Pipe expressed the view in his Report that what mattered was not the fact of past acts of vandalism, but the steps taken to prevent recurrence, he accepted without qualification when being cross-examined that “a reasonably prudent underwriter would regard vandalism as material”. According to Mr Clegg:

[I]t is material for underwriters to know whether malicious acts or vandalism had previously occurred since such may, in a general context, give a clue to the type of area in which the building is located, particularly if the acts are repetitive rather than isolated. Repeated acts show that a building is for some reason attractive to such acts and the damage consequent upon them. If malicious acts of vandalism are disclosed, I would expect that an underwriter would enquire precisely what those acts were, how often they had occurred and what damage had been sustained by the building. If an underwriter is advised of multiple malicious acts of vandalism he will be concerned that the cause of those acts is now eliminated and that policy terms can be introduced to ensure adequate safeguards are put in place (such as increased security) to prevent re-occurrences. In the absence of such assurances the risk would likely be declined. What an underwriter does not want to accept from a risk perspective is the prospect of continued malicious or acts of vandalism or any escalation of those acts and the consequent risk of loss under the policy ..

.. The ability of vandals and criminals to gain access to the building represents a risk not only in terms of material damage, in this case by water ingress caused by the stripping out of tanks and piping, but also electrocution or fire as the result of interference with and theft of electrical installations plus actual damage to the building fabric from stripping out or wanton damage. The risk of property damage and liability exposure is significantly increased when a building, vacant or not, is insufficiently secured and/or inadequately managed so as to allow vandals and/or criminals easy access ..

.. Knowledge of this fact would in my view have undoubtedly influenced the mind of a reasonable and prudent underwriter in deciding whether to accept the risk and if so on what terms ..

That seems to me to accord with common sense. Moreover, as the facts of this case demonstrate, damage caused by vandals to the unoccupied parts of a property can very easily result in damage to the occupied parts, and so (for example) to a liability claim by one or more of the occupiers of the occupied parts against the insured, as the person responsible for the unoccupied part. It is artificial to treat the Property as if the unoccupied section was not part of the whole.

The Underwriters have therefore made out their case that this answer induced the renewal.

Under cross-examination, Mr Isted said that he could not remember how and why the exclusion of cover for malicious acts or vandalism to the unoccupied parts of the property came to be included in Certificate 003, but accepted that it “would have been something that would have been said to us” that gave rise to the change. On the basis of that evidence, Mr Spalton submits that “it cannot be suggested that there was a misrepresentation absent evidence of that conversation”. I disagree. It is common ground that Ms Ostreicher told Tristar that the residential part of the Property was now unoccupied. In my judgment, the fact that Tristar in consequence included a term excluding liability for loss or damage through malicious acts or vandalism while the building is unfurnished or unoccupied is in no way inconsistent with the evidence of Mr Isted and Mr Philips that, had they known the prior history of vandalism to the unoccupied part of the Property, they would have regarded that term by itself as inadequate protection and would instead have simply declined renewal.

Finally, on this issue, Mr Spalton repeats his submission that, since this misrepresentation relates only to the residential part of the Property, it should not entitle the Underwriters to avoid cover for the commercial part. Again, I reject that submission. This is not a case in which the risks covered by the insurance are clearly separable into and described in distinct parts. On the contrary, it was a single insurance for which a single overall premium was charged. Moreover, a history of vandalism to the unoccupied parts might well have suggested to the mind of a prudent underwriter that there was an increased risk of vandalism to the occupied parts as well.

It follows, in my judgment, that this misrepresentation made at the time of renewal also entitled the Underwriters to avoid the insurance as a whole, and to refuse payment of any of the sums claimed in this action by Dalecroft.

The facts (a) that the EPO was made, and (b) that Dalecroft was aware of the making of the EPO prior to renewal but did not disclose that fact to the Underwriters, are not in dispute. Nor is it suggested that Underwriters were aware of the EPO at the time of renewal.

Dalecroft’s case is that the EPO was not, on the facts of this case, a “material circumstance” of which the law required disclosure. Mr Spalton points out that the Underwriters had already been informed that the residential part of the Property was vacant for refurbishment. In those circumstances (in his submission) the fact that the Underwriters made no inquiries in relation to the works demonstrates that they were unconcerned “about reasons for vacancy or what was happening at the Property”. Moreover, the EPO “related only to fire precautions which could be readily addressed rather than anything fundamentally wrong with the Property”. In Mr Spalton’s submission, the fact of the EPO would not in those circumstances have influenced the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms.

In support of this submission, Mr Spalton relies upon the evidence of Mr Pipe, which was to the effect that, although the existence of an EPO would normally be material to a prudent underwriter and should be disclosed, it was not material on the facts of the present case. Here, by the time of the renewal, the property was vacant to be refurbished. Accordingly “the fact that the circumstances that gave rise to the EPO no longer existed meant that the fact that there had been an EPO in place was not material to a reasonable underwriter when assessing the Property for insurance cover”.

Mr Clegg, in his evidence, took the contrary view. In his opinion “the materiality of an EPO is not simply relevant to the underwriter’s assessment of a risk on the basis of what it reveals about the physical condition of the buildings, but also what it says about the insured’s attitude to risk management generally. It would in my mind cause great concern to an underwriter in terms of how what was portrayed as a licensed HMO could have been allowed to deteriorate so badly and to the extent that the Local Authority was forced to take emergency action to protect the safety and well-being of its occupants”.

On this issue, I prefer the evidence of Mr Clegg. Mr Pipe’s argument rests on the assumption that, because the property was vacant to be refurbished, the circumstances that gave rise to the EPO no longer existed. But there is no credible evidence that any of the long list of defects in the fire precautions at the Property set out in the EPO had been effectively remedied by the time of renewal. On the contrary, the evidence of Ms O’Brien, Mr Marsh and Mr Rowe all suggests that the state of the property had got worse, not better. In those circumstances, some of the most relevant circumstances that gave rise to the EPO still existed at the date of renewal. In particular, there remained a significantly increased risk of fire, which might affect the entirety of the Property. In my judgment, those are plainly matters about which a prudent insurer would wish to be informed. The fact that these defects in the fire precautions could in the future be addressed is nothing to the point. The relevant fact is that they were still in existence at the time of renewal. Putting the issue at its lowest, the failure to disclose the EPO deprived the Underwriters of the opportunity of setting a deadline by which the defects had to be remedied. There is also considerable force in the point made by Mr Clegg, that a prudent insurer would wish to know that an EPO had been made, because of what it would tell that insurer about the insured’s attitude to maintenance and risk management.

I also accept the evidence of Mr Isted and Mr Phillips that, had Dalecroft disclosed the fact that an EPO had been made, it would have affected the underwriting decision. Mr Isted’s evidence was that Tristar, if it did not simply decline the risk, would have been obliged to refer the matter to JR Clare. Mr Phillips was not asked in terms what the effect of disclosure of the EPO, in isolation, would have been. However, it is a fair inference from the general tenor of his evidence that he would not have been prepared to renew the insurance at all, and certainly would not have been prepared to do so on the terms in fact agreed.

It follows that, in my judgment, the non-disclosure of the EPO by Dalecroft at renewal is a yet further reason entitling the Underwriters to avoid the insurance as a whole, and to refuse payment of any of the sums claimed in this action by Dalecroft.

For these reasons the Underwriters were in my judgment entitled to avoid the policy of insurance issued at renewal and embodied in Certificate 003 in its entirety, and to refuse all of the claims made in this action:

My conclusion that Dalcroft’s misrepresentations and non-disclosure at renewal entitled the Underwriters to avoid the insurance as a whole is sufficient to dispose of this action.

However, in case this matter should go further, I will briefly state my conclusions in relation to the misrepresentations and non-disclosures relied on by the Underwriters in relation to Certificate 005, issued on 21 November 2008. This was the Certificate current as at the date of the Fire, and is the policy which Dalecroft contends (wrongly, in my judgment) is the only one in relation to which I should consider the Underwriters’ allegations.

The policy documentation for Certificate 005 was (except for the period of insurance, the premium, and the correction of Dalecroft’s name) identical to that for Certificate 003 issued at renewal. It contained identical representations by Dalecroft that the Property was in a “good” state of repair, that the Property had no flat roof area, and that the Property had not been subject to malicious acts of vandalism.

Mr Spalton submits that, as at 21 November 2008, the state of repair of the Property was properly described as “good”, given the context in which that answer appeared. He points out that, by an email dated 19 November 2008, Oster informed Tristar that “the entire residential section is currently vacant, it is secured, utilities turned off and water drained down. Weekly log and visit by agent”. He also draws attention to the fact that Dalecroft had by 21 November 2008 spent money securing the unoccupied parts of the Property, that Mr Marsh had spent money repairing the water damage to Time Tunnel, and that Mr Jason Cooper had presumably been sufficiently satisfied with the state of the Property to take over from Mr Marsh the lease of Time Tunnel.

In my judgment, however, none of this means that the property could properly be described as in a good state of repair on 21 November 2008. The best evidence of the condition of the Property at that time is contained in Mr Rowe’s email sent to Nationwide on 4 November 2008, the text of which is set out in paragraph 64 above. Even in the context which I have described above, the state of repair recounted by Mr Rowe on 4 November 2008 could not properly be described as “good”.

It follows that the description of the Property as being in a good state of repair was not substantially correct in November 2008, any more than it was at the time of renewal.

Mr Spalton submits that the statement that the Property had no area of flat roof was, by 21 November 2008, substantially correct, because scaffolding had by then been erected supporting a sloping “tin hat” roof of corrugated iron above the entirety of the Property, in an effort to keep out the rain (Footnote: ⁵⁶).

In my judgment, even if that were right as a matter of fact, it would not make the answer given by Dalecroft substantially correct. The question in the Proposal/Statement of Fact, and Dalecroft’s answer to that question, were both directed to the permanent structure of the Property. The answer given would therefore have remained incorrect, even if a temporary “tin hat” roof had been fully in place by 21 November 2008.

However, the evidence indicates that, contrary to Mr Spalton’s submission, the “tin hat” roof was not fully in place at that time. It is right that Mr Rowe’s contemporary notes for 18 November 2008 record “New scaffold to front and rear being erected supposedly with a cover going over the roof”. However, his note for 21 November 2008 records “Scaffold still going up (Footnote: ⁵⁷) front and rear, windows to rear boarded but basement is still open. Scaffold is now higher than roof height”: and his note dated 27 November 2008 records “Scaffold still going up (Footnote: ⁵⁸), tin roofing over main building being extended (Footnote: ⁵⁹) over back additions”. In my judgment, the references on 21 and 27 November to the scaffold “still” going up, and the reference on 27 November 2008 to the tin roofing “being” extended indicate that the “tin hat” roof was not fully in place as at 21 November 2008.

I also accept the evidence of Dr Norager that the “tin hat” roof did not extend over the single-storey extension or the Disco Building, which were the sections of the Property which had a flat roof. Under cross-examination, Mr Rowe was prepared to accept that his contemporary notes indicated that the “tin hat” roof was going to go back over the flat-roofed section. However, my impression was that he had no clear recollection of the extent of the “tin hat” roof. Dr Norager, of course, did not inspect the Property until a few days after the Fire. However, his evidence as to the extent of the “tin hat” roof at that time was precise, and was supported by a plan drawn by him and by photographs taken by him. It was plainly correct. Since there was no evidence that the extent of the “tin hat” had been reduced between the time when it was put up in November 2008 and the time of the Fire, Dr Norager’s evidence seems to me to be the best evidence of the extent to which the “tin hat” roof covered the Property at any relevant time.

For these reasons, it follows that the description of the Property as having no flat roof area was not substantially correct in November 2008, any more than it was at the time of renewal.

There were a number of further incidents of vandalism in the period between renewal and 21 November 2008. For example, Mr Braun referred in his letter dated 13 August 2008 to an incident on 8 August 2008 “where some people broke into the upstairs, broke another tank of water and ripped off part of the roof”. Mr Rowe’s note dated 14 October 2008 records that “at present the building is not secure .. Copper piping has been removed and internally the building has been vandalised considerably. The Police have been called on several occasions due to intruders”. Mr Rowe also referred to vandalism in his email dated 4 November 2008 to Nationwide.

It follows that the statement that the Property had not been subject to malicious acts of vandalism was not substantially correct in November 2008, any more than it was at the time of renewal.

The Underwriters allege that, if Certificate 005 was a new policy, Dalecroft should have disclosed (but did not disclose) when seeking the issue of that new policy that the Property was vacant due to the EPO, that the works required by the EPO had not been commenced, and that the Claimant was in dispute with Allford regarding responsibility for the required EPO works and repairs.

I can deal with these matters very shortly. The Underwriters had been told on 14 July 2008 that the “duration of works [was] as yet unknown”, but had asked no questions. They did not at any point seek to find out what works were to be carried out, when those works were to be started, or how those works were progressing. In the circumstances, it seems to me that they have waived disclosure as to those matters. As to the dispute with Allford, that seems to me to be irrelevant. What would interest a reasonable underwriter is the condition of the premises, and the plans for carrying out any necessary works, not the existence of a dispute as to who should pay for those works. However, the fact of the EPO still remained relevant and should have been disclosed in November 2008, since no works to put right the fire precaution defects which led to the making of the EPO had by then been carried out.

I have held that Certificate 005 was simply an amendment to the policy originally embodied in Certificate 003 issued at renewal (Footnote: ⁶⁰). On that basis, issues of materiality and inducement would fall to be judged by reference only to the additional risk being accepted by the variation (Footnote: ⁶¹) - which in the case of Certificate 005, which simply corrected a name, was none.

However, if (contrary to my view) Certificate 005 was not a mere amendment, but was (as submitted on behalf of Dalecroft) an entirely new policy, then the three misrepresentations and the non-disclosure of the EPO discussed above would have been material and would have induced the issue of that new policy. In this respect, no meaningful distinction can be drawn between the position at renewal and the position as at 21 November 2008.

It follows that if (contrary to my view) Certificate 005 was not a mere amendment, but was an entirely new policy, then each of the three misrepresentations and the non-disclosure of the EPO discussed above would have entitled the Underwriters to avoid that new policy as a whole, and on that basis also to reject all of the claims made in this action.

That conclusion would also suffice to dispose of this action. However, again in case this matter should go further, I will also briefly express my conclusions in relation to the Underwriters’ claim they are entitled in any event to refuse cover on the grounds of breach of warranty.

The Underwriters allege that Dalecroft was in breach of the Commercial Unoccupancy conditions set out in special condition X002 in that, during the currency of the renewed policy contained in or evidenced by Certificate 003 and/or Certificate 005, Dalecroft had failed to ensure that the Basement was free of combustible materials; failed to ensure that the Disco Building was free of combustible materials; failed to ensure that the Charity Shop’s letterbox was sealed; and failed to ensure that the Disco Building, the Charity Shop and the Basement were properly secured.

The evidence which I have seen and heard establishes, on the balance of probabilities, that Dalecroft was in breach of the Commercial Unoccupancy condition requiring the empty commercial elements of the Property to be kept clear of all loose combustible material.

The photographs taken by Mr Rowe in October 2008 clearly show loose combustible material in the Basement. There is no evidence that this material was cleared out prior to the Fire. On the contrary, Dr Norager identified the non-combustible remains of such materials in situ after the Fire (the combustible parts having burnt in the Fire). Dr Norager also gave evidence that the way in which the Fire developed was indicative of the presence of loose combustible material in the basement.

Mr Horovitz’s evidence was that the items in the basement (which he described as including clothing, books, small items of furniture etc) were not “loose combustible materials” within the meaning of that expression as used in this warranty. I disagree. The items visible in Mr Rowe’s photographs are both “loose” (in the sense that they are not fixed in any particular place) and (in sufficient part) combustible.

Mr Spalton also submitted that the Basement was not a “commercial element” for the purposes of this policy condition, but simply a cellar. In my judgment, that submission disregards the structure of the policy, which divides the Property exclusively into residential and commercial sections, and does not contemplate any third category. As to whether the Basement was a commercial or residential element, I accept that the materials stored there came principally (though not exclusively) from the residential section: but the Basement was not demised to Allford as part of the residential section, and people did not live there. It had previously been a snooker hall and so probably had only ever had planning permission for a commercial use. In any event, it was connected to the commercial part of the premises. It is therefore best described as a “commercial element”. It would in any event not assist Dalecroft’s case on this point to classify the Basement as a residential element, since materially identical policy conditions applied to the empty residential elements of the Property.

The photographs taken by Dr Norager after the Fire also clearly show that there were loose combustible materials in the Disco Building, including pieces of wood, old chairs, mattresses, discarded pieces of clothing etc.

In relation both to the Basement and the Disco Building, Dr Norager frankly admitted that he could not say from his own knowledge what had happened between the time of the Fire and the time of his visit a few days later. It was his evidence that the property was insecure: and he therefore accepted in cross-examination that it was possible that looters or other individuals could have visited the Property in that intervening period, so that he could not say for certain that what he saw was there at the time of the Fire.

In my judgment however, Dr Norager’s comparison of the location of the non-combustible items in the Basement with the photographs taken in October 2008 by Mr Rowe provides compelling evidence that the loose combustible materials photographed by Mr Rowe were still in the basement at the time of the Fire. It is also, in my judgment, improbable that the loose combustible materials visible in the photographs which Dr Norager took in the Disco Building had been brought there by strangers in the period following the Fire.

The evidence which I have seen and heard also establishes, on the balance of probabilities, that Dalecroft was in breach of the Commercial Unoccupancy condition requiring the empty commercial elements of the Property to be secured against illegal entry, with all windows and doors boarded or bricked up at ground and basement level so as to prevent unauthorised entry and all letterboxes to be sealed to prevent insertion of material.

Mr Rowe’s note dated 8 December 2008 records that he was at that moment “happy with current progress of scaffolding and securing of property”.

However, Dr Norager’s evidence was that, when he inspected the Property after the Fire, the rear doorway of the Basement was not properly secured. This is clearly shown by the photographs taken by him. It is not apparent whether the pieces of corrugated iron visible in those photographs had actually been covering the doorway at the time of the Fire: but, even if they had been in place at the time and had been moved subsequently (perhaps by a fire-fighter), the flimsy, rotten pieces of wooden batten which were attached to them and which were the only means by which they could have been secured in position were plainly inadequate to prevent unauthorised entry through that doorway.

Dr Norager also gave evidence that the door giving access to the Disco Building from the flat roof of the single-storey extension was insecure at the time of his visit, and backed that evidence up with further photographs. In his view, it is unlikely that this was the result of action by the Fire Brigade at the time of the Fire, since the Fire did not reach that area.

In my judgment, Mr Rowe’s general expression of satisfaction with the securing of the property in his note dated 8 December 2008 does not cast any doubt on the accuracy of Dr Norager’s specific observations made in May 2009, supported as they are by photographic evidence. I therefore accept Dr Norager’s evidence on these points.

Finally, Dr Norager gave evidence (again supported by a photograph) that, at the time of his visit, the Charity Shop was unoccupied, not boarded up, and its letterbox was not sealed.

Mr Horovitz’s evidence was that the Charity Shop “was not unoccupied and was, in fact, trading up until the date of the Fire”. In my judgment, it is improbable that that is correct. Mr Marsh’s evidence was that the Charity Shop had been occupied by a lady who traded as CJ Fancy Goods, but she had left shortly in about July 2008. Jason Cooper acquired the Time Tunnel lease from Mr Marsh in about October 2008: and it was Dalecroft’s case that Mr Cooper also took over the Charity Shop, with a view to merging the two premises. However, Dr Norager’s evidence (which I accept) was that the two premises had not physically been merged when he inspected the Property, and that the Charity Shop was empty at the time of his inspection.

The Policy Conditions broken by Dalecroft related specifically to the commercial parts of the Property. However, they are expressed as a general warranty, and are directed at risks (including fire) which jeopardise the entire property. In the circumstances of this case, there are no grounds for confining the effect of Dalecroft’s breaches of warranty to the commercial parts only.

It follows that Dalecroft’s breaches of the Policy Conditions also discharge the Underwriters from liability under the policy, and on that basis entitle them to reject all of the claims made in this action.

Given the findings which I have made, the issue of quantum does not arise. However, it is right that I should record that the parties reached agreement on figures during the course of the trial, as follows:

The only issue left for determination by the court was the date at which Dalecroft’s loss should be assessed. Mr Spalton, on behalf of Dalecroft, contended that the loss should be measured as at the date of trial rather than as at the date of the Fire “in circumstances where the claim has been opposed vigorously, where the defendants declined cover on a number of unmeritorious bases (including a bare allegation of fraud) which the Claimant has had to fight to trial”.

Since I have found that the Underwriters were properly entitled to decline cover, this issue does not arise.

The old law embodied in the 1906 Act is insurer-friendly, and may sometimes operate harshly to the detriment of the insured. Looking at the matter in the round, however, I am satisfied that the application of the pre-2015 Act law works no injustice to Dalecroft in the present case. The evidence satisfies me that Dalecroft made no real effort to make a fair presentation of the risk (as that expression is now defined in the 2015 Act (Footnote: ⁶²)) to the Underwriters at renewal, and thereafter made no real effort to comply with the Commercial Unoccupancy conditions of the insurance. It also satisfies me that Underwriters would have declined the risk (ie would not have entered into the contract on any terms (Footnote: ⁶³)) had a fair presentation been made at renewal. It follows that, even under the 2015 Act, Dalecroft’s claim would have failed.

I therefore dismiss Dalecroft’s claim, and make the declarations of non-liability sought by the Underwriters in paragraph 31 of their Amended Defence and Counterclaim

I invite counsel to agree a Minute of Order giving effect to this judgment.