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In December 1994, the sandwich shop became vacant. The hairdresser’s shop fell vacant in July 1995. Accordingly, from July 1995 the property was unoccupied.

In June 1996, the insured telephoned the insurer and requested that the policy be amended to exclude cover for loss of rent and public liability. The premium was reduced accordingly.

On 13 June 1997, the insured received a renewal invitation for the period 1 June 1997 to 1 June 1998. This renewal invitation noted cover only for the buildings and recorded that the buildings were occupied as a hairdresser’s and a sandwich shop.

The first issue on appeal was whether the insurer’s avoidance of the 1 June 1997 to 1 June 1998 policy was valid, or whether it could have its liability reduced to nil because the insured had failed to comply with its duty of disclosure in relation to the occupation of the property. The trial judge found it was more likely than not that if there had been disclosure the policy would have been renewed on the same terms and conditions but with a slight increase in premium.

On appeal, it was accepted that in June 1996 the insurer was told the property would be unoccupied, as this was the reason given by the insured for no longer requiring cover for loss of rent or public liability. The request for the reduced cover and the subsequent reduced premium was held to have been plainly conveyed to the insurer, which had acted upon it. The Court said the disclosure in June 1996 created knowledge of the insurer, which carried forward to the time of the later renewal.

The Court of Appeal said that references to the occupation of the premises in the renewal invitation of 13 June 1997 did not indicate that the insurer believed the property was occupied. Rather, it was a consequence of inadequate record keeping by the insurer, which recorded the property as occupied despite what the insured had told it in June 1996.

The Court of Appeal said that neither in June 1996 nor in June 1997 did the insurer make any further inquiry to find out how long the property had been unoccupied. In June 1997 the insurer would have had reason to believe that the property had been unoccupied for a further year in addition to whatever time it was unoccupied prior to June 1996. The insurer also did not inquire as to whether there had been any change in the occupancy of the property. Therefore it was held that any deficiency in the insurer’s knowledge of the period of vacancy was due to its waiver of further compliance with the duty of disclosure within the meaning of section 21(2)(d) of the Insurance Contracts Act 1984 which states:
"(2) The duty of disclosure does not require disclosure of a matter:

1. that diminishes the risk;
2. that is of common knowledge;
3. that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought to know; or
4. as to which compliance with the duty of disclosure is waived by the insurer."

The second issue on appeal was whether the insurer could avoid liability for the damage to the property because the insured had not, in accordance with a condition of the policy, given written notice stating that the property had become unoccupied and remained so for more than 30 days.

The Court of Appeal held that, as the condition of the policy was concerned with the alteration of risk, it had no application where the property was unoccupied at the commencement of the relevant renewed contract of insurance.

Comment
This case highlights the obligations of insurers, as well as insureds, regarding the duty of disclosure under s21 of the Insurance Contracts Act. It shows the Courts will not consider the insurer’s knowledge to be limited to circumstances disclosed at the time of negotiating the contract, but that it also extends to circumstances disclosed during previous policy years. The insurer’s knowledge of such matters may be deemed to be carried forward to later policy years following renewal of the policy. Furthermore, an insurer that fails to make inquiries of such circumstances at the time of renewal may be found to have waived compliance with the duty of disclosure.