Wednesday, August 16th, 2017

Higher Delta Ltd v Covea Insurance Plc - [2017] CSOH 84

The pursuers - a limited company - suffered a total loss of one of their commercial premises in a fire. The defenders, the insurers, refused to pay out on the grounds that there had been a number of material non disclosures when the policy was taken out and upon renewal each year. It was not suggested that the company had failed to disclose any material matter, but suggested that the claims record of one of the directors of the company (and the sole shareholder) had suffered losses which should have been disclosed. Although losses had been suffered in the past, these related to a personal property portfolio being residential properties rented to student and DSS tenants. 

The pursuers maintained that those losses were irrelevant and need not be disclosed. The only circumstances under which the director would have do make a disclosure when the company was seeking cover, are where there was a “moral hazard”, and in that context required there to be some element of dishonesty or criminal behaviour (which was not alleged). Only then, so it was argued, would the risks with a director transmit to the risk to the company. But short of dishonest behaviour by the director in his private affairs, there was no moral hazard justifying the defenders avoiding liability. 

The case turned substantially upon expert evidence as to whether the risk might be material. 

The Lord Ordinary found for the pursuers, accepting that there was no material non disclosure. The defenders’ expert was rejected completely. This case demonstrates the value of careful preparation for cross examination of experts permitting counsel to identify the weaknesses in the opposing side’s case. It is estimated that the value of the claim, yet to be determined, is of the order of £1.5m.

The pursuers were represented by Andrew Smith QC, along with Paul O’Brien of Axiom Advocates as junior counsel. The decision can be found here.

Andrew Smith QC is regularly instructed in Insurance Litigation.

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