In Mutual Energy Ltd v Starr Underwriting Agents Ltd & Anor  EWHC 590 (TCC), the Technology and Construction Court has held that the words “deliberate … non-disclosure” must involve dishonesty. A company’s honest but mistaken belief that something need not be disclosed was not enough to allow insurers to avoid the policy for non-disclosure.
Mutual Energy Ltd (MEL) owned and operated the Moyle Interconnector, which provided an undersea link between the electricity systems of Scotland and Northern Ireland. The defendant insurers insured the interconnector under an insurance contract put in place around 1 December 2009. In 2011, there were two failures of the insulation around a conductor, leading to a loss of power. As a result of these failures, MEL submitted a claim under its insurance policy.
The defendant insurers would not agree to indemnify MEL on the basis that certain information regarding insulation of cables had not been disclosed. The insurers argued the information was not disclosed to them due to the honest but mistaken belief that it did not need to be disclosed.
Clause 6 of the insurance policy dealt with non-disclosure, misrepresentation and breach. It stated that the insurance policy could only be avoided if there was “deliberate or fraudulent non-disclosure”.
The issue between the parties was whether the reference to “deliberate…non-disclosure” in the policy meant the contract was avoidable in the circumstances. The insurers alleged deliberate non-disclosure on the part of MEL, and claimed that an honest but mistaken decision not to disclose something entitled them to avoid the contract of insurance. MEL’s case was that the contract was only avoidable if the non-disclosure involved an element of dishonesty.
In previous cases, it had been held that the use of “deliberate” in the context of breach or default, meant intentional. The Court said it was not possible logically to distinguish between deliberate breach and deliberate non-disclosure. Both deliberate breach and deliberate non-disclosure involved an element of culpability. Finally, the Court believed conduct could be deliberate and dishonest without being fraudulent.
Considering the Oxford English Dictionary definition of “deliberate” and authority on the use of “deliberate” in other contexts, the Court held that the words “deliberate or fraudulent non-disclosure” suggested a situation where the insured intentionally failed to disclose something they knew they should disclose. This entailed an element of dishonesty.
Accordingly, MEL’s decision not to disclose something as a result of an honest but mistaken belief that it need not be disclosed was not enough to allow the defendant insurers to avoid the policy.
By James Crabtree, with thanks to Nihara McCormack.