Genesis Housing Association Ltd v Liberty Syndicate Management Ltd [2013] EWCA Civ 1173

[2013] EWCA Civ 1173Case No A1/2012/3170
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT, TECHNOLOGY AND CONSTRUCTION
MR JUSTICE AKENHEAD
HT11527
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 04/10/2013
Before
THE MASTER OF THE ROLLS (LORD DYSON)LORD JUSTICE JACKSONLADY JUSTICE GLOSTER
Between
GENESIS HOUSING ASSOCIATION LIMITEDAppellant/LIBERTY SYNDICATE MANAGEMENT LIMITED FOR AND ON BEHALF OF LIBERTY SYNDICATE 4472 AT LLOYD'SRespondents/Defendants
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr James Leabeater (instructed by Winckworth Sherwood LLP) for AppellantMr Richard Sage (instructed by Norton Rose Fulbright LLP) for RespondentsHearing Hearing date: 24th July 2013
JudgmentLord Justice Jackson :
[1]This judgment is in nine parts, namely: Part 1. Introduction, Part 2. The facts, Part 3. The present proceedings, Part 4. The appeal to the Court of Appeal, Part 5. Did the statements in the proposal form become contractual warranties? Part 6. Did Genesis warrant that TT Construction was to be the builder? Part 7. Did condition 7 restrict the insurers’ right to avoid for misstatement to circumstances where there was intent to defraud? Part 8. Was Genesis’ right to recover dependent upon TT Construction being the builder? Part 9. Conclusion. Part 1. Introduction[2]This is an appeal by a housing association against a decision of Mr Justice Akenhead that it cannot recover under an insurance policy, which provided cover in the event of a building contractor’s insolvency.[3]The central issue in this appeal is whether an incorrect statement in the proposal form concerning the identity of the builder enables the insurers to escape liability. Allied to this issue, it will be necessary to consider the effect of a declaration that statements in the proposal form shall form the basis of the contract of insurance.[4]The housing association which took out the relevant insurance cover was Paddington Churches Housing Association. It was part of a group of housing associations called the Genesis Housing Group. In some of the contemporaneous documents that housing association was referred to as “Genesis Housing Association”. More recently, as a result of an amalgamation, Paddington Churches Housing Association has now become Genesis Housing Association Ltd. That company is claimant in the action and appellant in this court. I shall refer to it at all stages, without regard to name changes, as “Genesis”.[5]In 2007 Mr Kevin Galliers was employed by Genesis as its regional land and new business consultant. Mr Galliers was responsible for negotiating building contracts and making the associated insurance arrangements.[6]The insurers, who are defendants in the action and respondents in this court, are Liberty Syndicate Management Ltd for and on behalf of Syndicate 4472 at Lloyd’s. I shall refer to them as “the insurers”.[7]At the relevant time the insurers offered a form of insurance for social housing known as “Premier”. Under the Premier scheme the insurers provided cover in respect of latent defects emerging during the first ten years after the construction of a housing unit. As an optional extra the insurers offered cover against the risk of the builder becoming insolvent during the construction period.[8]MD Insurance Services Ltd (“MD”), a company based in Reading, administered the Premier insurance scheme on behalf of the insurers. Mr Johnson was an employee of MD, who played an active part in arranging and issuing Premier insurance policies.[9]Prior to 2009 a group of companies, to which I shall refer as “the TT Group”, was operating in the world of property development. Two brothers, Graham and Perry Gamby, owned and managed the TT Group. Mr Graham Gamby features in the narrative of this case. I shall refer to him as “Mr Gamby”.[10]One company in the TT Group was a construction company called Time and Tide Construction Ltd (“TT Construction”). This company appears to have traded satisfactorily for a number of years. According to its accounts filed on 31st March 2006, the net worth of the company was £366,669. Another company in the TT Group was Time and Tide (Bedford) Ltd. This was a special purpose vehicle, which features extensively in the narrative of this case. I shall refer to it as “TT Bedford”.[11]After these introductory remarks, I must now turn to the facts.

Part 2. The facts

[12]In 2007 the TT Group of companies resolved to develop Telecom House, 25-27 St John’s Street, Bedford, in order to create a large number of flats, offices and associated facilities. TT Bedford was formed as a special purpose vehicle to undertake this development.[13]It was a condition of the planning permission that floors one to six of Telecom House should be developed as social housing and affordable housing. Accordingly TT Bedford leased floors one to six to Genesis. Genesis then engaged TT Bedford as main contractor to construct 51 residential units on those six floors. The building contract was in the standard JCT form, with Contractor’s Design, dated 9th April 2007. The contract sum was £4.6 million, which was broken down as set out in the Contract Sum Analysis.[14]There was discussion between Mr Galliers of Genesis and Mr Gamby of TT Bedford concerning the insurance arrangements. Instead of using the standard NHBC scheme, Mr Galliers decided to take out Premier insurance. TT Bedford arranged this insurance, acting as agents for Genesis.[15]Mr Gamby of TT Bedford discussed Genesis’ insurance requirements with Mr Johnson of MD. Mr Johnson prepared a proposal form setting out what he understood to be the relevant information and presented this to Mr Gamby for his consideration and signature. Mr Gamby approved the contents of the proposal form and signed it on 2nd April 2007.[16]The proposal form stated that additional insurance was required to cover the risk of insolvency of the builder during construction. There was unfortunately one incorrect statement in the proposal form. The name of the builder was shown as TT Construction. That was wrong. The building contractor was, in fact, to be TT Bedford.[17]I should also mention that, on the copy of the proposal form before the court, the contract cost is shown as £4.6 million crossed out with £3.7 million substituted. The judge held that this amendment was made in MD’s offices some time after Mr Gamby had signed the document. Therefore this apparent misstatement in respect of the contract cost is of no significance.[18]Immediately above Mr Gamby’s signature, there is the following paragraph:
“Declaration by the Insured I/we declare that to the best of my/our knowledge and belief, the information I/we have given is correct and complete in every detail and I/we have not withheld any material fact. I/we understanding that the signing of this form does not bind us to effecting insurance under the Premier Guarantee for Social Housing scheme but agree that should a contract be completed for a New Development or Housing Unit that this proposal and the statements made therein shall form the basis of the contract between me/us and the Insurer.”
I shall refer to this paragraph in the proposal form as “the declaration”.[19]Having received the signed proposal form, Mr Johnson made further investigations on behalf of the insurers. In particular, he obtained a Dunn & Bradstreet report on TT Construction, dated 13th April 2007. This showed that the company was well established and represented a lower than average risk of business failure.[20]On 16th April 2007 MD prepared and sent to TT Bedford a quotation for Premier insurance. By this quotation the insurers offered ten years cover in respect of latent defects together with cover against the risk of the builder’s insolvency during construction, for a total premium of £26,550. The insured was shown as the housing association and/or the future owners of each housing unit. The builder was shown as TT Construction.[21]I shall refer to this document as “the quotation”. The quotation stated that the total sum insured would be £4.6 million. The quotation was expressly subject to the wording of the policy which insurers proffered. The quotation stated that, in order to proceed, the housing association should send a cheque for the premium to MD. The insurers would then issue the policy and an initial certificate (as required by section 2I of the policy) which they would send to the housing association.[22]On the judge’s findings of fact Mr Galliers received a copy of the quotation on or before 1st May 2007. Genesis decided to accept the quotation. Accordingly TT Bedford acting on behalf of Genesis sent a cheque for the premium to MD.[23]On 8th May 2007 the insurers issued the policy in respect of the development at Telecom House, together with the initial certificate. The initial certificate identified TT Construction as the builder.[24]Section 1 of the policy provides:
“1. INFORMATION The Policyholder is requested to read the Policy and Certificates. These are important documents. If any information is not clear please contact the Scheme Administrator. This Policy consists of: 1. INFORMATION on the Premier Guarantee for Social Housing; 2. DEFINITIONS detailing all Definitions applicable to the Policy; 3. INSURING AGREEMENT giving precise details of the cover, subject to variation by Endorsement; 4. ADDITIONAL EXTENSIONS detailing automatic extensions in cover to the Policy; 5. EXCLUSIONS detailing exclusions that apply to the whole Policy; 6. CONDITIONS defining the terms that apply to the whole Policy; 7. FINANCIAL LIMITS detailing the maximum the Underwriter will pay in the event of a claim under the Policy, subject to the Indexation Clause detailed in Condition 5 of the Policy; 8. ENDORSEMENTS detailing the optional extensions to cover that the Policyholder may have selected prior to work commencing under the Building Contract. This Policy sets out the insurance cover provided by the Premier Guarantee for Social Housing. This insurance cover is subject to a number of definitions, conditions, exclusions and financial limits as detailed in the Policy. …. Unless otherwise stated on the Initial and Final Certificates, The Premier Guarantee for Social Housing provides Policyholders with protection in the following ways: • Each Housing Unit is insured for a period of 10 years from the date of issue of the Certificate of Approval against the risk of Major Damage, ingress of water through the Waterproof Envelope, a defect in the drains or a danger to health and safety caused by a defect in chimneys or flues. See Section 3.1 for details. ….”

This Policy consists of:

[25]Section 2A of the policy defines the builder as follows:
“The person or company with whom the Policyholder has contracted to erect or refurbish the New Development(s).”
[26]Section 2G of the policy defines the final certificate as follows:
“The Certificate issued by the Underwriter to signify acceptance of each New Development or if required each Housing Unit for insurance hereunder following issue of the Certificate of Approval by the Site Audit Surveyor.”
[27]Section 2I of the policy defines the initial certificate as follows:
“The Certificate issued by the Underwriter signifying their agreement to the provision of the Insurance cover set out in this Policy subject to the receipt of a Certificate of Approval for each New Development.”
[28]Section 6 of the policy sets out the conditions of the policy. Condition 7 reads as follows:
“Misrepresentation This Policy will be voidable in the event of misrepresentation, misdescription, error, omission or non-disclosure by the Policyholder with intention to defraud.”
[29]Section 8 of the policy provides that the limit of the insurers’ liability for insolvency of the builder during the building period is 10% of the contract price.[30]After completion of the formalities the building project proceeded. TT Bedford sub-contracted all or virtually all of the construction work to a company called 3Sixty Construction Ltd (“3Sixty”).[31]All went well for the first one and half years. 3Sixty completed much of the work and the standard of finish was good. Unfortunately both 3Sixty and TT Bedford then encountered financial difficulties.[32]3Sixty reduced its labour force on site during February 2009. During March 2009 3Sixty became insolvent and ceased work altogether. On 7th April 2009 TT Bedford terminated 3Sixty’s sub-contract.[33]In the same month TT Bedford became insolvent. On 23rd April 2009 administrators of TT Bedford were appointed. This was at the instigation of Anglo Irish Asset Finance Plc, which held a floating charge over the assets of TT Bedford. By that time TT Construction was also in administration.[34]In those circumstances Genesis engaged other contractors to complete the building work at Telecom House. Inevitably Genesis suffered financial losses as a result of the insolvency of TT Bedford and the need to bring in other contractors. Genesis sought an indemnity from the insurers in respect of these losses.[35]The insurers denied that they had any liability under the policy. The parties were unable to resolve their differences in correspondence. Accordingly Genesis commenced the present proceedings.

Part 3. The present proceedings

[36]By a claim form issued in the Technology and Construction Court in London on 23rd December 2011 Genesis claimed an indemnity from the insurers in respect of losses suffered following the insolvency of TT Bedford. Genesis accepted that its claim was limited to £460,000 under section 8 of the policy.[37]The insurers served a defence denying liability on a number of grounds, but only one of those grounds is now material. This is that Genesis or its agent misstated the name of the builder in the proposal form. It is said that this constituted a breach of warranty, as a result of which the policy was or became void. Further or alternatively, the insurers contend that the policy does not respond to losses arising from the default of a builder who is different from the building contractor named in the proposal form and in the initial certificate.[38]The action was tried before Mr Justice Akenhead on 29th October 2012. There was little dispute as to the facts. The single witness called by each party could add little to what appeared in the contemporaneous documents. As can be seen from the transcript, most of the time during the one day trial was devoted to legal argument.[39]On 13th November 2012 the judge handed down his reserved judgment, [2012] EWHC 3105 (TCC), dismissing Genesis’ claim. I would summarise the judge’s findings and conclusions as follows: i) The policy does not refer to the proposal form or suggest that it is incorporated into the contract of insurance. ii) Nevertheless the second sentence of the declaration is a “basis of contract” clause. Accordingly the warranties in the proposal form have contractual effect. This is either because they are incorporated into the contract of insurance or because they are separate warranties. iii) The statement in the proposal form that TT Construction would be the builder was incorrect to the knowledge of both Mr Galliers and Mr Gamby. This mistake was innocently made. It was not a conscious or deliberate misrepresentation. Nevertheless, contrary to the first sentence of the declaration, that statement about the builder was not true to the best of the knowledge and belief of TT Bedford and Genesis. iv) The identity of the builder was a material matter. TT Construction was an established company with a reasonable credit rating, whereas TT Bedford was a recently created special purpose vehicle, with no established credit rating. v) Condition 7 of the policy does not have the effect of limiting the warranties in the proposal form. Therefore the insurers can avoid liability by reason of breach of warranty, even if the warrantor had no intention to defraud. vi) Accordingly Genesis cannot recover under the policy because it was in breach of warranty. vii) The contractor against whose insolvency Genesis was insured under section 8 of the policy was TT Construction. But a different contractor was carrying out the works. This is a separate reason why Genesis’ claim fails. viii) Genesis is not entitled to the issue of a certificate of approval or a final certificate under section 2G of the policy.[40]The judge also made other findings that are not material for present purposes. In particular, he held that the quotation was a contractual document.[41]Genesis was aggrieved by the judge’s decision. Accordingly it appealed to the Court of Appeal.

Part 4. The appeal to the Court of Appeal

[42]By an appellant’s notice dated 4th December 2012 Genesis appealed against the judge’s decision on a variety of grounds, some of which are no longer pursued or no longer relevant. Furthermore there is some overlap between the grounds of appeal as originally formulated.[43]I would summarise the effective grounds of Genesis’ appeal as follows: i) The judge erred in holding that the statements in the proposal form were warranties of the policy. ii) The judge erred in holding that Genesis warranted that TT Construction was to be the builder. iii) Condition 7 of the policy restricted the insurers’ right to avoid for misstatement to circumstances where there was intent to defraud. iv) Genesis’ rights to recover under the policy were not dependent upon TT Construction being the builder[44]Genesis also challenges the judge’s finding that the quotation was a contractual document. Although I have reservations about this part of the judge’s decision, it is unnecessary to decide the point and we have not heard full argument upon it. The finding that the quotation was a contractual document plays no part in the judge’s overall reasoning and conclusions: see paragraphs 39 and 40 above.[45]Grounds of appeal (i) to (iii) are alternative arguments, each intended to establish that the insurers were not entitled to avoid the policy or to avoid liability by reason of misstatement in the proposal form. Ground (iv) proceeds on the assumption that the policy remained in force in 2009. It is argued that Genesis was entitled to the benefits of cover under section 1 in respect of latent defects and under section 8 in respect of the builder’s insolvency, despite the change of building contractor.[46]All of the arguments which Mr James Leabeater deployed in support of Genesis’ appeal can conveniently be grouped under the rubric of those four headings.[47]The insurers served a respondents’ notice on 18th December 2012. Paragraph 1 of the respondents’ notice asserts that there was a further breach of warranty by Genesis. This was the statement in the proposal form that the contract cost was £3.7 million, not £4.6 million.[48]This assertion involves a challenge to the judge’s finding of fact, referred to in paragraph 17 above. That finding of fact was open to the judge on the evidence. It cannot be challenged in this court. I therefore reject paragraph 1 of the respondents’ notice.[49]I must now return to Genesis’ grounds of appeal. I shall address the issues in the order set out above, starting with the effect of the statements in the proposal form.

Part 5. Did the statements in the proposal form become contractual warranties?

[50]In answering this question in the affirmative the judge relied upon a line of authorities stretching back over a century, concerning the effect of a “basis of contract” clause. These are Condogianis v Guardian Assurance Company Ltd [1921] 2 AC 125, Dawsons Ltd v Bonnin [1922] 2 AC 413, Rozanes v Bowen (1928) 32 L1.L.Rep 98, Holmes v Scottish Legal Life Assurance Society (1932) 48 TLR 306, Unipac (Scotland) Ltd v Aegon Insurance Co (UK) 1996 SLT 1197 and Kumar v AGF Insurance Ltd [1999] 1 WLR 1747. It should be noted that there are nineteenth century authorities to similar effect.[51]In Condogianis the appellant incorrectly answered a question in the proposal form concerning previous claims. The proposal form contained a declaration that it was “the basis of the contract”. The Privy Council upheld the decision of the High Court of Australia that the appellant could not recover on the policy. Lord Shaw stated that it was irrelevant whether the untruth occurred through inadvertence (as opposed to fraud) and whether or not it was material. If the parties had agreed that the warranty was the basis of the contract of insurance, the court would so treat it. He cited a series of nineteenth century authorities in support of that proposition.[52]The House of Lords applied the same principle in Dawsons, but expressed some regret at the harsh consequences of the rule.[53]In Rozanes a Parisian jeweller insured his premises against theft with Lloyd’s underwriters. Unknown to the plaintiff, his agent gave incorrect answers to questions in the proposal form about previous losses. The proposal form, although not referred to in the insurance policy, contained a “basis of contract” clause. It was established at trial that there was no dishonesty on the part of the plaintiff, who had given full details of his previous losses to the Lloyd’s broker acting as his agent. Nevertheless both Wright J and the Court of Appeal held that the policy was void by reason of the misstatements in the proposal form.[54]In Holmes the claimant innocently made a false statement about his father’s state of health in a proposal for life insurance. The proposal form contained a “basis of contract” clause. There was also a provision that the policy would be avoided if there was any fraudulent misstatement about the health of the person insured. Swift J held that the insurer was entitled to avoid, despite the absence of fraud. Because of the “basis of contract” clause in the proposal form, the misstatement about the father’s health had become a warranty.[55]In Unipac a proposal form for fire insurance contained the following declaration:
“We declare that to the best of our knowledge and belief all statements and particulars contained in this proposal are true and complete and that no material fact has been withheld or suppressed. We agree that this proposal shall be the basis of the contract between us and the insurers.”
The insured incorrectly answered two questions concerning how long it had carried on business at the premises and whether it was the sole occupier. The Inner House of the Court of Session, upholding the Lord Ordinary, held that the insurers were entitled to avoid the policy. It was no defence that the answers in the proposal form were true to the best of the proposer’s knowledge and belief. The second sentence of the declaration was separate from the first sentence. The second sentence was a “basis of contract” clause. Its effect was that the proposer warranted his answers as being true and complete.[56]Kumar was an application for summary judgment against top up insurers in respect of a claim for solicitors’ negligence. The insurers sought to defeat a non-avoidance clause by relying upon the failure of one of the insured solicitors to disclose his own fraud on the proposal form. Although this defence failed, Thomas J accepted the insurers’ argument concerning the effect of a “basis of contract” clause in the proposal form. The proposal form stood as the basis of the insurance contract, even though there was no reference to it in the policy: see 1750 E and 1752 D-G.[57]The principle which emerges from these authorities is that where a proposal form contains a “basis of contract” clause,(i) the proposal form has contractual effect even if the policy contains no reference to the proposal form;(ii) all statements in the proposal form constitute warranties on which the insurance contract is based. They cannot therefore be treated as immaterial.[58]This principle, which has been formulated in a variety of ways over the last two hundred years, has been the subject of some criticism by judges, text-book writers and the Law Commission. See the Law Commission Consultation Paper no. 204 on Insurance Contract Law at paragraphs 11.8-11.12. The editors of MacGillivray on Insurance Law comment that the juristic basis of the principle is unclear: see paragraph 10-023 of the twelfth edition (Sweet & Maxwell, 2012). There is now statutory reform to exclude the operation of the principle in relation to consumer contracts, but that does not affect the present case.[59]Mr Leabeater submits that the first limb of the principle appears to have been accepted without proper argument in the reported decisions. That may be so. Nevertheless the principle is not open to challenge in this court and Mr Leabeater, despite his interesting analysis of the authorities, has made no serious attempt to challenge it.[60]The principle can, of course, be displaced by express words in the insurance policy. The real issue is whether the policy in this case has that effect.[61]Mr Leabeater contends that section 1 of the policy sets out a comprehensive list of all the documents which comprised the policy relating to floors one to six at Telecom House. The proposal form is not included in this list. Clearly the parties intended that the policy should prevail and the proposal form should have no contractual effect.[62]I do not accept this argument. In my view, the principle stated above cannot be displaced merely by omitting the proposal form from the list of contractual documents set out in the policy. If the parties intend to deprive of contractual effect a proposal form which purports to be the basis of their contract, they must do so by clear and unequivocal language. The policy in the present case contains no such express words.[63]I therefore conclude, in agreement with the judge, that the proposal form which Mr Gamby signed was of contractual effect. The statements in the proposal form became warranties forming the basis of the policy. I do not need to decide whether those statements(a) were absorbed into the contract of insurance or(b) constituted collateral warranties.[64]Accordingly, my answer to the question posed in Part 5 of this judgment is yes. I must now turn to the second ground of appeal, which concerns the nature of the warranty which Genesis gave concerning the identity of the builder.

Part 6. Did Genesis warrant that TT Construction was to be the builder?

[65]In the section of the policy headed “builder’s details” the name of the builder is stated to be TT Construction.[66]Mr Leabeater submits that this statement must be read together with the declaration, the terms of which are set out in Part 2 above. This declaration qualifies the bald statements made in the body of the proposal form. In the first sentence the proposer declares not that those statements are true, but that they are true to the best of his knowledge and belief.[67]Mr Leabeater points out that the judge found the error in the proposal form to be inadvertent. The judge held that there was no deliberate or conscious misrepresentation on the part of either Genesis or TT Bedford: see paragraph 40 of the judgment. Mr Leabeater submits that the effect of these findings is that there was no breach of warranty.[68]In support of his submissions Mr Leabeater relies upon Economides v Commercial Assurance Co Plc [1998] QB 587 and Zeller v British Caymanian Insurance Co Ltd [2008] UKPC 4; [2008] Lloyd’s Rep IR 545. These were both cases in which the proposer was asked to and did provide information to the best of his knowledge and belief. The fact that there were errors in the information unknown to the proposer did not enable the insurers to avoid liability.[69]I do not accept this argument for a number of reasons. First, on the judge’s findings of fact, both Mr Galliers and Mr Gamby knew on 2nd April 2007 that TT Construction would be the builder: see paragraph 40 of the judgment. Those findings of fact are supported by the evidence and cannot be challenged. Mr Gamby may have been confused when signing the proposal form, as the judge speculates. The fact remains, however, that the statement in the proposal form was contrary to what both Mr Galliers and Mr Gamby knew to be the case. Therefore both Economides and Zeller can readily be distinguished from this case.[70]The second answer to Mr Leabeater’s submission is that the two sentences of the declaration are independent of one another. I do not accept the contention that the first sentence qualifies the second sentence. The “basis of contract” clause cannot be read down, so as to mean that a misstatement has no effect if the proposer is unaware of the error.[71]I am fortified in this conclusion by the reasoning of the Inner House of the Court of Session in Unipac. The declaration in that case comprised two sentences which were effectively the same as the two sentences in the present declaration. The court held that the two sentences should be read separately. The first sentence to the effect that statements were true to the best of the proposer’s knowledge and belief did not qualify the “basis of contract” provision in the second sentence.[72]Let me now draw the threads together. For the reasons set out above, the proposer in this case warranted, without qualification, that TT Construction would be the builder. In fact, to the knowledge of both Genesis and TT Bedford, TT Construction was not going to be the builder. My answer to the question posed in Part 6 of this judgment is yes.[73]I must now turn to the third ground of appeal, which concerns the effect of condition 7 of the policy. Part 7. Did condition 7 restrict the insurers’ right to avoid for misstatement to circumstances where there was intent to defraud?[74]I have set out condition 7 of the policy in Part 2 above.[75]Mr Leabeater contends that the effect of condition 7 is to limit the insurers’ right of avoidance to cases where the policyholder intended to defraud. He submits that, if the condition does not have this effect, it adds nothing to the terms of the policy. If condition 7 had been omitted, self-evidently the policy would be voidable in the event of fraudulent misstatement or non-disclosure.[76]Like the judge, I do not accept this argument. Condition 7 is not expressed to be a limiting provision. It does not say that the policy will be voidable only in the circumstances there mentioned. It would be remarkable if the parties were agreeing to cut down the insurers’ normal right of redress to the substantial extent that Genesis now asserts. If the parties really intended to achieve such an unusual result, they should and would have said so expressly.[77]The argument that condition 7 adds nothing to the policy is not a strong one. As Thomas J observed in Kumar at 1756 F, it is not uncommon to find surplusage in a contract of insurance.[78]In my view condition 7 of the policy can only be read as a provision conferring additional express rights on the insurers, regardless of whether or not those express rights serve any useful purpose. It cannot be read as cutting down the insurers’ general right to avoid for misrepresentation. Nor can condition 7 be read as restricting either the warranties or the “basis of contract” clause in the proposal form.[79]My conclusion in this regard is in line with Holmes, a decision summarised in Part 5 above. The insurance contract in that case contained a provision to the same effect as our condition 7. Swift J rejected the contention that this restricted the insurers’ right to avoid for misstatements made in a proposal form purporting to be the basis of the contract.[80]In the result therefore I reject Genesis’ case in relation to condition 7. My answer to the question posed in Part 7 of this judgment is no.[81]It follows from the analysis so far that, simply by reason of the misstatement concerning the builder in the proposal form, the policy issued by the insurers was or became void. I agree with the decision of the judge in that regard. That is enough to dispose of this appeal.[82]Nevertheless a number of other issues have been debated, including the significance of the initial certificate and whether the contract of insurance is limited to a specific builder. I shall address these issues briefly under the rubric of the fourth ground of appeal.

Part 8. Was Genesis’ right to recover dependent upon TT Construction being the builder?

[83]On the 8th May 2007 MD on behalf of the insurers issued their initial certificate. Under the provisions of section 2I of the policy the effect of this certificate was to signify insurers’ agreement to provide the specified insurance cover. The initial certificate identifies TT Construction as the builder.[84]Mr Leabeater concedes that the initial certificate was a contractual document. In my view, by reason of both the proposal form and the initial certificate, it was a contractual term between Genesis and the insurers that TT Construction should be and remain the builder. The insurers were providing cover against the risks of insolvency or defective work on the part of an identified builder. They were not providing cover in respect of the defaults of any other builder whom Genesis may choose to substitute. That would be an open-ended risk, which the insurers did not accept.[85]I therefore consider that section 1 of the policy does not apply in respect of defective work performed by TT Bedford. Furthermore section 8 of the policy does not provide cover in respect of the insolvency of TT Bedford.[86]My answer to the question posed in Part 8 of this judgment is yes.

Part 9. Conclusion

[87]For the reasons set out in Parts 5, 6 and 7 above I conclude that the insurance policy in this case either was or became void by reason of the breach of warranty in the proposal form.[88]It follows that the insurers have no continuing liability to Genesis under the terms of the policy. Therefore the present claim must fail. Furthermore Genesis is not entitled to the issue of a final certificate under the provisions of section 2G of the policy.[89]Therefore, even if the insurance policy were still in force, it would not respond in the circumstances of this case. The builder who is the subject of the insurance is not the contractor who was engaged by Genesis to carry out the work.[90]Accordingly, if my Lord and my Lady agree, this appeal is dismissed.

Lady Justice Gloster:

[91]I agree that this appeal must be dismissed for the reasons given by Lord Justice Jackson.

The Master of the Rolls:

[92]I also agree that this appeal must be dismissed for the reasons given by Lord Justice Jackson.

Cited in 1 later judgment