Sugar Hut Group Ltd v Great Lakes Reinsurance (UK) Ltd Plc  EWHC 2636 (Comm)
Great Lakes provided insurance for four nightclubs including one where a fire occurred, causing substantial loss for which the claimants were seeking…
The Court ruled the defendant insurers, Great Lakes, were entitled to avoid liability on the grounds of material non-disclosure, but in any event they would have been excused liability by virtue of the Claimant’s breaches of warranties.
Great Lakes provided insurance for four nightclubs including one in Brentwood where a fire occurred on 13 September 2009, causing substantial loss in respect of which the Claimants, Sugar Hut, were seeking indemnity.
The issues which were required to be resolved fell into four categories:
- Whether Great Lakes were entitled to avoid the insurance policy for material non-disclosure;
- Whether Great Lakes had established and were entitled to reply on, breaches of warranty by reference to the “Frying and Cooking Equipment Warranty” (‘The Kitchen Warranty Issue’);
- Whether Great Lakes had established and were entitled to rely on, breach of a warranty that a central monitoring station alarm was installed and operational, and failure by Sugar Hut to comply with a notice issued by Great Lakes whereby the burglar alarm should be upgraded (‘The Burglar Alarm Issue’);
- Whether Great Lakes had established and are entitled to avoid liability as a result of the “Waste Condition Precedent” (‘The Wheelie Bin Issue’).
On 3 February 2003, three of the subsidiary companies of Sugar Hut went into administration, but three further companies were subsequently interposed.
Great Lakes argued that three undisclosed facts were material at the stage of the original slip. These undisclosed facts were as follows:
- That on or about 3 February 2009 the “old companies” (Sugar Hut Brentwood Ltd, Sugar Hut Fulham Ltd and Newplex Trading Ltd (Basildon) had gone into administration.
- That these “old companies” went into administration because of financial difficulties.
- That the purpose of the amendments made by a contract endorsement were not merely to record a change in name of the operating companies, but to substitute the new companies in the place of the old companies which were in administration.
- The Non-Disclosure Issue: the three facts were plainly material. The Judge accepted the underwriter’s submissions that Great Lakes would not have insured at all, or not on the same terms. Sugar Hut relied on the fact that what the proposer is invited to do is disclose “any other facts not covered by the questions”, but the Judge held that Sugar Hut could not rely on factors not being “covered by the questions” if the reality is that they were not covered by the answers which might allow the underwriter to follow up any issues deemed unsatisfactory.
- The Kitchen Warranty Issue: two warranties arose; the first regarding the contact of the kitchen ducting with combustible materials and the second concerning the inspection of the extraction ducts every six months. The warranty as to ducting was held to bear materially on the risk of loss and so the insurers were entitled to regard it as important protection. It was also a warranty as to the state of affairs. It was held that although the warranty as to the inspection of the extraction ducts every six months could have been interpreted as a suspensive condition, the fact that the inspection had not occurred by the time of the fire meant cover would still have remained suspended at the time of the fire.
- The Burglar Alarm Issue: the Judge held that the Burglar Alarm Warranty was a true warranty as a burglar alarm compliant with the warranty was of fundamental importance to theft insurance and significantly material to the risk of loss. The fact the absence of such an alarm was clearly not causative of the loss suffered by the fire was not material. This warranty was not waived by the requirement of a Risk Improvement Notice as it was inconceivable that there can be construed to have been running in parallel a true warranty, breach of which automatically discharged insurers from liability, and a suspensive condition/an extension of time. The circumstances were distinguished from Kler Knitwear Ltd v Lambard General Insurance Ltd  as the upgrade work was never carried out. It was thus concluded that there was no insurance in place at the date of the fire.
- The Wheelie Bin Issue: Great Lakes expressly specified metal be used for skips, but did not specify metal for the lidded and lockable containers. It was therefore concluded that Sugar Hut was not in breach of this particular warranty.
For the above reasons Great Lakes were entitled to avoid and if they had not been entitled to avoid, they would have been excused from liability by virtue of Sugar Hut’s breaches of warranty in respect of the kitchen warranty and burglar alarm warranty.