Professional indemnity insurer Markel has lost a £16 million negligence dispute with an agricultural lender. The court employed the rarely-used ‘Braganza Test’ to rule that the insurer did not have reasonable grounds for avoiding their policy.
UK Acorn Finance (UKAF) was an agricultural bridging finance provider. Between 2010 and 2012, it appointed Colin Lilley Surveying (CLS) to value agricultural properties, which it relied on to make loans. Later, in 2016 and 2017 UKAF obtained judgements against CLS that it had negligently overvalued 11 properties.
As CLS was insolvent, UKAF claimed directly against CLS’s professional indemnity insurer Markel. Markel avoided relevant insurance policies, claiming that CLS had made misrepresentations and non-disclosures in its insurance applications such that it had failed to disclose that it was working for a sub-prime lender.
The policy had an Innocent Non-Disclosure (IND) clause – which stated that Markel would not avoid the policies if any non-disclosure was innocent and free from fraudulent intent.
In court, Markel claimed that its decision making process in avoiding the policies was reasonable. The court however applied the rarely-used ‘Braganza Test’ (named after the case of Braganza v BP Shipping Limited ). This prevents a decision-maker from making decisions which are arbitrary, capricious or irrational.
The court found that Markel’s approach to assessing the alleged fraudulent misrepresentation had significant failings and, that by applying the Braganza Test, it had not given the insurer the right to deny indemnity under the policies. Markel was ordered to pay £16m in damages.
“The Braganza Test is intended to prevent one party to a contract, who has the right to make a decision which may be to the detriment of the other, from abusing their power,” said James Burgoyne, Director – Claims & Technical, Brunel Professions. “In this case it meant that the underwriter needed to demonstrate that they had taken account of all the relevant facts and material points, and – critically – only those.”
Brunel provides a wide range of Professional Indemnity Insurance broking services to property professionals. Click here to find out more, or call Mark Sommariva on 0203 475 3275.