Basis of contract clauses – Genesis v Liberty (2013)
GENESIS HOUSING ASSOCIATION LTD v LIBERTY SYNDICATE MANAGEMENT LTD (FOR AND ON BEHALF OF SYNDICATE 4472 AT LLOYD'S) (2013)
 EWCA Civ 1173
BREACH OF WARRANTY : INSURANCE POLICIES : MISSTATEMENTS : PROPOSAL FORMS : WARRANTIES : MISTAKE IN PROPOSAL FORM : FORM STATED TO BE BASIS OF CONTRACT : WHETHER BREACH OF WARRANTY
A housing association had no claim under an insurance policy entered into in respect of a construction contract as it had wrongly identified the builder in the insurance proposal form. That was a breach of warranty, as the association had declared that the information given in the proposal form was correct to the best of its knowledge, and the proposal form had stated that it formed the basis of the insurance contract.
The appellant housing association (G) appealed against a decision ( EWHC 3105 (TCC),  2 C. L.C. 837) that it could not recover under its insurance policy with the respondent insurers(L).
G had engaged a property development company (B) to construct a housing development. B, acting as agents for G, sought insurance from L. B's representative signed a proposal form which wrongly identified the builder as another company in B's group (C) instead of B. The proposal form included a declaration that the information in the proposal was correct to the best of the knowledge and belief of the insured. The declaration also stated that the proposal formed the basis of the insurance contract. L issued a policy, condition 7 of which stated that the policy would be "voidable in the event of misrepresentation, mis-description, error, omission or non-disclosure by the Policyholder with intention to defraud". B went into administration during the construction work. G suffered financial loss and sought an indemnity from L. The judge held that the statement of the identity of the builder in the proposal form was a warranty with contractual effect and that G could not recover under the policy because it was in breach of warranty.
G argued that (1) the judge had erred in holding that the statements in the proposal form were warranties, since the policy had set out a comprehensive list of the documents comprising the policy, and that list had not included the proposal form; (2) the judge had erred in holding that G had warranted that C was to be the builder, since the declaration had stated not that the statements in the form were true, but that they were true to the best of the knowledge and belief of the insured, and the error in the form had been inadvertent; (3) condition 7 of the policy had to restrict L's right to avoid for misstatement to circumstances where there was intent to defraud, since otherwise it added nothing to the terms of the policy.
HELD: (1) Where a proposal form contained a "basis of contract" clause, the proposal form had contractual effect even if the policy contained no reference to the form, and all statements in the form constituted warranties on which the insurance contract was based, Dawsons Ltd v Bonnin  2 A.C. 413 and Rozanes v Bowen (1928) 32 Ll. L. Rep. 98 followed, Holmes v Scottish Legal Life Assurance Society (1932) 48 T.L.R. 306 and Kumar v AGF Insurance Ltd  1 W.L.R. 1747 applied, Condogianis v Guardian Assurance Co Ltd  2 A.C. 125 and Unipac (Scotland) Ltd v Aegon Insurance Co (UK) Ltd 1996 S.L.T. 1197 considered. That principle could be displaced by express words in the policy. It could not be displaced merely by omitting the form from the list of contractual documents. If the parties intended to deprive of contractual effect a form which purported to be the basis of their contract, they had to do so by clear and unequivocal language. The instant policy contained no such express words (see paras 57, 60-62 of judgment). (2) G and B had known that B would be the builder. The statement in the proposal form was contrary to what G had known to be the case. Further, the two parts of the declaration were independent of each other: the first did not qualify the second. The "basis of contract" clause could not be read down so as to mean that a misstatement had no effect if the proposer was unaware of the error, Unipac considered (paras 69-71). (3) Condition 7 was not expressed to be a limiting provision. It did not say that the policy would be voidable only in the circumstances there mentioned. It would be remarkable if the parties had agreed to substantially cut down the insurers' normal right of redress; if they had intended to achieve such an unusual result, they would have said so expressly. The argument that condition 7 added nothing to the policy was not strong. It was not uncommon to find surplusage in an insurance contract. Condition 7 could only be read as a provision conferring additional express rights on L, regardless of whether those rights served any useful purpose, Holmes applied. Because of the misstatement in the proposal form, the policy was void (paras 76-81).