CA-2024-000950 - [2025] EWCA Civ 1019

It is also unnecessary to determine whether the judge was wrong to decide that the insurers failed on the issue of inducement and remedy on the basis that, if a condition had been imposed that Mr Bairactaris should resign, he would have done so. That said, I found Mr Walsh’s submissions summarised at para 89 above persuasive.

Paragraph 5 of Schedule 1 requires that the contract is to be treated as if it had been entered into on the terms which the insurer would have required, but there is nothing in the Act to call for investigation of any further counterfactual. In other words, the Act requires a notional change to the terms of the contract, but says nothing about a notional change to the facts. It is easy to see that a counterfactual enquiry about what the insured would have done could add unnecessary complexity to what should be a relatively straightforward matter, and not easy to see where the line should be drawn.

For example, compliance with a notional condition might involve the insured in expense which, in the real world, has not had to be incurred. If it is relevant to consider whether the insured would have incurred that expense in order to comply with the condition, must it give credit against its claim on the policy for the expense which it ought to have but has not in fact incurred? The Act simply does not address such questions. There is nothing in the Act to say that such credit must be given. On the other hand, if it need not be, the insured may be better off by breaching the duty of fair presentation and then saying that it would have complied with any condition which the insurers would have imposed, and can therefore recover in full under the policy. That can hardly have been intended.

The Law Commission Report provides some support for this view:

‘The limits on considering what would have happened

11.79

We have explained that proportionate remedies seek to put the insurer, as far as practicable, into the situation it would have been in had it received a fair presentation of the risk. Note the phrase “as far as practicable”. Here we look at the limits of what is practicable in considering what the world might have been like in hypothetical circumstances.

11.80

The parties have already been brought together under the influence of the insured’s breach of the fair presentation duty and are (subject to avoidance) stuck with each other. We do not think that it is right or realistic to encourage speculations about what would have happened if the parties had negotiated on a different basis.

11.81

For example, if the insurer would have charged a higher premium, we do not think it should be open to the insured to say that it could have obtained the insurance at a lower premium elsewhere. Nor where the insurer would have contracted on different terms should it be open to the insured to say that it could have obtained the insurance elsewhere on more favourable terms.

11.82

Similarly, it should not be open to an insured to say that it would have complied with any term which the insurer would have imposed (for example, an exclusion or warranty) and so the loss should be covered. During consultation, the example was put to us of a business which keeps its vehicles in an area which has suffered a series of thefts of commercial vehicles. The business fails to disclose this and a vehicle is stolen. The insurer responds that had this information been properly disclosed it would have required the vehicles to be parked in a secure location, which the business says it would have done if this term had been imposed. Consultees were rightly concerned about the circularity of such arguments.’

Mr MacDonald Eggers’ only answer to this point was to draw a distinction between a term such as a warranty which would have to be complied with during the performance of the contract and a term which would be imposed prior to the inception of the risk, submitting that in the latter case it would be open to the insured to prove that it would have complied with such a term. I did not find that distinction compelling and can see no basis for it in the terms of the Act.