Templeton argued that at the policy renewal date, 17 January 2005, Laker had failed to disclose the escalating dispute with GWUG, this failure being a material non-disclosure that induced the renewal such that Templeton had the right to avoid the contract. Templeton also argued that Laker had breached the notification clause by not giving notice of any circumstance which was likely to give rise to a claim.
At first instance, both Templeton’s arguments were rejected. On the non-disclosure point the judge stated that in the context of legal expenses insurance, a prudent underwriter would view as a material feature a relationship which, on an objective basis, would suggest a real risk of escalation to the point of litigation or arbitration over and above the normal risk present in complex contracts such as the one in question. However, it was held that the relationship between the parties remained “fairly amicable” until after the renewal date and that as such, the relationship between Laker and GWUG had not escalated to such an extent so that it would have had an effect on the mind of a prudent underwriter in deciding whether to accept the risk. On the notification issue, it was held that under the relevant clause, notification was only required when the dispute had reached the stage where arbitration or litigation was likely to be required. Applying an objective test, the judge held that this was not the case in the present circumstances.
The Court of Appeal upheld the judge’s decision. The only issue that arose in the appeal was the judge’s application of the facts to the law in this area; there was no challenge as the the primary findings of fact or law. It was made clear that in such circumstances, the Court of Appeal should take particular care before deciding it can interfere with the first instance judge’s assessments, particularly where they are in a large part based on oral evidence. On the non-disclosure issue, the Court of Appeal stated that the judge’s conclusions could not be successfully challenged and were not obviously wrong. Similarly, on the notification issue, it was held that the judge’s conclusions regarding the construction of the notification clause had been correct, and, relying on the recent decision in HLB Kidsons (A Firm) v Lloyds Underwriters (2008) EWCA Civ 1206, that he was correct to apply an objective test as to whether the dispute had reached a stage where notification was required.
