Insurance: Tenant switching off sprinkler system enables insurer to avoid buildings policy

The Court of Appeal has held that turning off a fire-suppressing sprinkler system constituted a material change to the risk taken on under a buildings insurance policy. This allowed the insurer to avoid a landlord’s policy, notwithstanding that the tenant turned off the sprinkler.

The proposal form completed by the landlord when applying for buildings insurance stated that the building was protected by an automatic sprinkler system. The tenant who occupied the building turned off the sprinkler system because a water leak had previously damaged the stock held in the building. A fire broke out in the building and the landlord claimed on the policy. The insurer sought to avoid the policy relying on a clause which provided it could do so if there was a material alteration to the building or to a fact stated in the proposal form. The court held the insurer could avoid the policy as:

• It was clear what was meant in the proposal form by a sprinkler system and there had been a change to this statement of fact when the sprinkler system was turned off indefinitely.
• The change to the facts stated in the proposal form was material. First, the lack of a functioning sprinkler system meant that the risk of fire was increased to a significant extent. It went beyond that which would have reasonably been contemplated by the landlord and the insurer when the policy was issued. Secondly, the landlord knew that the existence of a sprinkler system came within the insurer’s assessment of risk because there was a specific question in the proposal form about it.
• Even though he was not responsible for it, the landlord knew that the sprinkler system was turned off. A Fire Investigation Officer gave evidence that the landlord had told him so.

The case places a greater obligation on building owners than had previously been thought to apply. This entails either informing their insurer of, or preventing, a material change to the facts stated in a proposal form. The court said that the obligation to inform an insurer of “material” issues did not mean an insured necessarily has to inform its insurer when it materially alters the insured building. Equally, the mere fact that the risk of damage to a building increases, does not mean that a building owner is obliged to inform its insurer. However, there is likely to be an obligation where the policy provides for it and a specific risk-mitigating measure, such as a sprinkler, is cited in the proposal form.

Further reading: Quayyum Ansari v New India Assurance Limited [2009] EWCA Civ 93