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Faulty Undersea Pipeline Triggers £17.6 Million Insurance Dispute

Insurance policies are always replete with terms and conditions and none are stricter than the requirement to disclose all relevant information to insurers so that they fully understand the risk they are taking. That point was made in a case involving a faulty undersea electricity pipeline and a £17.6 million insurance claim.

The pipeline had operated satisfactorily for several years before an insulation fault led to cable failures and a power shut-down. Two insurers refused to cover the pipeline operator’s claim on the basis that problems with the cable had been apparent during construction and commissioning of the facility, indicating that it had been poorly designed, manufactured and installed.

The insurers pointed to a term in the insurance contract which enabled them to avoid liability in the event of ‘deliberate or fraudulent non-disclosure’ by the operator. In those circumstances, the High Court was called upon at a preliminary hearing to interpret the meaning of that term.

Ruling in the operator’s favour, the Court found that the insurers were bound to honour the policy if the failure to disclose was the result of an honest but mistaken belief that such disclosure was not required. The relevant term imported an element of dishonesty and would only cover a situation where a considered decision was taken not to disclose something that the operator knew should have been disclosed. Further argument on other issues in the case would be heard at a later date.