London Market - August 2010

Avoidance, Misrepresentation

Mitchell v (1) Hiscox Underwriting Limited (2) Syndicate 33 at Lloyd’s, managed by Hiscox Syndicates Limited [2010] CSIH 18

The defenders (“Hiscox”) appealed against the decisions of the Sheriff and the Sheriff Principal that they were not entitled to avoid a policy with the Pursuer (“Mitchell”) on the basis of misrepresentation.

Mitchell had entered into a contract of insurance with Hiscox in respect of a motor boat called the “Dot Dash”. As part of the insurance application process Mitchell made a number of representations which were later proven to be false, namely:

1. That the purchase price of the boat was £25,000. It was in fact less than this.
2. That he had a no claims bonus of 5%. Mitchell had not actually had his own insurance policy prior to this and had only been covered as a driver for the boat for third party liabilities on a policy in the name of his then girlfriend.

In July 1999, the Dot Dash was stolen from the marina where it was moored. Hiscox refused to make payment under the insurance policy.

The Sheriff held that although the misrepresentations of the purchase price and the no claims bonus were both material, they had not induced Hiscox to enter into the contract of insurance.

The Sheriff did find, however, that the misrepresentation about the no claims bonus had induced Hiscox to adjust the premium to be paid.

Despite this it was held that Hiscox were not entitled to avoid the policy.

Hiscox appealed to the Sheriff Principal who refused their appeal.

Hiscox appealed to the Inner House of the Court of Session on the basis that there was a contradiction in the finding that the misrepresentation of the no claims bonus had induced Hiscox to adjust the premium to be paid but had not induced them to enter into the contract of insurance.

Hiscox submitted that the correct test was that a policy can be avoided if a misrepresentation induced the insurer to enter into the policy on the terms which it did, in particular as to the premium.

The Court of Session opinion, allowing the appeal, was delivered by Lord Osborne who stated that:

1. The appropriate test was whether the misrepresentation led to different terms being offered by the insurer. If so, that was sufficient to avoid the policy. 
   
2. The Sheriff had misdirected herself in law and therefore her decision was flawed.
   
3. The contract of insurance was induced in the relevant sense by the misrepresentation about the no claims discount.

Hiscox were entitled to avoid the policy for misrepresentation.