No waiver of disclosure under the Insurance Act 2015
Young v Royal and Sun Alliance PLC
The court has held that the defender insurer had not waived its right to material disclosure under the provisions of the Insurance Act 2015 (“the Act”).
The pursuer had entered into a contract of insurance with the defender for commercial premises in March 2017. A fire broke out at the premises on 22 March 2018 and the pursuer claimed £7,200,000 under the terms of his policy. The defender refused the pursuer’s claim on the basis that he had failed to disclose material information pursuant to his obligations arising under s.3 (1) of the Insurance Act 2015. In particular, the defender alleged that the pursuer had failed to notify them, during the proposal stage, that he had been a director of four companies that had become insolvent. The policy of insurance was arranged through the pursuer’s brokers. The proposal was in the form of a “market presentation” compiled on the broker’s software. One part of the market presentation involved the pursuer selecting an answer from a drop down box to the question “Select any of the following that apply to any proposer, director or partner of the Trade or Business or its Subsidiary Companies if they have ever, either personally or in any business capacity…been declared bankrupt or insolvent”. The pursuer selected “None” to all of the options. The defender subsequently emailed the broker with a quote for the insurance cover but included specific conditions, one of which was “Insured has never been declared bankrupt or insolvent”.
The pursuer argued that the Presentation was correct and contained no misrepresentation on the basis that he had never been insolvent. Further, it was alleged that the defender had waived disclosure of such information in accordance with s.3 (5) (e) of the Act. The defender denied the waiver and alleged that had the pursuer disclosed his past history with the four insolvent companies then the defender would not have entered into the contract of insurance on any terms. The non disclosure by the pursuer amounted to a breach of the duty to make a fair presentation of the risk.
The issues to be determined were whether the pursuer had breached his duty under s.3 (1) of the Act to make a fair presentation and, whether the defender had waived disclosure of that material. Relying upon Doheny v New India Assurance Co Ltd  Lloyds Rep I.R. 251 the court held that the pursuer would need to show a clear case for waiver by proving:
- Where the insured had given information that would prompt a reasonably careful insurer to make further enquiries but the insurer had failed to so; and
- Where the insurer had asked a “limited question” such that a reasonable person would be justified in thinking that the insurer had no interest in knowing information failing outside the scope of the question.
This test had remained notwithstanding the provisions of the Act. Only the latter of the above tests applied in the material case and the defender’s proposal form had not been used. The extent of the information provided during proposal stage had been controlled by the pursuer. In relation to the alleged waiver by the defender in the form of their email, the court held that the defender had not seen the full list of Moral Hazards from which the pursuer had chosen from. In point of fact, the defender had only seen “none” and its email response had been the defender’s attempt to clarify that unknown material. The key question for the court on the point of waiver was whether a reasonable person would be justified in thinking that the insurer had restricted its right to receive all material information. That was not the case on the material facts. The court concluded that there had been no waiver on the part of the defender.
Whilst this litigation took place in Scotland, waiver in this context is not specific to Scots law, and therefore this case will be of interest to insurers on both sides of the border.
The 2015 Act was said to have “shifted the burden of identifying what is material to the insured in the form of the duty to make a fair presentation of the risk”. Accordingly, it would seem that it will be more difficult for insured to argue waiver going forward.