Young v Royal and Sun Alliance Plc [2019] CSOH 32 - The Scottish Court

Facts

Mr Young brought a claim under an insurance policy for £7.2 million for extensive fire damage to commercial premises owned by Mr Young and his company, Kaim Park Investments Ltd ("Kaim"). Mr Young and Kaim Park were joint the insured on the insurance policy. 

The insurer rejected the claim on the ground that the insured had failed to disclose material information, thus breaching its duty of fair presentation under the Insurance Act 2015. The failure to disclose was a reference to information omitted from the  application form. 

The application for insurance had been made through brokers using the brokers' on-line application form. There was a moral hazard declaration in the form of a drop-down menu requiring boxes to be ticked against any true statement. One of the statements was "no proposer, director or partner of the insured under the contract in question has ever been made bankrupt, insolvent, or subjected to such proceedings", and the box was left without a tick. When the presentation was sent to the insurer, it showed the word "none" in respect of all of the statements in the drop-down menu, so it was not clear to which statements the word "none" related.

Relying on the information provided in the broker's form, the insurer sent a quote for cover with a list of conditions in an email. One of these conditions was that: (The) "insured has never been declared bankrupt or insolvent". 

While it was true that neither Mr Young nor Kaim had ever been declared bankrupt, Mr Young had previously been the director of four other companies that had entered into insolvency. The insured argued that the insurer's email amounted to a waiver of its right to receive the undisclosed information of the four insolvent companies.    

Judgment

The Outer House of the Scottish Court of Session rejected the insured's argument and held that the insurer had not waived its right to disclosure of information.

The court further held that a waiver will typically arise in one of two ways:

1. Where the insured had submitted information that would prompt a reasonably careful insurer to make further enquiries but the insurer had failed to do so; and
2. Where the insurer had asked a "limiting question" such that the insured could reasonably infer that the insurer had no interest in knowing information falling outside the scope of the question.

On the facts, only the second way referred to was relevant. 

The court held that there had been no change in the law under the Insurance Act 2015.  The test for waiver under section 3(5)(e) was exactly the same as under the earlier law, namely, whether there had been an express question which limited the duty of disclosure.  However, the broker's online application form was used instead of the insurer's proposal form. The insurer was unaware of the options of the drop-down menu and it was unclear to which questions the word "none" related. As such, there was no waiver. 

The insured's email was merely seeking to elicit the content of the declaration and was not  designed to waive information. Again, there was no waiver.

Comments

The decision is, to the best of our knowledge, the first case decided under the Insurance Act 2015, which introduced the new duty of fair representation for commercial insurance. 

It was important in the decision that the insurer had no control over the questions asked in the broker's online application form. Given the widespread use of brokers' forms in the commercial insurance market, it has been suggested that it may now be harder under the 2015 Act for insureds to run arguments based on the second type of waiver.

If an insurer can show that it would not have entered into the contract at all, the contract may be avoided. If however it is found that the insurer would have still entered into the contract, but on different terms or for a higher premium, such different terms and/or higher premiums may be applied.