11 April 2019
For the first time the court has considered how to apply the law on waiver by limited questions under the Insurance Act 2015.
Wayne Gardner Young v Royal and Sun Alliance PLC  CSOH 32
Prior to the introduction of the 2015 Act it was well established that a party seeking insurance was under a duty to disclose all material facts to insurers. It was equally well established that an insurer could waive its right to receive such information.
Waiver could be implied and commonly arose where an insurer asked limited questions in a proposal form. For example, if an insurer specifically asked about convictions in the last five years, it could not expect to be told of one that occurred six years ago, even if that would otherwise be a material fact.
Waiver in this context developed to counter any unfairness that could arise from insurer’s control of the questions being put to an insured and is a discrete doctrine specific to insurance law (separate from rules on estoppel, personal bar and the like).
The 2015 Act
Key provisions of the 2015 Act include:
- Section 3(1) which creates the new duty on an insured to make a fair presentation;
- Section 3(4)(a) which requires the disclosure of “every material circumstance” which the insured knows or ought to know;
- Section 7(3) which provides that a circumstance is “material” if it would “influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms”; and
- Section 3(5)(e) which makes it clear that an insured is not under an obligation to disclose a material circumstance if it is something which an insurer has waived his right to receive.
Just as significant as the terms of the 2015 Act is the changing modern landscape it has created in non-consumer policies, namely the declining use of proposal forms by Insurers. This is a consequence of the duty of fair presentation and Insurers are, in accordance with the aims of the 2015 Act, increasingly reliant on the proposer to provide full details of the risk in question. There is no prescribed form for this but a common mechanism is for the proposer, or its broker, to provide a ‘market presentation’.
Such a scenario arose in Wayne Gardner Young v RSA.
Facts of the case
Mr Gardner Young’s brokers approached insurers seeking cover for himself and a company he operated. A market presentation for the risk was issued to Insurers on 13 February 2017. Based on the information set out in the market presentation Insurers offered terms on 24 March 2017. The terms offered included a stipulation that certain conditions would be met, including the fact that the:
“Insured has never
- been declared bankrupt or insolvent
- Had a liquidator appointed”
The offer was accepted without Mr Gardner Young providing any further, relevant, information. At inception Mr Gardner Young had not personally been declared bankrupt and the company had not been made insolvent. However, Mr Gardner Young had a history of involvement with companies that had entered insolvent liquidation. That history was not mentioned in the market presentation or in response to insurer’s offer.
After a substantial fire Mr Gardner Young made a claim under the policy and in the course of insurers’ investigations, Mr Gardner Young’s insolvency history was discovered. Of particular relevance to insurers (and their underwriting guidelines) was Mr Gardner Young’s directorship of four companies that had entered insolvent liquidation within five years of the market presentation.
On the basis of this non-disclosure insurers avoided the policy. In response Mr Gardner Young raised an action for declarator that he was entitled to indemnity and sued for the sums claimed under the policy.
The case came before Lady Wolffe in the context of a debate hearing.
The pursuer’s position was that by including the narrow bankruptcy/insolvency condition within the offer of 24 March 2017, insurers had waived their rights to be told of any wider insolvency issues.
The defender denied any such waiver had taken place.
The debate was on waiver only. At this stage in proceedings it was presumed for the purpose of the debate that the pursuer’s insolvency history was a material fact that should have been disclosed to insurers. If the pursuer succeeded the policy would be held to apply and only quantum would fall to be considered. If the pursuer was not successful, the waiver issue would either be dismissed or reserved for another day when the issues of materiality and inducement would also be finally determined.
Lady Wolffe approached the question on the basis that the 2015 Act did not seek to alter the existing rules on this issue and that the existing test affirmed by the Court of Appeal in Doheny v New India Insurance Company Limited 2004 EWCA Civ 1705 remained good law.
In practical terms, the test requires the court to establish whether, on the facts of each particular case, a reasonable person would be justified in thinking that the insurer has restricted its rights to receive all material information.
In Doheny the court was faced with a scenario where the proposer had completed a proposal form created by insurers. The novelty in this case was that no proposal form was created and that insurers proceeded to assess the risk, and offer terms, on the basis of the proposer’s market presentation.
Lady Wolffe decided that the central question in this case was whether the insurer’s e-mail of 24 March 2017 would lead a reasonable person reading it to be justified in thinking that the insurer had restricted its right to receive all material information. Of particular relevance was the inclusion of the condition that the “Insured has never been declared bankrupt or insolvent”.
Lady Wolffe held that there was no such justification and that insurers had not waived their rights.
In reaching this conclusion her ladyship found: that the market presentation was intended to be the totality of the information which the pursuer placed before insurers in fulfilment of his duty to make fair presentation; that the presentation contained no clear disclosure of the insolvency history; and that insurer’s response of 24 March 2017 was a condition on certain critical features of moral hazard, not an enquiry that would give rise to waiver.
Although the matter was heard in the Court of Session, waiver in this context is not specific to Scots law and this case will be of interest to insurers on both sides of the border.
Following the introduction of the 2015 Act, insureds and their brokers are increasingly in control of what information they present to insurers and how they do so. Fewer proposal forms are issued and the law that developed around them may well be of less importance going forward.
However, that law does survive under the 2015 Act and waiver can apply even in the absence of a proposal form. On the facts of this case the court found there was no waiver; however, this is something that insurers will need to be alert to, specifically when responding to market presentations.
In the wider sense, the case suggests that waiver by limited questions may be of decreasing relevance going forward. Correspondingly, where similar scenarios arise, policyholders may alter their focus and argue that their market presentations do enough to put insurers ‘on notice’ that further investigations are required.