In Young v Royal and Sun Alliance, in what is believed to be the first decision considering the “duty of fair presentation” under the Insurance Act 2015, the Scottish Court considered whether the insurer (RSA) had waived the insured's nondisclosure under the 2015 Act.
The court confirmed that the law on waiver was not altered by the 2015 Act, and that insurers had not waived the Insured’s nondisclosure.
Duty of fair presentation and waiver
S.3(1) of the Insurance Act 2015 states that: “Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk”. A “fair presentation” must include disclosure of material circumstances, ie all circumstances which would influence the underwriting judgment of a prudent insurers (s.7 of the 2015 Act), with material representations as to matters of fact to be substantially correct.
An insured, however, has no duty to disclose “something as to which the insurer waives information.” (s.3(5)(e) of the 2015 Act)
Waiver typically arises, in an insurance context, in two ways:
- where an insured submits information, which contained something that would prompt a reasonably careful insurer to make further enquiries, but the insurer fails to do so, and
- where the insurer asks a “limiting” question from which a prospective insured might reasonably infer that the insurer has no interest in knowing information falling outside the scope of that question. This type of waiver is classically considered in the context of questions contained in a proposal form.
The second type of waiver turns on a true construction of the proposal form , and the Court of Appeal in Doheny v New India Assurance Company Ltd (although considering waiver only obiter) confirmed that the correct test was “would a reasonable man reading the proposal form be justified in thinking that the insurer had restricted his right to receive all material information, and consented to the omission of the particular information in issue?”.
Young v RSA
In Young v Royal and Sun Alliance, RSA declined Young’s claim following a fire, and sought to avoid the policy for nondisclosure. The principal issue for the court to consider was whether Young had breached the duty to make a “fair presentation of the risk” prior to inception. The Court did not consider materiality or inducement in that context, but focused on the issue of waiver.
Brokers had selected the answer “None” in response to a pre-inception question about the bankruptcy or insolvency of “any proposer, director or partner of the [Insured] … either personally or in any business capacity…”. Unknown to RSA, however, Young had been a director of four other companies which had been dissolved and/or placed into insolvent liquidation prior to commencement of the policy.
The question of waiver turned on whether an email sent from RSA, after Young’s market presentation, confirming its understanding that the “Insured” has never been made bankrupt (etc) constituted waiver in respect of the undisclosed information about other entities.
The court confirmed that the law on waiver was not altered by the 2015 Act, and that the test affirmed in Doheny remains good law “even if it potentially falls to be applied to other communications (beside proposal forms) from an insurer)”.
The court therefore asked whether a reasonable person reading RSA’s email would be justified in thinking that RSA had (1) restricted its right to receive all material information and (2) consented to the omission of the particular information not disclosed. It was held that that there was no waiver – not least because RSA’s email indicated that cover was subject, amongst other things, to confirmation that Young had never been declared bankrupt or insolvent. Further, RSA’s email contained no questions (or “enquiries”) about the market presentation for Young to respond to.
While this is a Scottish decision (and therefore persuasive only in England and Wales), it provides some very interesting analysis of the duty of fair presentation under the 2015 Act, and of the law relating to waiver in that context. In its concluding remarks, the court states that “the 2015 Act has 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.” As a consequence, the court cautioned that the absence of a proposal form, as in this case, may affect the application of the second type of waiver.
Whilst RSA successfully argued in Young that there had been no waiver, insurers should bear in mind that, under the 2015 Act, the onus is on them to make further enquires of an insured to clarify issues which go to risk assessment. This case provides a useful reminder that insurers’ pre-commencement questions and communications should be carefully worded, and always recorded on the risk file.