28 May 2020

Following one of the first post-lockdown video-hearings, the Inner-House has considered the circumstances that can give rise to an implied waiver of an Insurer’s rights to disclosure of material facts.

This is the first case considering the point under the 2015 Act and, whilst this may not roll off the tongue as a topic of discussion, the effect can be substantial; in this case whether Insurers were entitled to avoid a £7.2m claim following fire damage to the well-known Glasgow nightclub “Victoria’s”.

Wayne Gardner Young v Royal and Sun Alliance Insurance PLC [2020] CSIH 25

When entering a (non-consumer) contract of insurance, Insurers may have little knowledge of the particular risk they are offering to insure. Because of this, the party seeking insurance is required to inform Insurers of all ‘material’ facts. If they do not, Insurers may be entitled to avoid the policy.

In this case the relevant fact was that Mr Gardner Young had recently been the director of a number of companies that had entered insolvent liquidation. Mr Gardner Young took out a property policy without disclosing that fact and the insured property then burnt down. Insurers learnt of the fact and avoided the policy. It was accepted by Mr Gardner Young that the fact was material, should have been disclosed and that if it had been Insurers would not have written the policy.

Instead, Mr Gardner Young argued that Insurers had impliedly waived their right to be told of such a fact because their offer included a stipulation as to bankruptcies (which Mr Gardner Young had not been). It is well established that such an argument can succeed, for example, if an insurer asks about fires in the last 4 years, it cannot then complain if it is not told about one that occurred 5 years ago. The same has been held with respect to an insolvency/bankruptcy distinction.

However, the cases where waiver has been implied concerned scenarios where the Insurer had taken control of the process and selected specific questions to ask, generally in a proposal form. Here, a proposal form was not used and Insurers offered terms based on a market presentation provided by Mr Gardner Young / his brokers. At first instance the Court held that, in the circumstances, no waiver had arisen.

During the appeal Mr Gardner Young argued that the stipulation in Insurers’ offer served the same purpose as, and was akin to, a question. In response, Insurers argued that it was not reasonable to imply waiver after terms have been offered and that an inherent part of waiver (in this context) was that the proposer had relied on the ‘question’.

The Inner-House rejected the appeal on the grounds that it was not reasonable to interpret the stipulation in the offer as a question, or that it implied a waiver of Insurer’s rights. The Court did not rule on the need for reliance, but did indicate that were waiver to be implied on the basis of an Insurers’ enquiry, it would expect to see some sort of direction from the Insurer as to what it wished to see.

Under the Insurance Act 2015, the new normal may be for market presentations to be increasingly used in place of proposal forms. This decision confirms that the rules on assessing waiver are very much like the old normal. Whilst questions by Insurers can still instruct waiver, this will be difficult to establish without the Insurer having directed the proposer to one course or another during contract negotiations.

BTO acted for Insurers as solicitors and junior counsel (Mark Morton); senior counsel was Jonathan Barne QC. A summary of the first instance decision can be found here.

Contact

Matthew Raftery, Associate E: mra@bto.co.uk T: 0141 225 4548