In an appeal to the Inner House of the Scottish Court of Session in Wayne Stephen Gardner-Young v Royal and Sun Alliance Insurance plc (2020), the Court held that RSA had not impliedly waived its right, under the Insurance Act 2015, to undisclosed information. In the circumstances, Mr Gardner-Young had failed to make a fair presentation of the risk and RSA were entitled to avoid the policy.
The Inner House confirmed the correct approach when considering pre-inception correspondence where there is no proposal form defining in advance the information an insurer wishes to receive. Whilst not binding on the English courts, the decision will be persuasive and so insurers and brokers on both sides of the border should consider it with interest.
In March 2017, Mr Gardner-Young took at out an insurance policy in respect of commercial premises in Glasgow. The premises (a nightclub) were severely damaged the following year by a fire and had to be demolished. Mr Gardner-Young sought an indemnity in the sum of £7.2m from RSA.
RSA avoided the policy from its inception on the basis that Mr Gardner-Young had failed to disclose that he had been the director of four companies that had either been dissolved following an insolvent liquidation, or placed into insolvent liquidation in the five years prior to the inception of the policy.
Mr Gardner-Young accepted that it is a requirement under section 3 of the Insurance Act 2015 that, before a contract of insurance is entered into, an insured must make a fair presentation of the risk. He also acknowledged that a fair presentation is one which makes disclosure of every material circumstance which the insured knows or ought to know.
Mr Gardner-Young also accepted that the undisclosed information about his other companies was material and that RSA would not have entered into the insurance contract with him if it had been disclosed.
A circumstance is material under the Insurance Act 2015 if it would influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms.
Under section 3(5) of the Insurance Act 2015, an insured is not required to disclose a circumstance if it is something to which the insurer waives information.
The issue on appeal
The sole issue in the appeal was whether RSA had impliedly waived its right to the undisclosed information.
The insurance policy with RSA was placed via a broker. In February 2017, the broker emailed several insurers, including RSA, requesting that they provide a quotation based on information contained in a ‘Market Presentation’ document which it had prepared. The Market Presentation was a 20 page digital template which included the following:
‘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.’
The ‘Insured’ was to be Mr Gardner-Young and a company controlled by him, neither of which had ever been declared bankrupt or insolvent, or had a liquidator appointed. Therefore, Mr Gardner-Young’s response to an enquiry on this point, contained within the Market Presentation, was “None”. This was despite the fact that the Market Presentation form requested that responses be provided by any director: “either personally or in any business capacity.”
It was Mr Gardner-Young’s position that there had been no misrepresentation on the basis that his answer was accurate insofar as it related to the ‘Insured’. RSA did not allege misrepresentation.
RSA responded by email on 24 March 2017, setting out a quotation and offering terms based on the information contained within the Market Presentation and subject to conditions and the ‘Insured’ having never: “Been declared bankrupt or insolvent [and] Had a liquidator appointed.” RSA also enclosed a policy summary with its email.
It was Mr Gardner-Young’s case on appeal that, by referring only to the ‘Insured’ as never being declared bankrupt or insolvent or having had a liquidator appointed, RSA had impliedly shown that it was not interested in his wider experience with insolvent companies. By showing that it was only interested in one aspect of his insolvency experience, Mr Gardner-Young argued that RSA had restricted his duty of disclosure.
Lord Brodie, who delivered the opinion of the Inner House, rejected Mr Gardner-Young’s appeal on the following grounds:
• RSA’s email was a conditional offer to insure on a variety of terms and conditions and was capable of immediate acceptance – it was not an enquiry;
• Neither RSA’s email nor its attachments were seeking to elicit further information or to ask a question – they were not looking for a more complete presentation;
• RSA had priced and assessed the risk on presentation and its offer was made on the understanding that there had been a fair presentation of the risk;
• A waiver involves abandonment of a known right. However, RSA was not aware that it was entitled to more disclosure than it received; and
• Mr Gardner-Young had not sought to prove that he relied on RSA’s email in withholding further disclosure.
Some take away thoughts
It is not uncommon for insurers to seek to limit or even enlarge an applicant’s duty of disclosure through the questions they ask in a proposal form. The test as to whether a question gives rise to a waiver by insurers is whether a reasonable person on reading the proposal form would be justified in thinking an insurer had restricted its right to receive all material information.
In this case there was no proposal form. However, when assessing the email exchange between Mr Gardner-Young’s broker and RSA, the Court applied the same test for determining if there had been a waiver by insurers: what would a reasonable reader have made of the emails?
The pre-inception email from RSA did pick out what look to have been the key moral hazards that it took into account when deciding whether to offer terms – none of which referred specifically to Mr Gardner-Young’s wider experience with insolvent companies. Key to RSA’s success was the fact that it raised no questions or enquiries in response to the information contained within the Market Presentation. The Court made it clear that the obligation was on Mr Gardner-Young to give a fair presentation.
This case serves as a useful reminder of the risks that can arise through the use of tick box style digital forms by brokers and their clients and the importance for insurers of getting the correspondence right. The full stop and question mark keys sit side by side on a standard computer keyboard. It is a sobering thought that the choice between the two can sometimes be worth as much as £7.2m.