Avoidance of ATE policy – waiver by estoppel argument failed due to lack of “apparent awareness” of right to avoid

IHC (a firm) and IHC Limited v Amtrust Europe Limited1

High Court, 10 February 2015

The Court of Appeal explored the concept of estoppel in relation to the right to avoid a policy of insurance for fraudulent misrepresentation. The court highlighted that for estoppel to exist there must be some apparent awareness of the right on which the insurer would not insist.


This action arises out of proceedings brought by Consortium Hotels & Inns Business Services Ltd (“Consortium“) against a number of defendants, which included IHC and IHC Ltd (together “IHC“). In these original proceedings, Consortium alleged breach of contract, negligence and breach of duty on the basis that the defendants had received commission payments in respect of a health insurance scheme without disclosing the commission payments to Consortium. Consortium, when bringing its claims, obtained after the event (“ATE“) insurance from Amtrust Europe Limited (”Amtrust“).

The defendants’ defences suggested that Consortium should have expected commission payments to be received in light of the arrangement in place and, in particular, indicated that a director of Consortium, Mr Hardwicke, was in fact aware of the payments. The defendants obtained summary judgment against Consortium and Consortium was ordered to pay £10,000 on account of costs; this payment was made by Amtrust under the ATE policy. Following this, Amtrust and Consortium agreed to increase the limit of indemnity in the policy from £75,000 to £190,000.

At trial, the judge held that Mr Hardwicke had been fully aware of the commission arrangements and therefore dismissed Consortium’s claim. Consortium was ordered to pay certain costs to the defendants but, before it paid its debt, it went into liquidation. Further, Amtrust refused to pay out under the ATE policy, on the basis that Mr Hardwicke had clearly known about the commission payments.

This action was brought by IHC, two of the defendants to the original action, who sought to recover under Consortium’s ATE insurance on the basis of the Third Parties (Rights against Insurers) Act 1930 (the “Act“). Section 1(1) of the Act effectively provides for the substitution for the original insured as contracting party with the insurer, the party in respect of whom liability under the insurance policy was incurred. This means that IHC were entitled to enforce the contractual rights of Consortium under the ATE policy. The important question here was whether IHC could actually recover under the policy.

Waiver by estoppel

At trial, all parties agreed that, based on the actual state of Consortium’s knowledge, Amtrust had been entitled to repudiate the contract of insurance based on the serious fraudulent misrepresentation and non-disclosure on Consortium’s behalf. As a result, Amtrust claimed that it was not liable to indemnify IHC. IHC, however, raised arguments of estoppel in an attempt to prevent Amtrust from avoiding liability.

The Court considered the requirements of estoppel, quoting key extracts from HIH Casualty and General Insurance Ltd v AXA Corporate Solutions2, which set out clearly the following two requirements for waiver by estoppel:

  • a clear and unequivocal representation that the insurer would not insist on its right to treat the reinsurance cover as discharged; and
  • such reliance by the insured on this representation as to make it inequitable for the insurer to go back on it.

IHC sought to argue estoppel by suggesting that Amtrust had made two clear and unequivocal representations that it would not refuse to indemnify Consortium on the basis of the misrepresentation and non-disclosure. The first representation was said to be Amtrust’s payment of £10,000 towards the costs order against Consortium; the second was the act of increasing the limit of indemnity under the policy to £190,000. It was argued that Consortium subsequently relied on these representations and proceeded with the claim on the basis that Amtrust would indemnify it against any liability for costs.

In considering this argument, the Court focused on the level of knowledge required for waiver by estoppel to be established. It held that there must be “some apparent awareness of the right upon which the representor will not insist”; that is both the insurer and the insured must be aware, at the very least, of the facts which give rise to some relevant right of the insurer.IHC argued that Amtrust was aware of the circumstances providing it with the right to avoid the insurance policy, suggesting that the summary judgment awarded against Consortium should have alerted Amtrust to the fact that it had good grounds for avoiding the insurance policy on the basis of fraudulent misrepresentation. The Court, however, rejected this argument, stressing that the relevant requirement is one of actual knowledge and is not based on the elusive concept of what a “reasonable person” could be held to know. Amtrust had made each of the alleged representations “in ignorance of the untruthfulness of Mr Hardwicke and it was not implicit in either that Amtrust did not care whether Consortium had been truthful or not” when making the relevant disclosures. The lack of requisite awareness on Amtrust’s part meant that Consortium could not have relied on the alleged representations.

The Court further noted that, even if reliance were possible here, there was no evidence that Consortium had actually done anything it would not otherwise have done and therefore there was no evidence of reliance on the alleged representations. The Court therefore confirmed Amtrust’s right to refuse liability on the basis of misrepresentation and non-disclosure and dismissed IHC’s claims for payment of the amount unexpended of the total amount of cover provided to Consortium under the ATE policy.


The Court re-emphasised that the relevant representation giving rise to a waiver by estoppel must result in a clear and unequivocal message from the insurer to the insured that the insurer will not exercise the relevant rights under the contract and the insured must rely on that message in a manner making it inequitable for the insurer to go back on it. The insurer must show an awareness of the relevant rights and an intention not to rely upon them. As a minimum, the insurer must know the facts that give it rights against the insured, although not necessarily that those facts give rise to those rights. It is important to note, however, that the Court highlighted the insured’s dishonest behaviour and suggested it would have been reluctant to conclude in the insured’s favour even if there had been a clear representation carrying some apparent awareness of the relevant right to avoid and evidence of reliance.