In this chapter of our Annual Insurance Review 2020, we look at the main developments in 2019 and expected issues in 2020 for property and business interruption.
Key developments in 2019
The decision of Young v Royal and Sun Alliance plc is the first to consider the duty to make a fair presentation of the risk under s.3(1) of the Insurance Act 2015 (the Act). It involved a claim for £7.2 million arising out of a fire at the Insured's property.
Insurers sought to avoid the policy for non-disclosure of the claimant's involvement in four insolvent companies. Insurers argued that the Insured had incorrectly answered the moral hazard questions in the market presentation (prepared by the broker), giving rise to the non-disclosure.
The Insured argued:
(i) that it had correctly answered the question; and/or,
(ii) in a subsequent email, Insurers had waived disclosure of the information by restricting their questions to insolvencies and bankruptcies of the 'Insured' only which would not include insolvency of other companies.
The Court found for Insurers on the question of waiver and, in doing so, confirmed that the Act did not change the law on waiver. In this case, Insurers' email was a confirmation of the representations made in the market presentation which were incorrect. It was not a question seeking further information or a limiting question waiving matters outside the scope of the question.
The Court warned that to 'uncritically' interpret Insurers' responses to a presentation as enquiries defining or limiting the scope of what Insurers consider are material would be counter to the aim of the Act to simplify the process of presenting a risk. To do so would lead to Insurers having to ask further questions to ensure no waiver point could be argued.
What to look out for in 2020
The Court of Appeal will hear the appeal of Sartex Quilts & Textiles Limited v Endurance Corporate Capital Limited.
The claim arises out of a fire in 2011 which destroyed the Insured's manufacturing premises. The policy provisions provided for payment on a reinstatement basis if those costs have been incurred. If not, the Insured was entitled (under the Insuring Clause) to be indemnified against loss or destruction or damage to the property. Insurers and the Insured accepted that this permits payment on a reinstatement or market value basis.
Insurers made a payment of £2,141,527 on a market value basis. The Insured claimed that it was entitled to receive an indemnity on a reinstatement basis. Insurers accepted that this could be the case if it reflected the Insured's actual loss. Therefore, reinstatement would only be appropriate if the Insured intended to reinstate the property.
Insurers argued that the Insured did not have a genuine and fixed intention to reinstate the premises. It had been eight years since the fire and the Insured had considered other premises. On that basis, it should not be paid any further sums.
The Court held that the Insured was entitled to receive an indemnity on the reinstatement basis. The first area of attention was the position at the time and immediately before the fire. At this point, the Insured had intended to continue its business at the premises. While subsequent events were, and must be, looked at to ensure the Insured was not overcompensated, the Court found that exploring different options had only confirmed to the Insured that reinstating the premises would be the best option. The Insured was awarded an additional £1.3 million.