In Bate v Aviva Insurance UK Limited the court considered the rejection of a claim brought by an insurance industry loss assessor under a domestic buildings and contents insurance policy.
The consumer insurance landscape has changed with the coming into effect of the Consumer Insurance (Disclosure and Representations) Act 2012 (“CIDRA”) on 6 April 2013. This means that many more consumers will succeed in their claims. However, the courts will continue to weed out the dishonest conduct of policyholders.
Mr Bate was an experienced insurance industry loss assessor. He took out insurance with Aviva covering him against loss and damage to his property and contents. His property comprised a substantial 19th century house known as the Long House, an annex called the Coach House, together with the converted former stables and a tack house.
The Coach House was not covered under Aviva’s policy.
On 5 June 2006, a fire occurred at the property.
At the time of the fire:
- the converted tack house was occupied by Mr Bate’s brother pending ongoing conversion work to the Long House
- Mr Bate’s daughter lived in the Coach House, where there was ongoing building works
- Mr Bate was conducting a loss assessor business from one of the converted stables
- a substantial construction company owned by Mr Bate operated from the garage for the Coach House
Mr Bate sought an indemnity from Aviva. He claimed to be a “retail customer”, ie, an individual acting outside his trade, business or profession, in order to avail himself of certain of the ICOB (Insurance Conduct of Business) rules, the relevant regulatory framework at the time. One of them required Aviva to act reasonably in rejecting Mr Bate’s claim, failing which Mr Bate could claim for breach of statutory duty under section 150 of the Financial Services and Markets Act 2000.
The court held that ICOB applied since, while there was substantial ongoing development to the Long House, the property had been in Mr Bate’s possession since 1984 and he was concerned to insure it under a home owner’s policy.
Aviva sought to avoid the policy for material misrepresentation and/or non-disclosure (and breach of condition).
In the proposal form, Mr Bate wrongly confirmed that the property would not be used in connection with any business or profession, and that parts of it had been “let”. The court held that Mr Bate should have disclosed the loss assessor business for a fair presentation of the risk. However, Aviva failed on the question of inducement as the disclosure would have made no difference to its underwriting of the risk given the clerical nature of the work and the fact that Aviva’s own underwriting guide rated such work from home as an acceptable risk.
Mr Bate also wrongly stated that a building contractor had caused fire damage “at a previous address” after it had cut through an electricity cable. The court said this gave a materially false picture because: (a) the fire was in a building on Mr Bate’s property and not at a previous address, (b) the cable had been cut through at the very property Mr Bate was seeking to insure and (c) the damage was caused by his wholly owned construction company. The court held that this information should have been disclosed.
The Coach House and garage were not covered under the Aviva policy. Generally, business carried on (or building works) at a neighbouring property are not matters that need to be disclosed. However, these were highly untypical arrangements that the court held was material to the cover because of the very close proximity of the Coach House to the insured buildings (there was a connecting door) and the activities would have resulted in greater visitors/activity on site. Accordingly, they should have been disclosed. Mr Bate’s failure to disclose the building works also put him in breach of condition.
The court held that Aviva’s rejection of the claim was reasonable under ICOB.
The court applied a low threshold in allowing Mr Bate to qualify as a “retail customer”, the definition of which is derived from the meaning of “consumer” in article 2(d) of the Distance Marketing Directive. It has a similar meaning to “consumer” in CIDRA.
A consumer’s duty under CIDRA at inception is to take reasonable care not to make a misrepresentation. It is almost certain Mr Bate’s claim would have been rejected under CIDRA. He was an experienced insurance professional and understood his obligations on disclosure. He made assertions that he must have known to be false and he failed to disclose certain key documents. It did not help that there was some suggestion he and his broker falsified documents during the claims process.