Court of Appeal considers the meaning of "consumer insurance"

When the insured took out a Residential Let Property Insurance Policy in February 2012 with insurers, in order to insure a property which he owned and let out to students, he agreed with a statement referred to in the proposal form that he had not been convicted and did not have any prosecutions pending. In fact, he was awaiting trial for common assault.

The proposal form contained a basis of the contract clause and insurers denied liability on the basis of a breach of warranty (as well as breach of the duty of disclosure and the breach of a condition precedent).

Although basis of the contract clauses ceased to be valid from 6th April 2013 for consumer insurance policies entered into on or after that date by virtue of the Consumer Insurance (Disclosure and Representations) Act 2012 (and from 12th August 2016 for non-consumer insurance policies entered into on or after that date by virtue of the Insurance Act 2015), neither of those Acts were in force at the date of the inception of the policy in this case. The Court of Appeal here re-affirmed the position confirmed in Genesis Housing v Liberty that basis of the contract clauses remain valid and enforceable where the insurance policy was entered into before those two Acts.

After summary judgment was ordered in favour of insurers, the insured appealed, arguing that the judge had erred in failing to appreciate that the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCR 1999") and the Insurance Conduct of Business Sourcebook ("ICOBS") rules were relevant. Insurers argued that the outcome of the case would have been no different had these been taken into account. The first issue, though, was whether the insured was a "consumer" within the meaning of either UTCCR 1999 or ICOBS.

The Court of Appeal held that he was not.

Reference was made to the Mercantile Court decision of Overy v Paypal [2012], in which it was held that, for the purpose of UTCCR 1999, a party will be acting for purposes outside his trade, business or profession "if, and only if, the purpose is to satisfy the individual's own needs in terms of private consumption" and the business purposes are "negligible or insignificant". ICOBS defines consumer as "any natural person who is acting for purposes which are outside his trade or profession". It clarifies that if a customer is acting as both a consumer and a commercial customer, he will be a commercial customer.

The Court of Appeal held that it was clear that the purpose of the policy here was related to the insured's trade, namely, the letting of the property to students for rent. The fact that the insured was also a company director made no difference: "A person who takes out a policy covering property bought under a buy to let mortgage is a "commercial customer" for the purposes of classification under ICOBS, and it is neither here nor there that that person may also be a company director of a company whose business is unrelated to property letting or also carrying on any other profession". It also made no difference what type of mortgage the insured had taken out. Nor did the reference to "home" in the quotation convert business insurance into consumer insurance. Accordingly, the appeal was dismissed.

One further point of more general interest in the case, though, was that, in relation to the non-disclosure argument, reference was made to the insurer's underwriting guidelines to support an argument about what the underwriter would have done had she known the relevant facts. She gave evidence that, in accordance with the guidelines, she would have declined the risk. However, the guidelines did not give specific guidance on how to respond in relation to pending prosecutions (although they did give specific guidance in relation to offences involving violence). The judge said that he was prepared to assume that it was arguable that the insurer would in fact have proceeded with the insurance, although it was fanciful to suggest that the pending prosecution would not have been material in relation to the fixing of the premium.

Accordingly, even though pending prosecutions were not expressly referred to in the guidelines, this had plainly been a material misrepresentation, entitling the insurers to avoid the policy.

COMMENT: This case touched on the potential problem of guidelines which are detailed but do not cover every eventuality. There is a risk, where the guidelines are detailed, that a court might find that the factors listed were intended to be exhaustive in relation to what an insurer wanted to know. Here, though, the judge was prepared to accept that it was arguable that the insurance might have still been written, but with a higher premium: in other words, to take into account the guidelines as a guide to determining what the underwriter would have done in relation to a matter not expressly covered in the guidelines. That said, the proposal form had asked about pending convictions, and so indicated that the insurers were interested in the issue.