CSOH 32
Scottish court finds insurer had not waived disclosure under the Insurance Act 2015
The insured sought an indemnity under its policy following a fire at its premises. The insurer alleged that it was entitled to avoid the policy on the basis of a breach of the duty to make a fair presentation under the Insurance Act 2015. The insured's position was that the insurer had waived disclosure of the non-disclosed information.
The insured had completed a market presentation in which it was asked whether "any proposer..of the…Business…either personally or in any business capacity…been declared bankrupt or insolvent…" The insured, believing this was a reference to the insolvency of either the insured company or its director, replied in the negative (although the insurer could not tell what exactly the insured was replying to as it was not aware of the options in the drop down menu of the broker's internal software programme). However, a director of the insured had been the director of 4 other companies which had been declared insolvent. A subsequent email from the insurer indicated that cover was subject to confirmation that "Insured has never been declared bankrupt or insolvent". The Outer House of the Scottish Court of Session held as follows:
(1) The Insurance Act 2015 did not alter the prior law on waiver (and neither side suggested that it had). Waiver can arise in two ways: (a) where information provided should have prompted the insurer to make further enquiries; and (b) where, as here, it is argued that the insurer has asked a "limiting" question, so that the insured can reasonably infer that the insurer does not want to know information falling outside the scope of the question. Waiver is not readily to be inferred, and the insured has the onus of proving waiver.
(2) The correct test for the second type of waiver is "would a reasonable person reading the proposal form be justified in thinking that the insurer had restricted its right to receive all material information and consented to omission of the particular information not disclosed?"
(3) Here, all the information provided by the insured was contained in the market presentation. The email sent by the insurer had not raised further (limiting) questions: it had only provided that the policy was subject to matters going to moral hazard and: "As a generality, the case law has confirmed that such matters are required to be disclosed even in the absence of a specific question to elicit these matters". In its context, it was held that it would have been clear that the reference to "the insured" in the email included the director acting in his business capacity (ie in respect of companies other than the insured).
(4) It was important here that the insurer had not sent the insured a proposal form and the insured had controlled the scope of the market presentation. The 2015 Act was said to have "shifted the burden of identifying what is material to the insured in the form of the duty to make a fair presentation of the risk". As a result, it was suggested that this may make it harder for insureds to run arguments based on the second type of waiver now.