In one of the first decisions under the Consumer Insurance (Disclosure and Representations) Act 2012, the Scottish Court of Session has held that an insurer failed to discharge the burden of proving that the insured had made a deliberate or reckless misrepresentation when taking out motor insurance and was not therefore entitled to avoid the policy.

The insured used price comparison websites to obtain quotations and filled in an online proposal form. As a result the court had no clear evidence about the precise wording of the questions which appeared on the computer screen. The judgment highlights the importance for insurers alleging deliberate or reckless misrepresentation to have clear records of the basis on which contracts of insurance are agreed.

Background

On 25 January 2016 a teenager HSH took his older brother’s car from Calder Street, Govanhill, without his brother’s knowledge or permission. HSH had an accident, crashing into three cars (a Mercedes, an Audi and a Ferrari). HSH immediately left the scene of the crime and returned to his older brother, HDH, the owner of the car. HDH took a taxi to the scene of the accident and explained the situation to gathered police officers.

HDH had previously taken out a motor insurance policy (third party fire and theft). Under that policy he was the only one entitled to drive the car. HSH later pled guilty to four charges. However, problems persisted for HDH also. When taking out the policy HDH had listed his address as “Dinard Drive, Giffnock”. Following the accident, all car owners submitted claims but HDH’s Insurers sought to avoid alleging HDH had made a misrepresentation when taking out the policy. Specifically, he had listed his home address as Dinard Drive not Calder Street.

It was accepted by both sides that had HDH listed his home address as Calder Street his premium would have been £2,899.08, rather than the £1,649.34 paid.

The legislation

Under the Consumer Insurance (Disclosure and Representations) Act 2013 (the “2013 Act”):

  • It is the duty of the consumer to take reasonable care not to make a misrepresentation to the Insurer (Section 2(2))
  • Reasonable care will be determined in light of all the relevant circumstances (Section 3(1))
  • An Insurer has a remedy against a consumer for a misrepresentation only if the consumer was in breach of Section 2(2) and the Insurer can show that without that misrepresentation, they would not have entered into the contract at all, or would have done so only on different terms. (Section 4(1)(a) and (b).)
  • For the purposes of the 2013 Act, a qualifying misrepresentation is either (a) deliberate or reckless or (b) careless. (Section 5(1)(a) and (b).)
  • A qualifying misrepresentation is deliberate or reckless if the consumer knew that it was untrue or misleading, or did not care and knew that the matter to which the misrepresentation related was relevant to the Insurer (or again did not care whether or not it was relevant to the Insurer).
  • Finally, it is for the Insurer to show that a qualifying misrepresentation was deliberate or reckless (Section 5(4)).

Court Case

HDH denied that there had been any misrepresentation in terms of the address he provided and ultimately the matter came before Lady Paton in the Court of Session in Edinburgh.

Insurers relied heavily on documentary evidence suggesting that HDH resided at Calder Street. This included the V5 vehicle registration document, HDH’s driving license, his bank accounts and utility bills, all of which were addressed to him at Calder Street. HDH however argued that this was a mere administrative matter, Calder Street was simply a post box for him. When he bought the car he was living with his uncle in Dinard Drive in Giffnock. He gave evidence that he had arranged the lease of Calder St for his sister and younger brother as he was in a better position financially to pass the credit checks required by landlords. He also accepted that there were occasions when he would stay at Calder St (it would “just depend” on circumstances (for example if his brother or sister asked him to stay)). However, this did not mean he was no longer residing at Dinard Drive.

In relation to obtaining insurance for the car, HDH advised that he used the Google search engine on his computer. He checked websites such as moneysupermarket.com and comparethemarket.com. There was an online form to fill in. When he bought the car (in March 2015) he was staying with his uncle and so that was the address he provided on the online form. Moneysupermarket.com offered him a quote, he clicked on it and thereafter dealt with insurance brokers “GoSkippy”.

Of relevance was the fact that HDH had given evidence that he had filled in the form electronically. Insurers had produced a printed insurance proposal form to court. This contained a question:

“Address where car is kept (if different to address above)”.

Insurers admitted that this form had been produced only for the court’s use. HDH had not been provided with a hard copy at the time of his application. HDH stated he had not answered the above question as he had not seen it. Further, HDH gave evidence that had he seen this question, he would have entered the Calder Street address.

The opinion

Firstly, the judge considered that it was important to bear in mind that not everyone has “one address”. In modern society there were second homes, holiday homes, visits by friends and relatives, visits to hotels etc. There were many circumstances where an individual might stay at another address.

The judge then noted that the online method of purchasing insurance adopted in this particular case has both advantages and disadvantages. The advantages include the ability to conclude a contract for insurance immediately, in any environment with access to a computer. However, the flip side of that coin is that there is no clear record of the precise wording of questions which elicited information from the consumer. The questions in the pro-forma online website might not be sufficiently flexible to accommodate non-standard or qualified information which the consumer would have given in (for example) a face-to-face interview or in a written form (which would permit some narrative or explanation). It had also been accepted by Insurers that the website interfaces were checked and updated regularly. There was no evidence vouching the format or content of the website with which the defender interacted.

The judge concluded the precise wording of the questions put to HDH would be necessary to demonstrate that there had been a deliberate or reckless misrepresentation. The judge continued that the onus was on the Insurers to prove that HDH had either deliberately or recklessly misrepresented his address as Dinard Drive. When deciding whether a representation was made deliberately or recklessly all circumstances must be taken into account, including the type or communication used, the terms of any questions put and the opportunity given to the consumer to qualify or particularise any response or to provide non-standard information. In the judge’s opinion, the onus of proof resting on Insurers here had not been satisfied.

Overall, on the balance of probabilities, the judge was satisfied that at the relevant time HDH lived partly at Dinard Drive and partly at Calder Street. In these circumstances, the information that HDH’s address was Dinard Drive cannot be deliberate or reckless (as an aside comment, it was noted that there was no evidence that HDH had experimented on the price comparison websites with different addresses to assess which would give a cheaper quote).

Comment

Whilst the decision will be disappointing for Insurers it is a useful reminder of the need to have clear records outlining the basis on which the contract of insurance was agreed. Particular care should be taken to record the questions asked and the responses given at the time of inception of the policy in order that this can be referred to at a later date if/when needed.

Further reading: Southern Rock Insurance Company Ltd v Hafeez [2017] CSOH 127.