The Consumer Insurance (Disclosure and Representations) Act 2012 (“CIDRA”) has fundamentally altered an insured’s duty of disclosure in consumer insurances from one of utmost good faith to one which requires the consumer to take “reasonable care” not to make misrepresentations.
Insurers may still insist that consumers provide a fair presentation of the risk, but what is fair will be circumscribed by the scope of the new duty under CIDRA.
The recent case of Bate v Aviva Insurance UK Limited (2013) (the full judgment can be found here), although decided before CIDRA came into effect, looks at the approach adopted by the courts in assessing whether or not there has been a fair presentation of the risk.
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 were ongoing building works;
- Mr Bate was conducting a loss assessor business from one of the converted stables;
- 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.
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. 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 which 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 more visitors/activity on site. Accordingly, the business use 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 courts will consider all the circumstances of the case and will continue to investigate whether the insurers have received a fair presentation of the risk. The judge in this case had little difficulty in concluding that they did not. Mr Bate was an experienced insurance industry professional and he fully understood his obligations on disclosure. He made assertions which he must have known to be false and he failed to disclose certain key documents. It did not help that there was some suggestion that he and his broker falsified documents during the claims process.
It is highly doubtful that the new duty of disclosure under CIDRA would have come to the aid of Mr Bate.