Insured’s duty of disclosure

The case of Alan Bate v Aviva Insurance UK Limited 2013 considered a claim for indemnity following a fire at a substantial property and the scope of an insured’s duty of disclosure in relation to a domestic insurance policy.

The facts

B owned the Long House, which was almost completely destroyed in an accidental fire on 5 June 2006. He had been redeveloping the property into residential units whilst stables on the site were converted into garages. The redevelopment was being undertaken by B’s building company, Parthenon. At the time of the fire B was living in the Long House, part of which was undergoing conversion into accommodation for his disabled brother. In the meantime his brother was occupying a separate dwelling on the site. B’s daughter resided in the Coach House, a further separate dwelling attached to the rear of the Long House, where some minor development works were ongoing. Parthenon occupied a garage in the Coach House and B operated an insurance loss assessing business from another garage.

Aviva avoided B’s policy citing a number of non-disclosures and misrepresentations of material facts including the following grounds:

• B had deliberately misrepresented details of a past claim.
• B had failed to disclose that the property was used by his businesses.
• B had failed to disclose the redevelopment of the property.

Aviva alleged that B had failed to disclose building works at the property and in doing so had breached a condition precedent entitling it to repudiate liability under the policy. Aviva also contended that the Coach House was insured under the policy.

B argued that the Coach House was not insured under the policy and that Aviva had waived its right to avoid the policy by paying a claim for damage to a camera and equipment. B alleged that Aviva had breached rules contained in the Insurance Conduct of Business Sourcebook (ICOBS) requiring it not to reject claims unreasonably. In the case of a retail customer this meant that Aviva must not: “refuse to meet a claim…on the grounds…of non-disclosure of a fact material to the risk that the retail customer….could not reasonably be expected to have disclosed…of misrepresentation of a fact material to the risk, unless the misrepresentation is negligent and…in the case of a general insurance contract, of a breach of warranty or condition, unless the circumstances of the claim are connected with the breach.”

The court’s decision

B was a retail customer for the purposes of ICOBS despite the commercial development work at the Long House. The judge was satisfied that B’s primary concern was to insure his home.

The Coach House was not part of the buildings insured under the policy but its close association with the Long House meant that B should have disclosed the ongoing works there and the occupation of the Coach House garage by Parthenon, which were material. A failure to disclose the ongoing work at the Long House meant that there had been a breach of the condition precedent.

B had materially misrepresented a previous claim by suggesting that it was a fire caused by a contractor at a previous address. In fact, the fire had been caused by Parthenon at his current address. B had not disclosed the commercial development of the Long House to Aviva; he relied upon a memo as evidence of disclosure in this regard but this had probably been created by B or his broker after the fire. The judge commented that the arrangements in place at the Long House were highly unusual and could not have been elicited by the questions on a residential insurance proposal form.

Whilst some of the matters raised by Aviva were not material when taken in isolation, when taken cumulatively disclosure of most, if not all of the matters was required to give insurers a fair presentation of the risk. A person with B’s insurance background should and may have appreciated this. B was an insurance professional and had engaged a broker to assist him. Despite this, he had failed to disclose material facts and made misleading statements. B had also been dishonest in his presentation of aspects of his claim. In these circumstances Aviva’s rejection of the claim was not unreasonable and did not breach ICOBS.

Significance

When faced with substantial allegations of misrepresentation and non-disclosure of material facts, B’s approach was to take each allegation individually and seek to demonstrate that it was not material.

This case makes clear that the court will not consider the questions in a proposal form in isolation but will look at all the facts and the matter as a whole to determine whether an insured has complied with the duty of disclosure. It was not difficult for B to convince the court that he was a retail customer for the purposes of ICOBS. The term retail customer has a similar meaning to ‘consumer’ in the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDAR) and the courts are likely to place a similarly low threshold on claimants seeking to establish that they are consumers under the new regime.

Under CIDAR the consumer is now required only to take reasonable care not to make a misrepresentation. Whilst the advent of CIDAR means that more consumers are likely to be successful, B’s claim would almost certainly have been rejected under the new regime given the judge’s findings that he was dishonest in certain respects and knowingly made misleading statements.