Was 2019 a big year for the Insurance Act 2015?

Young v Royal and Sun Alliance Plc [03.04.19] and Natixis S.A. v Marex Financial & Others [02.10.19]

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2019-12-06

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Locations

The Insurance Act 2015, which took effect from 12 August 2016, was heralded as a significant change in insurance law. What was expected to follow was a proliferation of litigation as parties fight over the meaning and effect of the new legislation. But, what have we really seen?

Like buses, you wait ages for one and then two come along at the same time. In 2019, the insurance industry finally saw the first case dealing with the Insurance Act 2015: Young v RSA. A second case quickly followed: Natixis v Marex & Others.

Young v Royal and Sun Alliance Plc [03.04.19]

Background

On 22 March 2018, a fire took place at commercial premises in Glasgow owned by Mr Young and his company, Kaim Park Investments Ltd (Kaim). Boyds brokers had arranged their insurance with Royal & Sun Alliance (RSA) via a ‘Market Presentation’ using their own software. The Market Presentation identified Mr Young and Kaim as the clients. The ‘Details’ section of the presentation contained a passage referred to by the Court as a Moral Hazard Declaration. The Declaration stated:

Select any of the following that apply to any proposer, director or partner of the Trade or Business or its Subsidiary Companies if they have ever, either personally or in any business capacity: …

The Declaration contained a drop-down menu requiring boxes to be ticked by the insured against any true statement. One of the statements was: “no proposer, director or partner of the insured under the contract in question has ever been made bankrupt, insolvent, or subjected to such proceedings”. The box relating to this statement was left unticked. In fact, the word “none” had been written in respect of all of the statements in the drop-down menu and it was unclear to which statement this word referred.

The Market Presentation was followed by an email on 24 March 2017 from RSA attaching RSA’s terms and premium, with a subjectivity that stated “Insured has never … Been declared bankrupt or insolvent … [or] Had a liquidator appointed”. The brokers responded that the email was correct.

It later transpired that Mr Young had been the director of four companies that had been dissolved after insolvent liquidation or placed into insolvent liquidation in the prior five years. This was the ‘undisclosed information’.

RSA, therefore, sought to avoid the policy for material non-disclosure. Mr Young claimed that RSA had waived disclosure of the undisclosed information pursuant to Section 3(5)(e) of the Insurance Act 2015. Mr. Young focused upon the reference to the “Insured” in the 24 March 2017 email to suggest that RSA had waived entitlement to disclosure in respect of anyone other than the insureds (Mr Young and Kaim) themselves.

The law – Insurance Act 2015

Section 3(1) Insurance Act 2015 sets out the basic duty of fair presentation of the risk (effectively replacing the duties in Section 18, 19 and 20 Marine Insurance Act 1906):

“(1) Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.”

Section 3(3) sets out three elements of a fair presentation of the risk, of which section 3(3)(a) was relevant in this case:

“(3) A fair presentation of the risk is one-
     (a) Which makes the disclosure required by subsection (4),”

Section 3(4) provides (effectively replacing Section 18(1) Marine Insurance Act 1906):

“(4) The disclosure required is as follows, except as provided in subsection (5)-
     (a) Disclosure of every material circumstance which the insured knows or ought to know,”

The relevant exception in Section 3(5) states (effectively replacing Section 18(3)(c) Marine Insurance Act 1906):

“(5) In the absence of enquiry, subsection (4) does not require the insured to disclose a circumstance if-
      …
     (e) it is something as to which the insurer waives information.”

The judgment

The Scottish Court of Session began its judgment by noting that it was not suggested by either party that the Insurance Act 2015 altered the prior legislation (under Section 18(3) of the Marine Insurance Act 1906) on waiver of an insurer’s right to receive information. Whilst noting that the Act marked “…a significant departure from the former law in certain respects”, it went on to state that it also considered that the Act did not seek to innovate or alter the prior law on what constitutes waiver.

Applying the prior law, the Scottish Court of Session found that the insurer had not waived its right to disclosure of information under the Insurance Act 2015.

The court reminded us that waiver is not to be readily inferred and the burden of proving waiver lies on the person asserting it. The proper question to be asked was: 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?

Natixis S.A. v Marex Financial & Others [02.10.19]

Background

The relevant background concerns an insurance claim by Marex against Lloyd’s Syndicate, MCAP, arising out of Marex’s reliance upon forged warehouse receipts. Full details of this case can be found in our earlier article: Duty of fair presentation – preliminary observations.

The judgment

The judge commented that this case raised a number of issues under the Insurance Act 2015, but during the hearing Marex and MCAP reached a confidential settlement such that Marex’s claim against MCAP was dismissed with no order as to costs. The insurance issues arising (i.e. fair presentation of the risk, including reckless or deliberate non-disclosure), therefore, no longer required determination and fell away.

Comment

Whilst 2019 saw the first cases coming before the courts on the Insurance Act 2015, they have been far from remarkable. Young v RSA reaffirmed the state of the law on waiver prior to the Insurance Act 2015 coming into force. The insurance claim in Natixis v Marex was settled before the court could consider issues including reckless or deliberate non-disclosure.

One should not be deceived, however, by the lack of litigation. The market is seeing a number of claims raising issues under the Insurance Act 2015 and many are being resolved without recourse to litigation. There are any number of reasons for this, from uncertainty as to the outcome under new legislation to commercial pressures in a tough market.
The Scottish Court of Session may well yet be correct that the Insurance Act 2015 marked “…a significant departure from the former law in certain respects”. As we have seen, waiver is not one of those respects. Perhaps 2020 will reveal more.

Related item: Duty of fair presentation – preliminary observations