Young v Royal and Sun Alliance plc  CSOH 32 is the first judgment to consider the duty of fair presentation under the Insurance Act 2015 (the 2015 Act). The 2015 Act applies across the United Kingdom and implemented significant reforms to longstanding principles of insurance law. For non-consumer insurance policies entered into after 12 August 2016, policyholders have been required to make a fair presentation of the risk to be insured. Where a policyholder fails to do this, the insurer is entitled to a proportionate remedy aimed at putting the insurer in the position as if the relevant non-disclosure or misrepresentation had not been made. This case did not consider aspects of the new regime that are likely to be of most interest to insurance lawyers and practitioners. However, it has confirmed that the 2015 Act did not change the law on when an insurer waives its right to disclosure.
The Claimant (Mr Young) and his company were insured by the Defendant (RSA) under a property insurance policy covering damage to commercial premises in Glasgow. In March 2018, the premises were damaged by fire and Mr Young claimed an indemnity under the policy for £7.2 million. RSA rejected the claim, alleging that it was entitled to avoid the policy by reason of Mr Young’s breach of the duty of fair presentation. The alleged breach concerned Mr Young’s failure to disclose the fact that he had been the director of four companies that had been dissolved after an insolvent liquidation in the five-year period prior to the policy.
Mr Young’s defence was that RSA had waived disclosure of this information, relying on the terms of an email that RSA had sent in response to Mr Young’s proposal (a market presentation document). The relevant details were as follows:
- The market presentation had been prepared on an electronic template used by Mr Young’s broker, which contained the following question aimed at providing information relevant to RSA’s assessment of moral hazard: “Select any one 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…been declared bankrupt or insolvent or been the subject of bankruptcy proceedings or insolvency proceedings.” Mr Young’s response was “None”, taken from a list of pre-defined drop-down options. The questions within the market presentation had not been formulated by RSA, who were also not aware that Mr Young’s response came from a list of drop-down options.
- Having reviewed the market submission, RSA sent its proposed terms to the broker, setting out a number of assumptions on which they were based. These included an assumption, framed as a subjectivity, that “Insured has never…Been declared bankrupt or insolvent…Had a liquidator appointed…Been the subject of a County Court judgment.”
Mr Young’s case was therefore that (1) his answer to the market presentation was correct, as neither he nor the co-insured company had not been declared bankrupt, insolvency or had a liquidator appointed and (2) RSA had waived its entitlement to information concerning Mr Young’s wider insolvency history by limiting the scope of the assumption (or question) in its email to the insolvency of Mr Young personally and the co-insured company. According to Mr Young, this was a “limiting” question from which it was reasonable to infer that RSA had waived other material information falling outside its scope.
The Outer House was asked to decide the waiver issue, as the Scottish equivalent of a preliminary issue.
In similar terms to the old Marine Insurance Act 1906, Section 3(5) of the 2015 Act lists certain categories of information that need not be disclosed when making a fair presentation of the risk. These include circumstances as to which the insurer waives information. The pre-2015 Act case law established that such a waiver may arise where the insurer asks a “limiting” question indicating that it has no interest in knowing information that falls outside its scope. In its decision, the Court confirmed that the 2015 Act had not changed these principles.
Applying these principles to the facts, the Court observed that this was not a conventional situation where the insurer provides a proposal form for the policyholder to complete that indicates the relevant categories of information. Here, the insured was in control of the disclosure process, using the software provided by its broker. As a result, the market presentation could not be said to have identified the information RSA regarded as material. As for the email, the Court held that its purpose was to stipulate the state of affairs that needed to be maintained during the currency of the policy; no reasonable reader would regard it as indicating that RSA did not wish to know of Mr Young’s wider insolvency experience. It was therefore not a “limiting” question.
It is helpful, if not surprising, to know that the established principles of waiver continue to apply under the new regime, unchanged. However, the real significance of this decision probably lies in the way in which the insured tried to discharge its duty of fair presentation. Typically, the insured will complete a proposal form provided by the insurer, and in that situation there is greater scope for waiver based on “limiting” questions to arise. By contrast, here the fair presentation process was driven by the insured, using the broker’s software. Doing it that way around is not a problem, as long as the insured and its broker clearly understand what information is material. If they do not have that understanding and provide incomplete disclosure, it leaves the insured significantly exposed, as this case shows.
Unfortunately (for insurance lawyers), the issues in the case did not encompass the key changes associated with the 2015 Act, such as the availability of proportionate remedies. It will be fascinating to see how those provisions will be applied but, for the time being, the wait goes on…