Insurance Act 2015 does not alter legal position on waiver

• Insurance Act 2015 does not "innovate or alter" existing law on waiver 
• The insured controlled scope of disclosure in a market presentation therefore no waiver by the insurer 
• Possibly greater scope for applying the doctrine of waiver in conventional proposal-type cases

The Court considered the insured's duty to make a fair presentation of the risk under section 3(1) of the Act. In doing so it was reminded that the Act has shifted the burden of identifying what is material in making a fair representation of the risk to the insured. The decision focused on whether an insurer had waived its entitlement to disclosure of undisclosed adverse material because of the closed nature of the questions in a broker's market presentation on an electronic platform.

Wayne Young made a £7.2 million insurance claim after fires at buildings in Glasgow. Insurer Royal Sun Alliance (RSA) declined the claim, saying that Young and his company had not made a fair presentation of the risk, and had breached section 3(1) of the Insurance Act.

Young had been a director of four companies that had gone into insolvent liquidation in the five years before taking out the policy. The insurer argued that this "undisclosed information", as the judge Lady Wolffe termed it, should have been disclosed. Young claimed that the insurer had waived that disclosure.

Before taking out the policy Young had been provided with a market presentation which was created by the insurance broker's software. The market presentation contained a question relating to the potential moral hazard posed by the insured. The question asked the insured to “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:” in relation to seven possible responses, including “been declared bankrupt or insolvent or been the subject of bankruptcy proceedings or insolvency proceedings" to which the insured replied 'None'.

The insurer, after receiving and reviewing the completed market presentation, emailed the terms of cover and a list of assumptions made in view of the responses provided, which included the assumption that the insured had never "Been declared bankrupt or insolvent; Had a liquidator appointed; Been the subject of a County Court judgment…”

The insurer argued that Young had a duty to make a fair representation of the risk and this had been breached in failing to disclose the undisclosed information in the market presentation, asserting that had it known the undisclosed information it would not have agreed to write the risk Materiality or inducement issues were not considered in the judgment.

Young argued that the insurer had waived the disclosure. His response to the question was not incorrect. Young was a director of companies which had "Been declared bankrupt or insolvent; Had a liquidator appointed…” but this was not the case for Young himself nor the company on the policy. By posing the question in this closed manner, he said that the insurer had waived its entitlement to disclosure of insolvencies in which the insured had been involved.

Justice Wolffe said "that the 2015 Act did not seek to innovate on or alter the existing law on what constitutes waiver in the context of insurance contracts". The Court confirmed that Doheny v New India Assurance Co Ltd [2005] Lloyd's Rep I.R. 251 remained good law and a waiver can be established by demonstrating a clear case in two possible ways:

where the insurer fails to make further enquiries on the basis of information provided by the insured which should have prompted a reasonably careful insurer to make enquiries.

• where the insurer asks a limiting question, which is what purportedly occurred in the instant case, from which the insured could reasonably infer that the insurer did not want to know anything outside of the scope of that question.

The test in the second scenario is whether a reasonable person would justifiably make the assumption that the insured intended to waive their right to receive the information not disclosed through the responses.

The market presentation contained all the information that RSA had from Young. The difficulty was that it was not aware of the options Young had been presented with in the drop down menu which would have put that information in context.

"The insurer was not aware of the options in the drop down menu of the broker's internal software programme available to complete either the "Select any…" entry to complete the Moral Hazard declaration or the separate declaration of material facts," she said. "In the form in which it appeared, the Moral Hazard declaration was incomplete, in sense that the insurer could not know the subject-matter of that declaration; it did not know to what, precisely, the answer of "None" related."

The Court found, therefore, that the market presentation did not limit the scope nor constitute a waiver. The subsequent email from the insurer containing the assumptions was considered to have represented conditions of the policy, including any moral hazards that would need to be addressed.

Disclosure by Young was required despite the absence of questions specifically addressing the matters. In the conventional proposal-type case, there may be greater scope for applying the doctrine of waiver, as the insurer controls the scope of the information it seeks; it signals, via the questions asked, what it regards as material and, by implication, it may be taken as waiving matters outside the scope of the questions posed.

Isabelle Carter and Elaine Quinn are insurance experts at Pinsent Masons, the law firm behind Out-Law.