Young v. Royal and Sun Alliance (“RSA”)  CSOH 32, Outer House of the Court of Session in Scotland
This case was brought before the courts in Scotland, which has a hybrid legal system, based on civil law and recent common law, that is unique in Europe. This decision, although not rendered by the English legal system, provides an indication of the impact of the Insurance Act 2015 on litigation in the UK courts.
A customer, an officer of his company, contacted his broker to obtain insurance cover for his firm’s business. The policy was taken out and the customer was asked to complete a proposal form that was produced using the broker’s computer system. A portion of this document required the customer to choose from a variety of options from a drop-down menu, one of which was whether the officers or the company had in the past been declared insolvent or been the subject of liquidation proceedings. The customer answered “no” and did not provide additional information, believing that this statement concerned only the relevant company and its directors, who had never been declared insolvent. However, the officer concerned had himself previously been a director of four other companies that had filed for bankruptcy in the past, and that information was not disclosed in the documents forwarded to the insurer. After receiving the submission for insurance, the insurer sent the policy documents to the customer, in which it was stated, in particular that “the insured represents that he has never been declared bankrupt or insolvent and his situation has never required the appointment of a liquidator”. The customer signed this document.
Shortly afterwards, a fire broke out and seriously damaged the company’s premises. The customer filed a claim, which the insurer refused to cover on the grounds that all information it had requested had not been fully disclosed to it. The customer argued that the questions asked at the time the policy was taken out were limited in nature, and applied only to the insured company and not on the previous background of its directors, and that the answers provided were therefore accurate.
The court held in favour of the insurance company and agreed that it could cancel the policy due to the incomplete information it had received. In this case, the court held that the insolvency issue was sufficiently clear and the insured could not reasonably claim to have misunderstood it. The court therefore held that the question did in fact concern the company and its directors and their relationship with other insolvent entities. The customer’s claim was therefore denied.
The adoption of the Insurance Act 2015 (“the Act”) has led to a significant reduction in the number of cases brought before the courts in the United Kingdom. Prior to the adoption of the Act, customers were required to disclose every circumstance that they knew, or ought to have known, could influence an insurer in deciding whether to accept a proposal for insurance and determining the terms and conditions. This placed on customers a strict burden of declaring all information that an insurer might consider material. Insureds were required to act in utmost good faith (as were also insurers) and provide full disclosure of information – even information already held by the insurer – at the risk, in the event of a claim, of having his policy declared null and void or even having his policy cancelled. The broker had a duty to encourage customers to ovide this information, which would then, as a matter of course, be forwarded to the insurer. The strict obligation placed on insureds led to considerable litigation. The Act rebalanced the situation by repealing the previous legislation and replacing it with a duty for insureds to make a “fair” presentation of the risk to the insurer. The new Act means that prospective insureds must disclose all material circumstances of which they are aware – or should be aware – and make a disclosure of the risk that is sufficiently precise to enable a prudent insurer to request additional information if necessary. Thanks to this law, an insurer can now avoid an insurance policy only if the insured’s mistake was intentional or if a claim is fraudulent. As a result, it is now more difficult for insurers to deny a claim for non-disclosure or to cancel a policy in the event the insured fails to comply with their obligations.
It is generally accepted that a question in an insurance questionnaire is not open to interpretation if it is sufficiently clear and precise. On the contrary, if it is imprecise, the 2015 Act allows customers to provide the information they consider is a fair presentation of their risk, and an insurer is able to deny a claim or cancel a policy on the grounds that it did not receive a fair presentation. This raises the question of the liability of the insurance intermediary, who could be charged with not having explained the true scope of the questions asked of the customer or to extract information that forms a fair presentation even where an insurer does not specifically ask a question about it. The full consequences of the 2015 Act have yet to become clear, particularly with respect to the liability of insurance intermediaries, but this decision provides an initial indication.