Legal update - Alan Bate v Aviva: Court of Appeal dismisses property case after failure to disclose business risk

The Court of Appeal recently dismissed a case where a high-net-worth individual with an untypical property failed to give a fair presentation of the risk. In the case of Alan Bate v Aviva Insurance, the claimant sought the protection of Insurance for Conduct of Business to overturn a policy voidance.

Aviva insured what was seemingly a large country residence for the domestic purposes of a  high-net-worth individual. It turned out to be nothing of the sort when visited by loss adjusters following a fire in 2006.

Policy avoided
They found (unbeknown to Aviva) that: there were two businesses occupying outbuildings to the rear of the main house, being the claimant’s loss assessing firm; there had been ongoing development works to create separate dwellings over several years, which was still ongoing; and a previous fire in 2004 disclosed by the claimant at policy inception had happened at the risk address, not a ‘previous address’ as represented.

Aviva avoided the policy for non‑disclosure and misrepresentation of material facts.
Undeterred, the claimant disputed the nature and extent of every material fact. For example, he alleged both businesses were a ‘one man band’ and said he received no visitors. This was despite the fact that there were two separate offices, one of which advertised the name of his building company.

He argued the development works and fire at a ‘previous address’ were a part of the main house that had since been hived off to create a separate leasehold dwelling for his daughter – and as such should be treated as a neighbour’s house, and, therefore, not discloseable.

He also claimed the development works, which had not been the subject of a specific question at proposal, were not discloseable under ICOB Rule 7.3.6(2)(a) as something that he could have reasonably been expected to disclose.

The first instance judge (upheld on appeal) disagreed with the claimant on the basis that it was “unsurprising that the conventional questions asked when a home insurance policy is taken out are insufficient to provoke disclosure of all material facts when the applicant is seeking insurance for an unusual property that has various uses and been subject to a degree of development. The answer to the repeated assertion on [the claimant’s] behalf that particular matters could not reasonably have been expected to be disclosed is that when these matters are all put together it becomes obvious that disclosure of most of them is required, to give a fair presentation of the risks”.

The court took into account the claimant’s profession – a loss assessor – and his insurance experience when considering the question of what he would reasonably have been expected to disclose.

Fraudulent device
There was a further point regarding a letter that the claimant had concocted pre-issue of proceedings. It sought to persuade Aviva that he had in fact disclosed the 2004 fire at the risk address. The Court of Appeal found this was “evidence of fraud” that excluded the application of ICOB Rule 7.3.6(2)(a) through to (c). This was not restricted to a claim that might be fraudulent, but included a fraudulent device by which the claim was sought to
be supported.

Comment
As a pre-Consumer Insurance (Disclosure and Representation) Act 2012 case, the findings here may be limited in future cases, the duty now being not to misrepresent. However, experienced insureds running unusual or multiple activities from their homes who ignore even a general prompting as to “any other material facts” may still run the risk of policy avoidance.
Mark Aitken, partner, Berrymans Lace Mawer