Drake Insurance Plc v Provident Insurance Plc

An insurer may avoid for non-disclosure only where the undisclosed fact was material and its non-disclosure actually induced acceptance of the risk on less favourable terms than would otherwise have been agreed. The inquiry is based on the information available to the insurer when it accepted or renewed the risk. If a valid avoidance is clearly communicated, rescission takes effect immediately and subsequent information does not retrospectively defeat it. A rateable proportion clause is given its natural meaning and can limit an insurer’s liability even where another insurer disputes or avoids its policy. An insurer paying more than its own rateable share may therefore be a volunteer and unable to recover contribution.

Mrs Kaur was a named driver under a motor policy issued by Provident Insurance Plc and was also covered by a driving-other-vehicles extension in a policy issued by Drake Insurance Plc. After an accident, Provident avoided its policy for non-disclosure of the policyholder’s speeding conviction. Drake settled the injured third party’s claim and sought an equitable contribution from Provident, arguing that the avoidance was ineffective, that Provident had acted in breach of good faith, and that Drake was not a volunteer.

The court also considered the effect of the policies’ rateable proportion clauses and an Association of British Insurers dual indemnity undertaking. The central questions were whether Provident was entitled to avoid and whether Drake could recover contribution.

1. Non-disclosure and inducement. Applying Pan Atlantic Insurance Co. Ltd v Pine Top Insurance Co. Ltd [1995] 1 AC 501, the insurer had to establish both materiality and actual inducement. The speeding conviction was material, but the decisive issue was whether its non-disclosure induced Provident to renew on terms it would not otherwise have accepted.
2. The inducement question was determined by the information actually available to Provident at renewal. The accident had been disclosed and remained classified as a fault accident on the information before the insurer. The undisclosed conviction, assessed with that information, would have produced an increased premium. The possibility that further information might have caused the accident to be reclassified as no-fault did not negate actual inducement, since it was uncertain whether that information would have emerged after disclosure.
3. Effect of avoidance. Following the general principles of rescission discussed in Abraham Steamship v Westville [1923] AC 773 and Horsler v Zorro [1975] Ch 302, a valid and good-faith election to avoid, once communicated, rescinded the policy immediately. Subsequent information could not retrospectively deprive Provident of that right. The court declined to apply the approach in Strive Shipping Corporation v Hellenic Mutual War Risks Association (The ‘Grecia Express’) [2002] EWHC 203 (Comm); [2002] 2 Lloyd’s Rep. 88. Any continuing contractual duty of good faith was also difficult to maintain after rescission, applying the reasoning in Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The ‘Star Sea’) [2001] UKHL 1; [2001] 2 WLR 170.
4. Election and waiver. Provident’s clear letter of 2 August 1996 was an unequivocal election to avoid. Continued premium collection and amendments relating to a replacement vehicle did not establish reinstatement, waiver or estoppel, particularly as Provident consistently maintained its avoidance.
5. Contribution and volunteering. An equitable contribution requires common legal obligations to the same person in respect of the same matter. The rateable proportion clause meant what it said and was not limited to cases where the other insurer accepted liability. The court applied Legal & General Assurance Society Ltd v Drake Insurance Co. Ltd [1992] QB 887: payment beyond the insurer’s own rateable share was voluntary. Drake’s statutory obligation under sections 151 and 151(7) of the Road Traffic Act 1988 did not alter that conclusion.
6. The ABI Dual Indemnity Undertaking was expressly recognised as having no legal significance and was not enforceable absent further steps making it binding between the insurers. Drake’s claim therefore failed on each independent ground.

The judgment records an earlier arbitration between Dr Singh and Provident, but states that the arbitrator’s award was not binding between Provident and Drake. No appellate history is stated.