Spriggs v Wessington Court School Ltd

An insurer may affirm a voidable insurance contract only by an informed and unequivocal choice, assessed objectively in context. In the ordinary case, affirmation must be communicated to the insured. A communication to a third-party claimant will not itself affirm the policy before the insured’s rights have transferred under the Third Parties (Rights against Insurers) Act 1930. The expression that an insurer is “on risk” may identify the existence of cover without accepting liability or affirming the policy. A narrow exception permitting election without communication applies where the other contracting party has deliberately made communication impossible. New non-disclosure permits later avoidance only where it materially affects the reasonable insurer’s decision whether to affirm or avoid.

The claimant was the lead claimant in group proceedings concerning alleged abuse at Wessington Court School between 1965 and 1983. The school company had been restored to the register for the purposes of the proceedings, and RSA had succeeded to Phoenix Assurance’s liabilities. The claimant sought to establish that RSA was obliged to indemnify the company under public liability policies.

Hughes J directed that insurance issues be tried as preliminary issues. The court determined the period for which Phoenix’s cover was proved and whether RSA had affirmed the policies, despite having grounds to avoid them for non-disclosure, through correspondence and conduct at a case management conference.

1. Preliminary issue determined. RSA was entitled to avoid the public liability policies issued by Phoenix. The claimant had not proved that Phoenix insured the school before 1973.
2. Applicable principles. Affirmation required actual knowledge of the relevant non-disclosure, knowledge that it gave a right to avoid, a reasonable opportunity to decide, and an unequivocal communication by words or conduct objectively understood as an informed choice. Mere delay or inactivity was insufficient. The court followed the principles summarised from Insurance Corporation of the Channel Islands v Royal Hotel Ltd, including the distinction between affirmation and estoppel.
3. Communication. Before any transfer under the Third Parties (Rights against Insurers) Act 1930, the claimant was only a stranger with contingent rights and could not affirm the insurance contract on the company’s behalf. Communication to the insured was therefore generally essential. The court confined Car and Universal Finance v Caldwell to its exceptional facts: rescission need not be communicated where a fraudulent buyer has deliberately made communication impossible.
4. Meaning of “on risk”. The correspondence and statements at the case management conference concerned whether Phoenix had issued policies, their dates and their terms. They did not communicate an informed choice to affirm liability. The surrounding circumstances made the statements equivocal, particularly because the policies and their terms remained unascertained.
5. Alternative grounds. Even if communication to the claimant could have affirmed the policies, the communications were not unequivocal. Further, the additional allegations of abuse known later were material and would have justified avoidance even if RSA had previously elected not to avoid. RSA had also avoided within a reasonable time.