Bate v Aviva Insurance UK Ltd

A retail insurance policy may be rescinded or avoided for a material misrepresentation where the misrepresentation was at least negligent. Insurance Conduct of Business Rules Rule 7.3.6(2)(b) does not prevent that result. Materiality does not automatically establish actual inducement, although exceptionally inducement may be inferred where materiality is obvious, subject to rebuttal. The rule’s reference to evidence of fraud includes fraud used in making or pursuing a claim, so a fraudulent device may remove its protection even where the insured peril genuinely occurred. In assessing non-disclosure, an unusual property risk must be considered as a whole. Separate features should not be isolated where their combination requires a fair presentation of the risk.

Alan Bate appealed against the dismissal of his claim for an indemnity and damages arising from an accidental fire at his home. The High Court, Commercial Court, held that Aviva was entitled to rescind or avoid the policy for material misrepresentation and non-disclosure. It also dismissed a claim under the Financial Services and Markets Act 2000 s.150 and rejected reliance on a breach of ICOB Rule 7.3.6.

The appeal challenged findings concerning the description of an earlier fire, materiality and inducement, non-disclosure of works and business activities, the effect of ICOB, and alleged procedural unfairness in findings concerning dishonesty and a fraudulent device.

The appeal was dismissed unanimously. Tomlinson LJ gave the principal judgment, with Maurice Kay LJ and Christopher Clarke LJ agreeing.

1. Misrepresentation and inducement. Describing the earlier fire as having occurred at a previous address was plainly false and, in light of Mr Bate’s experience, at least negligent. The representation was material because the fire had occurred at the property insured, or very close to it, and was connected with substantial ongoing works. The evidence established that Aviva was induced to accept the risk; the judge had not simply inferred inducement from materiality. In an exceptional case, materiality may be so obvious as to justify an inference of actual inducement, but that inference remains rebuttable. The Court referred to St Paul Fire and Marine Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd, [1996] 1 All ER 96 at p. 112.
2. ICOB. Rule 7.3.6(2)(b) did not protect Mr Bate because the misrepresentation was at least negligent. The rule also distinguishes a fraudulent claim from evidence of fraud. Evidence of fraud includes fraud used in making or pursuing a claim. The second letter dated 4 April 2005 was a fraudulent device supporting the claim, so Rule 7.3.6 did not prevent Aviva from relying on the misrepresentation.
3. Non-disclosure. The insured property was highly unusual, comprising several closely connected buildings, development works, business activities and storage areas. The risk had to be presented fairly as a whole. Considering each feature in isolation obscured the materiality of their combination. Mr Bate’s professional experience was relevant to whether disclosure could reasonably have been expected. The judge’s conclusion was unchallenged and independently defeated the appeal.
4. Other matters. The parties accepted that the undisclosed works could not alone justify rejection under Rule 7.3.6(2)(c), because the fire was unconnected with that breach. The procedural complaint about dishonesty failed because the matters emerged from the evidence and were put fairly in cross-examination; dishonesty did not need to be pleaded as an independent basis for avoidance. The insurers’ assumed failure to survey after accepting the risk did not answer the misrepresentation or non-disclosure which induced acceptance of the risk.

• Court of Appeal (Civil Division) — The appeal was dismissed and the High Court’s decision was upheld: [2014] EWCA Civ 334.
• High Court of Justice, Queen’s Bench Division, Commercial Court — His Honour Judge Mackie QC held that Aviva was entitled to rescind or avoid the policy for material misrepresentation and non-disclosure, dismissed the claim and rejected the alleged ICOB breach: [2013] EWHC 1687 (Comm).