An Underwriter is Entitled to a Fair Presentation of the Risk

Defining the limits of waiver in relation to non-disclosure by an Assured: a clarification of the situation in which an Insurer can be deemed to have waived the right to full and fair disclosure of claims history.

It is well-established that a contract of insurance is a contract of utmost faith. Accordingly, there is a duty on the party proposing for insurance to give full and fair disclosure to the Insurer of all material facts known to him and unknown to the Insurer. If the duty of utmost good faith is not observed, the contract may be avoided by the Insurer.

It is also established law that the Insurer can waive its right to full and fair disclosure of material facts which have not been disclosed if, knowing of prejudicial facts and/or knowing that material facts have not been disclosed, it accepts a presentation and issues a policy. The burden of proving such waiver is on the Assured who asserts it, and he must show a clear case.

The recent case of George Henry Stowers -v- (1) G A Bonus plc & (2) Helm Insurance Brokers Limited (presently unreported, but in which judgement was handed down on the 1st of January this year) in the Central London County Court Business List clarified the previously uncertain situation in which an Insurer issues a policy on the basis of an incomplete proposal form by relying instead on the placing information that has been passed to him during the course of the pre-proposal enquiries.

The case was brought by a manufacturer of pine furniture on the Isle of Wight, a Mr Stowers, who via his broker approached the Insurer with a request for commercial insurance of his factory. He provided the details of his claims history in an initial Request for Commercial Insurance form provided by the broker. On the form, the Claimant stated that in the past five years he had suffered one fire claim with a loss of approximately £40,000.

On the basis of this form the Insurer offered a (satisfactory) quotation and sent the Claimant a proposal form for completion. There was dispute as to whether the Claimant or his broker completed the proposal form, but the parties agreed that the form returned to the Insurer was incomplete. In particular, in response to the question - "During the past five years, have you sustained any losses or had any claims made against you, whether or not insured?" - the answer "Yes" had been added, but the box provided for the proposer to list details of such losses had been left blank.

The Claimant had in...