Insurance And Reinsurance - Weekly Update - 7 August 2012

Parker & Anor v National Farmers Union Mutual Insurance Society

Fraudulent claim and joint/composite policy/breach of condition precedent

http://www.bailii.org/ew/cases/EWHC/Comm/2012/2156. html

Clyde & Co (Roger Doulton and Steven Gilberg) for defendant

It was undisputed that the property owned by the first claimant (Mrs Parker) was substantially damaged by fire in December 2009. She sought to claim under an insurance policy which was taken out in July 2009 in her name (which was then Mrs Cooke). In September 2009, the second claimant (Mr Parker) was added as an assured to the policy. At the time of the fire, the claimants were living together (although not at the property) and they later married in April 2010.

The insurers denied liability on several grounds:

(1) They were entitled to avoid the policy because of two earlier fraudulent claims (in 2002 and 2007). Teare J found, on the facts, that one of the earlier claims was not fraudulent but the other was. However, he also concluded that Mrs Parker was unaware that this dishonest claim had been made. The judge went on to find that the fire had been caused by Mr Parker's wilful misconduct. The insurer did not allege that Mrs Parker was party to any conspiracy to set fire to the property. He therefore held that the insurer was entitled to avoid its obligation to indemnify Mr Parker (and in any event Mr Parker could not recover because of his involvement in the fire). Mr Parker was also liable to pay the insurer the costs of its investigation, plus simple interest and the insurer was entitled to restitution of the sums paid out in respect of earlier fraudulent claim, plus compound interest.

(2) Could the insurer also avoid against Mrs Parker? Although the schedule to the policy described Mr Parker as a "joint policyholder", the judge concluded that this was in fact a composite policy. That was because Mr and Mrs Parker had different interests in relation to the property. She was the owner but the judge said it was difficult to identify any interest at all of his in the property. Accordingly, her right to claim was not affected by Mr Parker's wilful misconduct.

(3) Could the insurer rely on a condition precedent in the policy? It was undisputed that it was a condition precedent that the insured provide all written details and documents which the insurer asked for. During its investigation, the insurer asked for copies of the claimants' bank statements, in order to verify a statement by Mr Parker that he had sufficient money in his bank to pay for the demolition and reconstruction of the property. The claimants refused to comply with this request and instead sent a letter from their bank (which confirmed there were sufficient funds for a rebuild). Teare J held that this was a breach of the condition precedent (since the letter did not confirm how much was actually in the account) and it did not matter that no reliance was placed on this breach until service of the defence – he held that there had been no waiver of the right to rely on the condition precedent.

(4) Could Mrs Parker rely on the Unfair Terms in Consumer Contracts Regulations 1999 and/or the Insurance Conduct of Business Sourcebook ("ICOBS") to avoid the consequences of breaching the condition precedent? Teare J held that she could not. The condition precedent was not an "unfair term" – it is the assured, rather than the insurer, who will be in possession of relevant documents. Furthermore, the insurer had not rejected the claim unreasonably. The breach of the condition precedent was connected to the claim – the bank statements were relevant to the question of motive. Furthermore, the insurer's solicitors had given the insured a "clear warning" as to the consequences of the breach by drawing attention to the relevant term in the policy and by reserving the insurer's rights.

(5) Although unnecessary to decide the point, Teare J added that where (a) the right to subrogation arises on payment; and (b) Mr Parker would be liable to Mrs Parker for the damage which he caused to her property; and (c)...