Premium Price Paid for Material Misrepresentation

The Court of Appeal at the Court of Session recently required to consider in the case of William Mitchell v Hiscox Underwriting Limited and Another whether an insurance policy could be avoided where an insured declared that he had a no claims bonus which did not, in fact, exist and where that information only affected the premium, not the decision to enter into the contract.

The insured, a Mr Mitchell, sought a new policy of insurance from Hiscox Underwriting Limited in respect of his motor boat "Dot Dash". The boat had previously been insured under his partner's name with another insurance company. In a telephone call to Hiscox he asserted that he had a no claims discount of 5%. When the boat was stolen, Hiscox refused to pay out for a number of reasons, one of which was that Mr Mitchell had materially misrepresented to it that he had a no claims discount when he did not. Mr Mitchell raised a court action in the local Sheriff Court, seeking payment of the boat's value.

When the case came before the Sheriff, evidence was heard from Hiscox's underwriter who advised that the purported existence of a no claims bonus altered the premium price he was prepared to quote. The Sheriff considered the requirements of section 20 of the Marine Insurance Act 1906, which stated that a material representation made before a contract for insurance was concluded which was untrue allowed the insurer to avoid the contract. Further, that a material misrepresentation was one which would influence the judgement of the prudent insurer in fixing a premium, or determining whether he would take the risk.

The Sheriff concluded that whilst Mr Mitchell did not have a no claims bonus to transfer (as any no claims bonus under the old policy would be personal to his partner) and that this was a material misrepresentation, the misrepresentation only resulted in a premium adjustment, it did not in fact induce the insurer to enter the contract. Consequently, it was not entitled to avoid the policy. The Sheriff Principal was not prepared to overturn that decision.

The...