Introduction
Our Insurance Annual Review looks back at the last 12 months and brings together the various articles that we have produced on key cases and developments during the course of 2021
As many of you will know, we have produced this publication for many years for our clients and contacts with an interest in the UK insurance and reinsurance market. This year we have taken a slightly different approach to the publication recognising the benefit of online and electronic resources, particularly as most of us are working from home for more of the time. Rest assured that you will still find the same content on key cases and developments from the past 12 months but we have also included additional commentary putting these updates in context with links to our articles for more detailed analysis on our blog: www.hsfnotes.com/insurance. For those of you interested to see an overview of the cases we have covered this year, we have included a section called 'The Year in Cases at a Glance', with links to our articles on each decision
2021 began with a bang for our team and from an insurance law perspective with the judgment of the Supreme Court in the Financial Conduct Authority's (FCA) Covid-19 business interruption test case handed down on 15 January. This was the most significant insurance case of the last decade. While the case brought clarity to thousands of business policyholders, some outstanding questions on some claims remained. Although a few decisions were handed down during the course of 2021, others are still going through the courts. Our section here on Covid-19 business interruption claims gives an overview of the developments in 2021 and the current state of play.
Elsewhere, the courts were kept busy on numerous insurance disputes determining issues such as policy construction (including aggregation and jurisdiction clauses), as well as non-disclosure. Indeed, 2021 brought us one of the first avoidance judgments for breach of the duty of fair presentation under the Insurance Act 2015. Professional liability was also in focus this year with the Supreme Court revisiting the SAAMCO principle and the courts looking closely at an insurance broker's duties at placement.
Outside the insurance world, 2021 was a big year for developments relating to class actions with particularly significant decisions relating to transnational torts, competition and data class actions. We also saw the introduction of the new rules relating to the preparation of witness statements and an extension and amendments to the Disclosure Pilot. Our General Interest section explores these developments and others in more detail. Our Health & Safety section looks at the implications of two significant rulings in which the Sentencing Council's Definitive Guideline was used and a Supreme Court decision on the burden of proof for verdicts of unlawful killing in inquests.
2021 was a year of upheaval for the UK insurance sector from a regulatory perspective and there seems little prospect of 2022 being any quieter. The FCA has embarked on an ambitious transformation programme, putting consumer protection at the heart of its focus. In line with this is the introduction of a new Consumer Duty. ESG remains a hot topic for firms globally with increasing engagement at Board and senior executive level on a range of issues and COP26 ensured that climate change remained top of the agenda. Other areas of focus have been the government's post-Brexit review of the regulatory framework for financial services, the operational resilience of firms and the PRA and FCA's focus on diversity and inclusion in the financial services sector. Our Regulatory section looks at some of the key regulatory developments that have taken place in 2021 and considers the outlook for 2022.
For the Insurance and Professional Risks team at Herbert Smith Freehills in London, 2021 has been a successful one on many fronts. We were delighted that Fiona Treanor was promoted to partner in the firm's latest round of promotions in May. We also welcomed back Will Glassey as a partner to the team in London to strengthen our successful solicitors' professional indemnity and regulatory practice, as well as our professional negligence offering more broadly.
The team was also recognised for our work for the FCA on the Covid-19 business interruption test case receiving three awards: Litigation and Dispute Resolution team of the Year at the British Legal Awards, Insurance Team of the Year at the Legal Business Awards and Innovation in Dispute Resolution at the FT Innovative Lawyer Awards. Thank you to the team for all their hard work and thanks also to our clients and contacts for your continued support.
Non-disclosure
Disputes around non-disclosure issues are nothing new and this year was no different with the courts examining issues such as materiality and inducement. However, a novel feature of some of the decisions handed down in 2021 is that those issues have been examined in the context of the Insurance Act 2015 (2015 Act). It has taken almost five years since the 2015 Act came in to force in August 2016 for these cases to reach judgment, reflecting the time it can take for new legislation to be tested.
Even those decisions not decided under the 2015 Act offer a useful insight into the way in which the courts will approach particular issues under the new legislation. One such case is Ristorante Limited T/A Bar Massimo v Zurich Insurance Plc [2021] (see What's on the menu? Insurers must ask the right questions at placement). Here the court considered the interpretation and legal effect of a question asked by an insurer to a prospective insured around prior insolvency issues. The adequacy of disclosure of previous matters connected to insolvency is an issue that comes before the courts regularly. In this case, the court considered whether the insured's answer to the question amounted to a misrepresentation of material facts and whether the insurer had limited its right to disclosure in respect of other persons or companies. While the insured in this case was ultimately successful, it is a useful reminder to insureds and their brokers to take great care in providing this information to insurers prior to inception. The takeaway for insurers concerned to know about specific insolvency matters is that the questions asked must clearly state the information being sought.
First avoidance judgment under the 2015 Act
2021 brought one of the first avoidance judgments for breach of the duty of fair presentation under the 2015 Act (see Non-disclosure of criminal charges – first Insurance Act 2015 avoidance). Berkshire Assets (West London) Ltd v AXA [2021] considered the non-disclosure of criminal charges against an innocent insured and found that an insurer could avoid a policy under the 2015 Act. The insurer in this case was assisted by an internal practice note which showed the underwriter did not have authority to write the risk had they been told about the non-disclosure at the time of placement. Under the 2015 Act an insurer has to demonstrate what it would have done had it been provided with a fair presentation of the risk and it will be interesting to see, in the context of different policies and different insurers, whether such internal underwriting guidelines (as was relevant in this case) are commonly used and relied upon. Those that do not will face greater challenges in proving what they would have done had a fair presentation of the risk been made.
It is worth mentioning in this context the case of Jones v Zurich [2021]. While this was a consumer case and so considered the interpretation and application of the Consumer Insurance (Disclosure and Representations) Act 2012 (the CIA 2012), it is a useful example of the courts considering the factual evidence of an underwriter together with expert evidence to determine what the insurer in a particular case would have done if a non-disclosure/misrepresentation had not been made. Under the CIA 2012, the insured consumer is under a duty to take reasonable care not to make a misrepresentation to the insurer and there are a range of remedies available to an insurer for breach of this duty depending on (i) whether the misrepresentation is careless or deliberate/reckless; and (ii) what the insurer can establish it would have done had the insured complied with its duty. This approach is similar to (and paved the way for) the approach found in the 2015 Act. This case concerned an alleged misrepresentation by the insured in respect of his claims history. Unlike Berkshire Assets v AXA, there was no underwriting manual for the insurer to rely on but the court found that the particular would have declined cover for the risk had the insured's prior claims history been disclosed and the insurer was entitled to avoid the policy. The case provides an insight into how the courts might interpret the provisions in the 2015 Act.
Inducement
The Court of Appeal considered the test for inducement in its decision in Zurich Insurance plc v Niramax Group Limited [2021] (see Court of Appeal rules on test for inducement pre-Insurance Act 2015). Although a decision under the 'old' law, the Court of Appeal's careful scrutiny of the conduct and decision-making of individual underwriters is instructive for any analysis of an alleged breach of duty of the fair presentation under the 2015 Act. It is well established that in order for an insurer to have a remedy for breach of the pre-contract duty of disclosure (under the old law or under the 2015 Act), the insurer must show that the misrepresentation or non-disclosure was a real and substantial cause of his/her entry into the contract on terms that they would not have accepted if they had been apprised of the truth. The Court of Appeal held that the insured's non-disclosure of material facts had not induced the insurer in this case. In finding there was no inducement, the Court of Appeal found that the insurer's process for rating the risk for the purposes of calculating the insurance premium took no account of attitude to risk, which was what the undisclosed facts went to. Non-disclosure could not therefore have been an efficient cause of the renewal being written on cheaper terms than would have occurred if disclosure had been made. The case seems to reflect an underlying point of principle that an insurer should not be entitled to a windfall where breach of the duty of fair presentation has not had any influential effect on the mind of the insurer or played any part in her/his underwriting judgment.
The question of inducement and the evidence required by the court was also considered in Kjaergaard v MS Amlin [2021] where the insured sought summary judgment against the insurer following damage to a yacht (see Court finds summary judgment not suitable for determining issue of inducement). Here the court again recognised the importance of evidence as to the insurer's decision-making process. The case concerned alleged misrepresentation by the insured of its claims history and the insured sought summary judgment on grounds that the insurer's case on inducement was unsustainable and bound to fail. In recognising that the issue of inducement is a question of hypothetical fact or counterfactual, the court did not consider the case suitable for summary judgment. The judge noted the policyholder's submission that, in effect, both disclosure and the witness evidence were not going to be of any assistance to the court in resolving the issue and rejected that case – such matters will typically require ventilation at trial.
Looking ahead
There have been just a handful of decisions under the 2015 Act to date, and even fewer that have considered substantive new aspects of the duty of fair presentation introduced by the 2015 Act. It will be interesting to see going forward not only how the courts determine such issues, but how parties prove their cases on issues such as what constitutes a reasonable search in a particular context, or what an insurer would have done had a fair presentation been made to it.
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