The price of dishonesty

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In Bate v Aviva Insurance UK Ltd [2013] EWHC 1687 (Comm), the Court held that insurers were entitled to avoid a residential insurance policy on the grounds of misrepresentation, non-disclosure and breach of condition due to the insured's dishonest behaviour when taking out his home insurance policy.


The insured, Mr Bate, was an experienced loss adjuster, working in the insurance industry. He took out a domestic buildings and contents insurance policy with Aviva, which was to cover him for loss and damage to his 19th century home, known as Long House. Not insured, however, were the other buildings located on Mr Bate's estate: Long House's annex, called Coach House, plus converted former stables and a tack house.

In June 2006, a fire occurred at Long House and largely destroyed the property.

Mr Bate's claim

Mr Bate sought to claim an indemnity under his insurance policy.

More interestingly, Mr Bate also argued that he was entitled to claim damages for breach by Aviva of its statutory duty under rule 7.3.6 of the Insurance Conduct of Business Sourcebook (ICOB), which was the relevant regulatory framework governing insurance companies at the time of the event giving rise to the claim.

Rule 7.3.6 of ICOB provided that:

an insurer must not:

1. unreasonably reject a claim made by a customer;

2. except where there is evidence of fraud, refuse to meet a claim made by a retail customer on the grounds:

1. of non-disclosure of a fact material to the risk that the retail customer could not reasonably be expected to have disclosed;

2. of misrepresentation of a fact material to the risk, unless the misrepresentation is negligent”.

Although some ICOB rules apply to all classes of insurance, some are confined only to retail customers. The definition of a retail customer is given in the FSA handbook as:

an individual who is acting for purposes which are outside his trade, business or profession”.

Mr Bate, therefore, sought to argue that he had taken out the insurance over Long House as a “retail customer”.

Aviva's response

Aviva purported to avoid the policy for what it claimed were multiple examples of non-disclosure and misrepresentation of material facts in relation to Long House.

In relation to the allegation that Aviva had breached its statutory duty under rule 7.3.6 of ICOB, Aviva argued that it had not, because Mr Bate was not a “retail customer” and, accordingly, rule 7.3.6 of ICOB did not apply. Aviva argued that Mr Bate was acting as a property developer, developing Long House and the buildings within his estate for the commercial profit and business use by his own construction company.

In support of its argument, Aviva referred to the guidance contained at paragraph 1.7.3 of ICOB, which expressly excludes proprietors of buy-to-let properties from being “retail customers”. Aviva argued, by analogy to this, that a proprietor of a property being developed for commercial and financial gain should fall within the same exception.

The Court's decision

The Court held that, regardless of the complications going on at the estate, Long House had been Mr Bate's home since 1984 and Mr Bate's prime concern had been to insure it under a home owner's policy. Hence, ICOB applied and Mr Bate was a “retail customer”. This meant that Mr Bate was afforded more protection than if he was deemed to be a commercial person.

However, the Court still held that Aviva's rejection of the claim was reasonable. The following points were established:

  • In the proposal form, Mr Bate wrongly confirmed that the property would not be used in connection with any business or profession and that parts of it had been “let”. It was held that Mr Bate should have disclosed his loss adjuster business and that, accordingly, this was not a fair presentation of risk. However, Aviva was unable to deny coverage on this ground as it failed on the question of inducement.
  • Mr Bate also claimed that there had been fire damage “at a previous address”. The Court held that this was a misrepresentation and non-disclosure (as it suggested that the fire had occurred at a separate building) whereas the fire had actually occurred at the very property Mr Bate was seeking to insure.
  • Mr Bate did not disclosure the business that was being carried out at his neighbouring property. Whereas businesses at neighbouring properties generally do not need to be disclosed, the Court held that these arrangements were highly untypical and, accordingly, the insurers should have been made aware of the situation.

Mr Bate's claim was therefore dismissed. It is worth noting that even though a consumer insured has greater protection than a commercial insured against the consequences of misrepresentation and non-disclosure, that will not assist when there is evidence of dishonest behaviour.

Rachel Bernie

Rachel Bernie Managing Associate

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