The Commercial Court’s judgment on a recent claim brought by an insured party which was not expressly named on the policy schedule has addressed multiple issues around the liability of an insurer including arguments relating to policy construction, rectification, agency and the doctrine of estoppel.
George on High Limited & George on Rye Limited v (1) Alan Boswell Insurance Brokers Limited (2) New India Assurance Company Limited [2023] EWHC 1963 (Comm) is the second of two recent cases that have closely considered insurers’ conduct, which again despite obvious shortfalls on all sides, has favoured policyholders overall.
In this article senior associate James Breese and paralegal May Critchfield explain that while the insureds succeeded on this case’s unique facts, there are lessons to be learned for all sides of the insurance market.
Background to the insurance claim
The freehold to the George in Rye hotel was owned by the first claimant, George on High Ltd (“GOH”). The hotel business was operated by the second claimant, George on Rye Ltd (“GOR”).
GOH and GOR brought claims for property damage and business interruption losses (the “claims”) under an insurance policy (the “policy”) arranged on the claimants’ behalf by the first defendant, Alan Boswell Insurance Brokers Ltd (“AB”), and underwritten by the second defendant, New India Assurance Company Ltd (“NIAC”).
NIAC accepted liability for GOH’s claims in relation to fire damage to the freehold property but declined to make payment to GOR for its business interruption and property losses. NIAC denied liability for those losses on the basis that GOR was not named in the policy. The named policyholder was ‘George on High Limited t/a The George in Rye’, which NIAC said did not extend to cover GOR as an insured.
The claimants brought proceedings against AB for negligently arranging the policy. AB added NIAC to the proceedings on the basis that the insurer should have accepted liability in full.
It was common ground that if NIAC was not liable to indemnify GOR under the policy, then AB would be liable in negligence. The dispute before the court was therefore to determine which of the defendants was liable for the claims.
At trial, the claimants relied on evidence of NIAC and its agent’s handling of previous liability claims (the “historic claims”) made by GOR. During the handling of these historic claims the evidence showed that NIAC:
- had identified GOR as an insured under the policy and as operator of the hotel business;
- had accepted liability for GOR’s historic claims; and
- on no previous instance denied liability on the basis that GOR was not insured.
Against that background, the court was asked to consider the extent of NIAC’s liability. The claimants advanced several key arguments including the correct construction of the policy, rectification, and estoppel.
Explaining the decision
The court held that NIAC was liable under the policy to indemnify GOR for its losses, but not GOH’s uninsured loss of rent. The court found in GOR’s (and AB’s) favour in relation to each of the arguments above, discussed below.
Construction argument
The court found that the meaning of the ‘insured’ under the policy meant “George on High Limited and the business operated by GOR t/a The George in Rye“.
It was held that, to ascertain the real meaning of the policy, the court must establish “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.
The court found that the background knowledge which would reasonably have been available to NIAC’s agent, Garwyn, could be attributed to NIAC. The court found that NIAC as a legal entity would know all things told to a NIAC employee during a meeting with the insured, and the details of the meeting having been communicated and recorded by a third party instead did not affect the knowledge being attributed to NIAC due the basic principles of agency.
Referring to section 5(2)(a) of the Insurance Act 2015, the court held that knowledge is not limited to the knowledge of employees and an insurer ought to know certain information. Furthermore, the court found it was material that NIAC’s claims department had demonstrated knowledge of the insureds’ company structure and had settled claims on that basis despite there being no evidence before the court of systems being in place at NIAC for the passing of information between claims and underwriting teams.
As a matter of objective construction, in the context of the factual matrix of the previous claims handling, a reasonable person would therefore understand GOR to have been an insured under the policy.
Rectification argument
The court found in the alternative (if the construction argument had not succeeded) that rectification of the policy would have been ordered following the application of the test established in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71:
- It was clear that the parties’ common intention was that the hotel business trading as The George in Rye would be insured under the policy.
- There was clear outward expression of this intention, evidenced by GOR paying the premium to insure the hotel’s business and NIAC’s acceptance of that payment.
- The first indication from NIAC that there was an intention not to insure GOR was in September 2019. This was long after the policy incepted, and it therefore followed that the common intention to insure GOR existed at the time of the policy.
- Therefore, if the construction argument failed, then the policy did not in fact reflect the parties’ common intention and this should be rectified.
The court reached these conclusions even though the parties held different beliefs as to the identity of the entity operating the hotel.
Estoppel argument
When analysing the doctrine of estoppel, the court reiterated the principles in HMRC v Benchdollar Ltd & Ors [2010] 1 All Er 174 and that the following requirements must be satisfied:
- There must be a common assumption on which the estoppel is based.
- The party conveying the assumption must expect some reliance to be placed on it.
- The party alleging estoppel must have relied on the common assumption.
- The reliance must have occurred in subsequent mutual dealing.
- There must have been some detriment to the party alleging estoppel or benefit to the party which is alleged to be estopped.
On the facts of George on High, each requirement was satisfied.
Estoppel is notoriously difficult to establish and will be very fact-specific in each case. It is however helpful for the test above to have been repeated and for the court to have found in favour of policyholders when closely considering insurers’ conduct.
What can policyholders and brokers learn from the George on High case?
The case is fact-specific insofar as it turned on the combination of an incorrectly named insured, and previous claims paid by the insurer to that insured. There are nevertheless useful takeaways when considering the relevance of insurers’ knowledge and prior conduct in the context of a coverage dispute.
First, the insurer was found to have knowledge of the historic claims even where there was no formal information passing between the claims and underwriting departments of the insurer, and where NIAC relied on a third party claims handler as agent.
Secondly, NIAC’s knowledge and handling of historic claims was a relevant factor in determining coverage for the present claims.
Thirdly, as a financial transaction, the payment of the insurance premium was a key factor in determining the parties’ intentions and when applying the doctrine of estoppel.
Fourthly, the insurer was estopped from denying liability for the claims where the insured had relied on the insurer previously accepting liability, and the insured relied on that acceptance as indicative of appropriate insurance cover being in place. The insured suffered detriment by continuing to pay the insurance premium at renewal each year.
The first two points above follow the rationale in the recent decision in World Challenge Expeditions v Zurich Insurance Company Ltd [2023] EWHC 1696 (Comm), summarised here. The insurer in that case was also estopped from denying cover for the claims, even where its coverage analysis was correct that those claims were not actually covered.
While both World Challenge and George on High are fact-specific, it is noteworthy that two recent decisions examining insurers’ conduct closely have reiterated the principles by which insurers must abide. Both have found insurers to have fallen short, thus jeopardising their coverage defences.
For brokers and policyholders, the message remains clear. It pays to take care pre-inception, at renewal, and when claims do arise. Policy and background information should be accurate and fully understood, as it will not always be the case that an insurers’ misconduct or misfortune will provide a solution to a problem.
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