Relief for brokers following Drake versus Provident

The decision in the December 2003 case of Drake Insurance versus Provident Insurance brings welcome relief to brokers by limiting when insurers can avoid policies and in giving wider effect to the duty of utmost good faith in the favour of the insured.

The case revolved around a Mrs Kaur, whose car collided with a motorcyclist who suffered serious injuries as a result. The car belonged to her husband, Mr Singh, and was insured with Provident, with Mrs Kaur as a named driver.

She also had a policy with Drake, which covered her when driving any car with the owner's consent.

Provident avoided its policy, so Mrs Kaur claimed under the Drake policy.

Drake settled the motorcyclist's claim and sought a contribution from Provident, which was refused.

Provident operated a rigid points system. Below 17 points, the premium was normal; from 17 to 29 points the premium increased by 25%. A speeding conviction carried 10 points and a 'fault' accident 15 points.

When the insurance was first placed, Mrs Kaur had been involved in a prior accident. Therefore Mr Singh's points tally was 15 and he was charged the normal premium.

On renewal, Mr Singh failed to advise that he had a speeding conviction but that Mrs Kaur's earlier accident was not a fault accident as the other driver had accepted full responsibility. Provident avoided for non-disclosure of the speeding conviction which, it argued, if added to the fault accident as disclosed, would have given Mr Singh a tally of 25 points and a higher premium.

In reality, the points tally should have been 10, so the premium was correct. The Court of Appeal rejected the avoidance, making some novel points. When assessing materiality, some characteristics of the actual insurer should be taken into account.

- Materiality should be assessed on the actual facts rather than the facts as presented to the insurer.

- There was no inducement. If the conviction had been disclosed, the court considered that the insurers would have discovered, in subsequent discussions, that the prior accident was not a fault one.

- Avoiding the policy, despite knowing that the accident was not a fault one, would breach the insurer's continuing duty of good faith, as would possibly failing to make any enquiries of the insured before avoidance.