On the CPD page of the 26 September we offered a magnum of champagne for the best argued solution to a problem facing a broker. Waltham Pitglow sets out the arguments and selects his winner

To remind you, here is the question. Mr K was a partner of a business that ran a small sailing school. That business was insured and had suffered three losses.

Loss one was a non-fault that occurred four years and 11 months prior to the date of quotation, but over five years from the date of completion of the cover. No insurance claim was made. A full recovery was made.

Loss two was for under £300. Mr K was in control. No insurance claim was made.

Loss three was for £2,300 when the vessel was under the control of a Royal Yacht Club assessor two years prior to the commencement of insurance. Mr K was on board but with no involvement with the voyage.

Mr K purchased a vessel for private use only and applied for private small craft cover and the question on the proposal stated:

"Give details of any claims that have occurred in the last five years to vessels of which you are the legal owner, or were under your control at the time of loss."

Mr K wrote: "None."

Three months into the policy (under which there was £500 excess) a total loss occurred.

The insurer avoided the policy for a variety of reasons, but one of them was that the loss history was material and that the declaration "none" amounted to non-disclosure of material facts.

The insurer argued that despite the fact that the losses occurred under a business insurance, Mr K was the legal owner of the vessels that suffered loss, by virtue of the fact that it was a partnership. Therefore, to answer the question correctly, he was obliged to disclose these losses.

In court, the underwriter, giving evidence, conceded that if the business had been a limited company, Mr K could not have been the legal owner of the vessels and the losses would not have to be disclosed.

To complicate matters, the broker used a master proposal which asked for five years' claims experience, but the actual printed proposal of the insurer asked for only three.

And here are the model issues that should have been addressed:

  • Although one of the losses was one month inside the five-year limit on the proposal it was one year outside the limit specified by the insurer on its normal proposal form

  • If a full recovery was made does this not weaken the underwriter's claim anyway?

  • At the time of inception the loss was overfive years old anyway

  • The second loss was less than the policy excess. Can this be material

  • The insured had no control over the third loss whatsoever. Can this be material?

  • Irrespective of the above the claims record shows a loss ratio of 80% over the last three years. Could that in isolation be a material fact?

  • The point about business losses could be something of a try on. Under the ABI Code, the insurers proposal should highlight the need to disclose business losses.

    There is no difference in materiality, as to whether the loss was a limited company business or a sole trader/business.

    This is a point of law. On this basis, every time a partner of a firm completes a personal proposal they would be expected to list all losses arising under similar insurance on partnership property

  • The proposal asks specifically for details of claims made, not losses. So really only the last occurrence needs to be disclosed anyway

  • If the insurer succeeds, is it not the case that the broker should have explained to the insured the need to disclose business losses under the GISC Private Code and could the broker have been negligent?

  • Was the broker negligent in using a generic fact find and not answering the questions on the insurer's normal proposal?

    The winner
    Of all the entries, two stood out in the final assessment. Graham Skirrow, of Skirrow Insurance Services, Alnwick, and David Toser, of Eynsford, Kent.

    David took heed of the warning not to argue legal points and focused very much on the rights of the insured under the ABI Code of Practice, (which set a handful of entries above the others and minus marks to those of you who relied on case law and the Marine Insurance Act 1906).

    Graham took more note of the fact that the broker might have failed in his responsibilities. But on the other hand he focused on rights of complaint of the insured - which was not asked for - rather than relate the circumstances to the codes.

    On balance, the bottle of bubbly goes to... David on the basis that he argued the case for fairness as prescribed by both the ABI Statement of General Insurance Practice and GISC Private Code.

    With David's permission, his entry will be published next week.

    By the way, we think that the insurer's stance on the materiality of business losses under a personal insurance is a bit thin.

    We would love to hear from any readers who can find a personal proposal that includes the following words:

    "Please include details of any losses that are insured by this policy which you have suffered as a sole trader or partner of a business, but not if they occurred in a business where you are a director or shareholder of a limited company" - or words to that effect.

    Answers to last week's CPD

    Case study 1.
    The proximate cause of the loss was attempted theft, therefore only the £150 voluntary excess should apply. The insurer should have explained the onerous conditions of the hire car benefit before inception of the policy (GISC Code).

    This was clearly a complaint and the insurer was in breach of GISC rules by not responding in the correct manner.

    Case Study 2
    False, as long as the policy made clear that personal possessions were defined in this way

    True, but see above.

    Hindsight underwriting. And false because theft would have to involve violent entry or exit, but possibly true if there was some form of break-in, but false because it was not self-contained accommodation. (This one could go on and on.)

    False. A loan does not transfer legal ownership. Perhaps there is a common law duty of care or there might be a contract, but the insurer should settle. And the rights of recovery could be subrogated if they exist. Unlikely in this case

    False. I checked on security

    True. Probably the least contentious way to settle this claim.

  • Waltham Pitglow is an insurance investigator specialising in compliance.

  • This page is edited by RW Associates, specialists in training, complianc e and competence. Email to:
    ruy.lopez@rwassociates.softnet.co.uk .

    Using this CPD page
    For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.

    If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded. For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.

    It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.

    Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.

    For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.

    Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.

    In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website.

    We will be preparing a binder for you to keep these in alongside the results of the exercises.

    Using this CPD page
    For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.

    If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded. For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.

    It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.

    Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.

    For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.

    Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.

    In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website.

    We will be preparing a binder for you to keep these in alongside the results of the exercises.

    To download a PDF of this article as it appears in the magazine click here (60k)