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ATE insurer not estopped from avoiding policy, High Court rules

RCJ [1]

Judge Seymour: “No estoppel without communication”

After-the-event (ATE) insurer Temple Legal Protection was not estopped from avoiding payment on a policy after a fraudulent misrepresentation, the High Court has ruled.

Judge Richard Seymour QC, sitting as a High Court judge, described the case brought against Temple by two firms of insurance brokers as “pure Alice in Wonderland”.

Making an interim payment and increasing the limit of indemnity were not acts that, by themselves, indicated that Temple would pay out at the end notwithstanding its customer’s misrepresentation, he said.

In IHC and another v Amtrust Europe [2015] EWHC 257 (QB), the court heard that Temple had provided ATE insurance to Consortium Hotels & Inns Business Services for its claim against two firms of insurance brokers, and another insurer, over alleged secret commissions. Some of the claims were dismissed at summary judgment – at which point a £10,000 interim payment was made – and the rest were rejected by the High Court in December 2012 after it held that Consortium’s director knew about the commissions.

The court issued a default costs certificate in favour of the brokers for £361,400 in February 2013, but the following month Consortium went into liquidation without paying any of the costs.

The insurance brokers then sued Temple under the Third Parties (Rights against Insurers) Act 1930, claiming payment of the outstanding £180,000 of Consortium’s £190,000 cover.

Though it was common ground that Temple was entitled to repudiate the contract of insurance because of the misrepresentation, the brokers argued that it was estopped from doing so because of the interim payment and subsequent increase in cover, saying these acts were “fundamentally inconsistent” with declining to pay out.

Judge Seymour said that their claim depended entirely “not upon anything actually said… but upon what each of the acts identified, treated as a representation, carried with it as ‘some apparent awareness of the right upon which the representor will not insist’”.

He said that on the facts it did not follow from the successful application for summary judgment that the director had lied – the defence had been put no higher than that Consortium, as an experienced commercial party, should have known commission was being paid in the circumstances. Further, at the time of making the interim payment, neither Temple nor Amtrust had seen the particulars of claim or defence in the original action.

Judge Seymour said the essence of estoppel was communication between the parties and “without a communication there can be no estoppel”.

He said that although a representation giving rise to waiver by estoppel could be either by words or conduct, it must result in a “clear and unequivocal message from the insurer to the insured that the insurer will not exercise the relevant rights” and the insured must rely on that message “in a manner making it inequitable for the insurer to go back on it”.

The judge went on: “As it seems to me, it is impossible to found a waiver by estoppel without each of the insurer and the insured being aware, at very least, of the facts which give rise to some relevant right of the insurer. There can be no estoppel unless both parties share at least that level of knowledge.”

The judge said the alleged representations did not carry with them “some apparent awareness of the right upon which the representor will not insist” and there was no evidence of “actual reliance” by the consortium on them.

Dismissing the brokers’ claim, he concluded: “Never in the field of equity has assistance been lent to a crook to the disadvantage of an innocent party defrauded by the crook. It could not possibly be equitable to allow a party who knew the true position to say that it was entitled to rely upon some indication of ‘apparent awareness of the right upon which the representor will not insist’ as against the deluded opposite party.”