What does English law say an insurer 'knows'?

Although the recent case, George on High Ltd & Anor v Alan Boswell Insurance Brokers Ltd & Anor, was about which entity was covered under a policy, the issue of an insurer's knowledge is important when it comes to arguments about whether there was a disclosure or misrepresentation when the policy was taken out. Insurers will have a range of remedies (including potentially treating the policy as void from the outset) where there were material non-disclosures or misrepresentations by an insured.

Insurance Act 2015: before and after

Before the advent of developed electronic systems, information was often held in hard copies. As a result, courts were reluctant to find that knowledge held by an insurer – for example, the claims team – should be imputed to underwriters. For example, in Mahli v Abbey Life [1995], the Court of Appeal held that information received by an insurer on three separate occasions for three separate purposes did not give the insurer sufficient institutional knowledge to waive a disclosure requirement unless it is received by a person, "authorised and able to appreciate its significance", said Lord Justice Rose.

However, the position changed with the introduction of the Insurance Act 2015. It states that an insurer "ought to know something", if an employee or agent knows something and ought reasonably to have passed it to an underwriter or the relevant information is held by the insurer and is readily available to an underwriter.

Caselaw on the effect of this provision has been thin on the ground.

George on High: what happened?

The named insured was the owner of the freehold of a hotel. However, another group company (called "GOR" in the judgment) ran the business and was not named as an insured. After a fire at the hotel, the insurer paid the freeholder for damage to the hotel but declined indemnity for GOR's business interruption losses on the basis it was not a insured.

GOR argued that earlier claims dealt with by the insurer's external and internal claims handlers made it clear that the insurer knew that GOR ran the business and it had treated GOR as being insured under the policy.

It was held that that this was enough to fix the underwriter with the same knowledge, with the result that the policy was to be read as including GOR as an insured (or to be rectified, with the same effect), or else insurers were estopped from denying cover. The court found that matters known to the claims handlers ought to be known to underwriters. The fact that the underwriters may only have undertaken a "cursory review" of claims information did not prevent them from being deemed to have knowledge of the circumstances of the individual claims.

The judge concluded that a reasonable person would construe the meaning of the "insured" as including GOR, even though it was not expressly named in the policy.

Osborne Clarke comment

Many insurers will be surprised by the court's approach taken to construction, given the clear language of the policy. However, overall, this appears to be a fair outcome based on the insurers' prior dealings with GOR.

We consider that the court's approach to circumstances when insurers will be deemed to have knowledge of the insured's circumstances is likely to be of more lasting application. In our view, this is a welcome and understandable development in the approach to deemed knowledge which takes into account the increasingly sophisticated approaches to knowledge sharing in the insurance industry.

The decision does, however, increase the burden on underwriters to ensure relevant claims information is taken into account in the underwriting process and potentially creates difficulties in situations where claims handling functions are largely outsourced and there is limited dialogue between claims handlers and underwriters.