Re-write of EL Insurance not a matter for the Court

The High Court recently held that an insurer was entitled to avoid an employer’s insurance policy for non-disclosure and misrepresentation. In Komives v Hick Lane Bedding Limited and AM Trust Europe Limited [2021] EWHC 3139, the High Court was asked to consider whether an insurer could be liable for an employers’ liability claim where an insurance policy had been avoided after it became apparent the policy had been written without receipt of the full facts and information from the insured.

The Facts

The claimants were two Hungarian nationals, who had been illegally trafficked to the UK and sent by the traffickers to work for the first defendant, where they worked in conditions of modern slavery. Both suffered psychiatric injuries; one also suffered a severe accident at work. AM Trust Europe Limited were the company’s employers’ liability insurers and were sued under the Third Party (Rights against Insurers) Act 1930 (the policy was incepted before the 2010 Act that replaced the 1930 Act) as Hick Lane Bedding had gone intro administration and were insolvent. It was accepted that AM Trust had written the policy based on limited information, though they had had sight of a positive survey of Hick Lane’s working practices.

The claimants issued proceedings for their injuries against both Hick Lane and AM Trust, with the latter responding by avoiding the insurance policy due to the non-disclosure of criminal activities by the former. The claimants argued that by writing the policy based on limited information, AM Trust had failed to take into account the possibility of criminal conduct along with the legislative scheme represented by the Employers’ Liability (Compulsory Insurance) Acts of 1969 and 1998, designed to restrict the conditions/ warranties contained within employer liability policies, and to protect employees like the claimants.

The claimants were unsuccessful at a preliminary hearing, however; they were granted permission to appeal the decision.

The High Court

The High Court recognised that the scheme of employers’ liability insurance found in the Employers’ Liability (Compulsory) Acts of 1969 and 1988 was limited leaving policies vulnerable to being avoided due to non-disclosure that would be unbeknown to employees. Conversely, the Road Traffic Act 1988 imposed severe restrictions on the insurer’s right to avoid a policy for breach of duty of fair representation.

The claimants attempted to overcome this hurdle by arguing that rule 8.1.1 of the Insurance Conduct of Business Sourcebook (ICOBS), forced insurers to accept claims from innocent employees. They argued the ICOBS and right to enforce the rules by civil action amounted to a legislative intervention to close the protective gap. They maintained that AM Trust had acted unreasonably by avoiding the policy, as the legislative scheme of employers’ liability insurance was intended to ensure that employees injured at work had the right to receive compensation.

Unfortunately for the claimant, the High Court disagreed. Though rule 8.1.1 of ICOBS had introduced a regulatory overlay to decisions made on avoiding policy, the overlay was concerned with the process as between insured and insurer, and it did not amount to changing the substantive law, nor did it introduce a test of reasonableness which would require insurers to have regard for all facets of the claim. Rule 8.1.1(3) does not operate to put a person claiming under the 1930 0r 2010 Act in a better position than the insured. In this instance, the process by which the policy was originally incepted and then avoided, was not unreasonable.

Comment

The court highlighted what may be perceived as shortcomings with the current employers’ liability legislation, particularly from the view of those bringing claims on behalf of employees. However, it applied a conventional approach to construing the law and interpreting the Insurance Conduct of Business Sourcebook. From an insurers perspective, it will be reassuring to know that protection is still afforded should a policy be written without the full facts and information having been provided. Ultimately, this case points towards the fact that, if substantive changes are to be made to the current framework, this will likely be a matter for Parliament and not the Courts.