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Latest case on “Consumers” in Commercial Insurance Contracts

In MOHAMMED ASHFAQ v INTERNATIONAL INSURANCE CO OF HANNOVER PLC (2017) EWCA Civ 357 the Court of Appeal was asked to consider the appeal of an individual who had taken out a “residential let property owners” policy of insurance in respect of a property which he was letting to students against a summary judgment against him on the grounds that he had no real prospect of establishing that he had contracted with the insurer as a consumer within the meaning of the  Unfair Terms in Consumer Contracts Regulations 1999 and therefore in establishing his clam for an indemnity under an insurance policy.


The facts

The insured owned a residential property which he let to students, and the insurance policy was a “residential let property owners” policy. It had been issued on the basis of a proposal form containing a “statement of facts” which was expressly stated to form the basis of any contract. Moreover, the policy expressly stated that the proposal would be incorporated in the contract, and the insurance would be subject to terms and conditions specified in the policy. When completing the proposal form, the insured stated that he had no pending prosecutions for offences other than motoring offences. However, he was in fact awaiting trial on an assault charge. During the period of cover, the property was damaged by fire and and the insured claimed under the policy. When the insurer discovered his failure to disclose the pending prosecution, it avoided the policy. The insured claimed an indemnity, and the insurer defended on the basis that the non-disclosure was a breach of a “basis of contract” clause, a breach of warranty, and a material non-disclosure or misrepresentation. On hearing the summary judgment application, the judge applied the common law and found for the insurer. The insured appealed on the basis that he was a “consumer” within the meaning of the  Unfair Terms in Consumer Contracts Regulations 1999 and that had the judge considered those provisions he would have found that the “basis of contract” and “subject to” clauses were unenforceable.

The issue was whether the insured had a real prospect of establishing that he was a “consumer” within the meaning of  reg.3(1).

The Judgment

The insured had no real prospect of establishing that he was a consumer. Regulation 3(1) defined a consumer as somebody who was contracting outside his trade, business or profession. The insured claimed that because he was the director of a number of information technology companies, he could not have been contracting as someone in the business of property letting. He also pointed to the fact that on the proposal form he had described the property as his home, even though he was letting it out. However, the insurance policy and application documentation showed that he had taken out the policy to protect a property which he was using for the business of letting to students for rent. The insurance was therefore related to the trade, business or profession of property letting and was business, rather than consumer, insurance. The insured’s position as director of some information technology companies did not mean that he was not also carrying on the business of property letting for profit. Indeed, a person who took out a policy in respect of a property bought under a buy-to-let mortgage was a commercial customer for the purposes of the Sourcebook, even if he was also carrying on another profession. The same had to apply to someone such as the insured: the purpose of the insurance was to protect property that was being let to tenants.


The Court of Appeal’s comments in relation to summary judgment applications

The Court of Appeal took the opportunity to make some general comments in relation to the desirability of summary judgment applications. It stated that the insured had adduced no evidence to support his assertion that he was a consumer, despite having known for more than a year that the matter was disputed. It would therefore be quite wrong for the court to speculate about what evidence there might be, or to allow him to go to trial in the hope that some evidence might turn up. Given the overriding objective of the CPR, the procedure was intended to avoid using limited court resources on cases with no real prospect of success, such speculative Micawberism was to be discouraged.

Since the insured had no real prospect of establishing that he was a consumer, the common law applied. Where a proposal form contained a “basis of contract” clause, it had contractual effect, and the statements it contained constituted warranties on which the insurance was based. Consequently, the insured had no real prospect of defeating the breach of warranty defence, and the judge had been right to enter summary judgment in the insurer’s favour.

Judy Dawson specialises in insurance indemnity issues, advising and acting for the insurance industry in relation to complex and high-value indemnity claims.

Contact Judy’s clerks

Francine Kirk on 0113 202 8605

Jordan Millican on 0113 213 5207