Avoidance of EL Policies Revisited

in which I appeared for insurers, has now concluded.  The case involved an attempt to pursue claims against EL insurers under the Third Parties (Rights Against Insurers) legislation, by victims of labour trafficking, in respect of injuries caused by their employers.  The first round of the case took place in March 2020, by way of a trial on the insurance issues, following which Master Davison ruled that there was no valid claim against the insurers either under the general law or by reason of provisions contained in the Insurance Conduct of Business Sourcebook (ICOBS).  The second round involved an appeal from the Master’s decision, focussing on the ICOBS argument, with the appeal having been dismissed by May J by way of a detailed judgment issued on 24 November 2021.

What does the case tell us?

1. It reminds us that that an EL policy can be avoided for misrepresentation and/or non-disclosure - in an appropriate case. It is not always appreciated that that can be done, but it can be.  This is in view of the differing statutory regime for such policies, as compared with motor insurance.
2. It tells us that the provisions of ICOBS will not generally interfere with insurers’ substantive rights in respect of such avoidance. Rule 8.1.1 of ICOBS imposes a general requirement that insurers must handle claims promptly and fairly.  Sub-paragraph (3) of the Rule stipulates that they “must not unreasonably reject a claim (including by terminating or avoiding a policy)”.  May J has emphatically rejected an argument that this subjects insurers’ legal rights in respect of avoidance to some form of broad reasonableness criterion.  It is only by way of exception to this general interpretation that there are some specific provisions to be found in Rule 8.1.2 which are relevant to substantive rights in relation to consumer contracts (but which, in any event, do no more than mirror the current legislative regime and previous industry commitments in relation to such cases).
3. It tells us that the requirements of Rule 8.1.1 apply only as between insurer and insured – so not to claims brought by injured persons under the Third Parties (Rights Against Insurers) legislation.
4. It illustrates that an EL policy can be potentially avoided for misrepresentation in relation to an insured’s health and safety regime – in an appropriate case. This being one of the grounds on which the avoidance was upheld by the Master.  That there is a statutory prohibition (under the Employers’ Liability (Compulsory Insurance) Regulations 1998) in respect of policy conditions which would defeat a claim on the basis of reasonable care not having been taken for protection of employees during the course of their employment does not mean that insurers cannot rely on pre-inception misrepresentation or non-disclosure as a basis for policy avoidance.
5. It makes the point that whereas insurers may (and commonly do, nowadays) take a “scant” approach to the inquiries they see fit to make before acceptance of a risk, that need not preclude them from relying on misrepresentation and/or non-disclosure.
6. It shows that insurers can potentially succeed in establishing the requisite inducement for upholding of an avoidance, even where they may not be in a position to call the underwriter responsible for acceptance of the risk.
7. It indicates that, for the purposes of avoidance of an EL policy, victims of labour trafficking do not fall into a special category. What that status could potentially entitle them to do is to bring Judicial Review proceedings, in so far as their claims do not fall within the ambit of the Criminal Injuries Compensation Authority scheme (although the Judge was careful to give no indication as to whether such might likely succeed).  What it does not do is give them a specially protected status in relation to claims against insurers.