England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		3rd February 2003

Mr Justice Moore-Bick:

1. On 2^nd July 1996 a motor car driven by Mrs. Kamaljit Kaur was involved in an accident with a motorcycle in which the rider, Mr. Michael Beach, was seriously injured. The car driven by Mrs. Kaur belonged to her husband, Dr. Prim Singh, and was insured in his name under a policy of insurance issued by the defendant, Provident Insurance Plc ("Provident"). Mrs. Kaur was a named driver under that policy.
2. At the time of the accident Mrs. Kaur also owned a car of her own which was insured in her name under a policy of insurance issued by the claimant, Drake Insurance Plc ("Drake"). That policy contained an extension under which Drake agreed to indemnify Mrs. Kaur against liability to third parties when driving another vehicle with the permission of the owner.
3. Following the accident Mr. Beach sought compensation for his injuries. Dr. Singh made a claim under his insurance, but Provident declined the claim and purported to avoid the policy on the grounds of non-disclosure. Mrs. Kaur therefore made a claim under her policy with Drake. There were various exchanges between the two insurance companies in the course of which Drake tried to persuade Provident to accept liability, but its efforts came to nothing and in the end Drake settled Mr. Beach's claim. In this action Drake seeks to recover a contribution from Provident in equity on the grounds that it had no right to avoid its policy, that both companies were liable to indemnify Mrs Kaur and that there was therefore double insurance in respect of the same risk.

Was Provident entitled to avoid its policy?

4. In order to succeed in this action Drake must establish that Provident was under an obligation to indemnify Mrs. Kaur in respect of her liability to Mr. Beach. Provident's right to avoid its policy therefore lies at the heart of this case and it is necessary to describe in a little detail the circumstances in which the company came to decline liability.
5. Dr. Singh first became insured with Provident in February 1995 through the brokers Hexagon Insurance Services Ltd. In the proposal form that he signed on 10^th February 1995 he named Mrs. Kaur as an additional driver and disclosed the fact that she had been involved in an accident in January 1994. The following brief details of that accident were entered in the form:

"Add[itional] Driver 1, Hit by T.P. in rear,

PI No, Fault Yes, £2000 Own cost, £0 TP cost,

NCB Disallowed."

6. The form was filled out by the broker electronically in the course of a telephone conversation with Dr. Singh. It was then printed off and sent to him for signature. Dr. Singh signed and dated the proposal form which he returned to the broker who in turn sent it to Provident. By signing the form Dr. Singh expressly confirmed that in completing the form the broker was acting as his agent and that the information it contained was true to the best of his information and belief.
7. On 18^th December 1995 Dr. Singh committed a speeding offence known as an "SP30". He originally considered contesting liability, but having received advice decided not to do so. The matter was dealt with in January 1996 by way of a fixed penalty and his licence was indorsed. Dr. Singh renewed his policy with the Provident on 17^th February 1996, but failed to disclose the conviction.
8. Following the accident with Mr. Beach in July 1996 Dr. Singh made a claim under the policy on behalf of his wife. He was asked to send Provident a copy of his driving licence from which, of course, the conviction became apparent. On 2^nd August 1996 Provident wrote to Dr. Singh informing him that the conviction was a material fact that should have been disclosed on renewal and that it was avoiding the policy for non-disclosure.
9. At this point it is necessary to say something about the way in which Provident writes motor insurance. Although each risk is the subject of an individual proposal, as it was in the case of Dr. Singh, consideration of each individual risk by reference to the information contained in the proposal form does not form the basis of the underwriting operation. Instead, detailed underwriting criteria covering all aspects of the assessment of risk and the calculation of premium are developed and provided to brokers each month in electronic form. Using this data in conjunction with information provided by their clients brokers can calculate the premium and terms on which Provident is willing to make insurance available. If the terms are broadly acceptable the broker can open a proposal form on screen for completion electronically and subsequent signature in hard copy. The process calls for little or no individual judgment to be exercised by Provident's underwriters whose function is mainly one of monitoring the system to ensure that it is working correctly. The underwriting criteria themselves are clear but inflexible.
10. The calculation of the premium in any given case depends in part on the insured's driving and claims history. The application of the underwriting data to basic information relating to the vehicle and driver produces a 'normal' premium. In order to determine whether an increased premium should be charged demerit points are ascribed to various circumstances and events. Thus at the time in question each accident within the previous three years attracted 15 points and each accident that had occurred more than three years ago but within the previous five years attracted 8 points. However, only a "fault" or "partial fault" accident counted as an accident for these purposes; a "no fault" accident was ignored. Convictions for motoring offences were allocated points in the same way. Under the underwriting criteria applicable in February 1996 an SP30 speeding offence within the previous three years carried 10 points. The driving and claims history of any additional named driver was taken into account in the same way in calculating the total number of demerit points. If the total number of points did not exceed 16 the insured was charged the 'normal' premium. If the total tally was 17-29 points he was charged an extra 25%, and so on. A total of 60 or more points would result in the risk being declined altogether.
11. From this description of the underwriting criteria it can be seen that on its own neither a recent "fault" accident (15 points) nor an SP30 speeding conviction (10 points) would have resulted in an increased premium. Together, however, they gave rise to a tally of 25 points which would result in a 25% increase. When in August 1996 Provident gave notice to Dr. Singh avoiding the policy it did so in perfectly good faith. It was still under the impression (as it had been in February) that the accident in January 1994 was, as had been stated in the original proposal form, a "fault" accident and it knew that if the speeding conviction had been disclosed it would inevitably have led to the imposition of an increased premium.
12. After Mrs. Kaur made a claim under her own policy, Drake and Provident began to manoeuvre for position. Drake felt strongly that Provident ought not to repudiate liability over the non-disclosure of something as minor as an SP30 conviction and tried in a number of ways to persuade it to change its mind. Outwardly Provident continued to insist that it would maintain its avoidance of the policy, but after Drake suggested that it might be entitled to avoid its policy as well because of the failure to disclose Dr. Singh's conviction senior managers within Provident recognised that the company might be forced to reconsider its position. Dr. Singh was also unwilling to accept that Provident was entitled to repudiate liability. In January 1997 he made an attempt to resolve the position and in the course of discussions with Provident he let slip the information that Drake had told him that if Provident refused to deal with the claim, Drake itself would do so. That was enough to persuade Provident to harden its attitude and thereafter it maintained its refusal to accept the claim.
13. On 6^th February 1997 Provident wrote to Dr. Singh setting out the reasons for its decision. For the first time it explained that in conjunction with the accident in January 1994 his conviction warranted the imposition of special terms when the policy was renewed in February 1996. On 5^th March Dr. Singh wrote to Provident again in a further attempt to persuade it to change its mind. In that letter he said that the accident in January 1994 was a "no fault" accident. That was potentially very significant given the fact that the combination of a "no fault" accident and a speeding conviction would have attracted a total of only 10 points and would not have led to the imposition of an increased premium. In those circumstances it would have been very difficult, if not impossible, for Provident to say that Dr. Singh's failure to disclose his speeding offence had induced it to accept the risk on terms to which it would not have agreed if it had known the true position. I find it very surprising, therefore, and somewhat disturbing that when Provident replied to that letter on 10^th March it did not ask Dr. Singh to explain what he meant by saying that the previous accident was a "no fault" accident and that it did not take any steps itself to find out whether he was right or not. Leaving aside any question of its legal obligations, I should have thought that a wish to act fairly towards its insured and to protect its own commercial reputation would have led it to do so. However, it simply reiterated that a combination of the accident and the conviction for speeding would have given rise to the imposition of special terms.
14. Dr. Singh was not prepared to allow the matter to rest there and referred the dispute to arbitration. He acted for himself without legal advice and on 27^th April 1997 submitted his claim in the form of a letter in which he enclosed, among other things, copies of the correspondence to which I have just referred. In its defence, which was submitted on 19^th May, Provident stated that the proposal form completed and signed by Dr. Singh had disclosed a "fault" accident in 1994 which resulted in damage to his vehicle of about £2,000 and the loss of his no claim discount. It said that if Dr. Singh had disclosed his speeding conviction on renewal he would have been charged an increased premium because of these two factors. Provident referred expressly to Dr. Singh's letter of 5^th March, but did not draw the arbitrator's attention to the fact that in it he had asserted that the accident was in fact a "no fault" accident.
15. Dr. Singh replied in a letter to the arbitrator of 7^th June. He pointed out that the accident in January 1994 had been caused by a third party running into the back of his car and that the third party had paid for the damage. He said he was surprised that Provident was treating it as a "fault" accident and he made the point that the speeding conviction on its own would not have justified the imposition of an increased premium.
16. In his award published on 20^th June 1997 the arbitrator held that Provident was entitled to avoid the policy on the grounds of non-disclosure. It is perhaps regrettable that he did not deal with the parties' comments on the nature of the previous accident or the terms in which it had been disclosed in the proposal form, or with their arguments relating to the calculation of premium. The award is, of course, binding as between Dr. Singh and Provident, but it was rightly accepted by Mr. Moxon-Browne Q.C. that it is not binding as between Provident and Drake. It was therefore open to Mr. Purchas Q.C. to contend, as he did, that the arbitrator's conclusion was wrong and that Provident was not entitled to avoid the policy.
17. The leading decision on the right to avoid a contract of insurance for non-disclosure is that of the House of Lords in Pan Atlantic Insurance Co. Ltd v Pine Top Insurance Co. Ltd [1995] 1 A.C. 501. For an insurer to be entitled to avoid a policy on these grounds he must be able to show both that the fact which the insured failed to disclose was material and that the failure to disclose it induced him to accept the risk when he would otherwise have declined it or would have accepted it only on different terms. These are closely related, but distinct, requirements.
18. In the present case it was conceded that the existence of a speeding conviction was a material fact. It follows, therefore, that it should have been disclosed, but it does not inevitably follow that Provident was entitled to avoid the policy because the conviction would not on its own have led to the imposition of an increased premium. The critical question is whether Dr. Singh's failure to disclose his conviction did in fact induce Provident to renew the policy on more favourable terms than it would otherwise have been willing to agree.
19. The root of the problem lies in the way the accident in January 1994 was described in the proposal form. It was clearly described as a "fault" accident, despite the fact that the brief details given in the form suggested that in truth the insured might well not have been at fault at all. According to Provident's Head of Technical Claims, Mr. Robert Shaw, that information must have been entered by the broker in response to a specific question generated by the on-screen proposal form, but it does not matter for present purposes how the entry came to be made. Dr. Singh and Mrs. Kaur were slightly injured in the accident and their car was damaged. In July 1995 they received full compensation from the other driver, both for their injuries and for the damage to the car.
20. In the witness statement he made for the purposes of the action Mr. Shaw referred to the way in which the proposal form had been completed and to the apparent tension between the description of the accident ("hit by third party in rear") and the notification of fault on the part of the insured. He explained that it was standard practice in motor underwriting to classify any accident as a "fault" accident until it was confirmed that a pending claim had been settled in full by a third party in the insured's favour. At that point, but not before, the accident might be reclassified as "no fault". Such an approach might at first sight appear somewhat technical, but from the insurer's point of view it has the merit of drawing a sharp distinction between those accidents in respect of which there is still exposure to a potential claim and those where there is not.
21. When he was called to give evidence, however, Mr. Shaw sought to qualify that part of his statement by saying that accidents are divided at the outset into three categories: "fault", "partial fault" and "no fault". He said that if the insured told the broker that an accident had not been his fault the broker would ask about the circumstances in which it had occurred and would decide how it should be classified. Any "fault" or "partial fault" accident would be recorded as a "fault" accident, although it might be re-classified at a later stage if a claim were settled without recourse to the insurers.
22. This was one of the least impressive parts of Mr. Shaw's evidence. The paragraph in his statement that he sought to qualify was quite unambiguous and, if it was incorrect, it is difficult to understand how he could have come to make such an error. Moreover, it did not stand in isolation because he had returned to the subject in a later paragraph in which he had said that it was standard underwriting practice to characterise all accidents as "fault" accidents in the first instance, subject to any final resolution being fully in the favour of the insured so as to justify re-classification as "no fault". That, he had said, was a decision that would be taken by the underwriters in the light of whatever information was placed before them by the insured. This paragraph was even clearer than the previous one, but Mr. Shaw had presumably forgotten what he had said in it because he did not seek to qualify it before confirming the accuracy of the remainder of the statement. If the description of the underwriting procedure given in these two paragraphs was wrong in the respects suggested by Mr. Shaw, I find it difficult to understand how they came to be written in the first place or how he could have failed to realise that they were wrong before he signed the statement. In these circumstances I am unable to accept his last minute retraction and I find that the procedure is correctly described in his statement. It explains why the broker classified the accident as a "fault" accident despite the circumstances in which it occurred as noted in the proposal form.
23. Mr. Shaw accepted that if Provident had been told that Dr. Singh and Mrs. Kaur had received full compensation from the third party it would have reclassified the accident as a "no fault" accident. It would then have ceased to have any significance when it came to setting the premium on any subsequent renewal. He also accepted that if Dr. Singh had given the same information to Provident shortly after its decision to avoid the policy it would probably have reversed its stance and accepted his claim. By the spring of 1997, however, things had moved on. It had become apparent that Mr. Beach had sustained serious injuries and that his claim was likely to be substantial. Provident also had reason to think that if it maintained its refusal to pay, Drake would probably deal with the claim. Mr. Shaw, who by then had assumed responsibility for handling this claim, confirmed that he had decided quite deliberately not to respond to the assertion made by Dr. Singh in his letter of 5^th March 1997 that the accident in January 1994 had been a "no fault" accident because he did not think that of itself that amounted to sufficient proof. In his view it was up to Dr. Singh at that stage to make out his case. I can only infer that Mr. Shaw chose not to pursue the matter because he did not want to uncover information that might have made it commercially difficult for Provident to maintain its repudiation of the claim.
24. Mr. Purchas submitted that an insurer is only entitled to avoid a policy if at the time he purports to do so there exist facts that justify his taking that step. The accident in January 1994 was in fact a "no fault" accident and therefore disclosure of Dr. Singh's conviction would not have led Provident to demand an increased premium. Accordingly, there was no basis for avoiding the policy.
25. This is an attractive argument, but it fails to distinguish between the nature of the previous accident and Provident's state of mind at the time of renewal. The accident had been disclosed and classified by Dr. Singh in his proposal as a "fault" accident, as indeed at that time it was. No one had told Provident that the claim had been settled in full by the third party, so the accident was still classified in that way and as such it formed part of the information available to Provident on the basis of which it was asked to renew the policy. In that context the existence of a speeding conviction would inevitably have led to an increase in premium and so, subject to one point to which I shall come in a moment, Dr. Singh's failure to disclose it did induce Provident to renew the policy on more favourable terms than would otherwise have been the case. The fact that Provident had adopted a streamlined method of underwriting involving the attribution of a set number of points to different aspects of a driver's claims and driving history does not in any way detract from that. Such methods embody in a more modern, if less flexible, way the same exercise of judgment as that which is involved in more traditional underwriting methods.
26. Apart from information that is generally available in the market, insurers can only assess risks presented to them on the basis of the information made available to them by their insureds. Accordingly, the effect of a failure to disclose material facts can only be judged by reference to the information that the insured has made available to the insurer at the time he accepts the risk. If on renewal the insured fails to inform the insurer of a matter that would diminish the gravity of the risk, in this case the fact that a third party has paid him for a loss that might otherwise have led to a claim under the policy, he may be offered less favourable terms than would otherwise have been the case. He may also find that the failure to disclose some other material fact has induced the insurer, in the light of the information then before him, to accept the risk on terms that he would not have been prepared to accept if it had been disclosed. Mr. Purchas's argument in effect comes to this: that when deciding whether Provident was induced by the non-disclosure of Dr. Singh's speeding conviction to renew his cover on 'normal' terms it is necessary to take into account not only his failure to disclose the conviction but also his failure to disclose the facts showing that the accident in January 1994 could be re-classified as a "no fault" accident. However, the important question for these purposes is whether the insurer was actually induced by the non-disclosure to accept the risk on terms that would not otherwise have been acceptable, not whether he would have imposed different terms if he had been in possession of different information. In the present case it so happens that the additional information that would have affected the underwriting decision was in Dr. Singh's possession, but in other circumstances the position might well be different.
27. Having said that, I think one may legitimately ask what would have happened in this case if Dr. Singh had disclosed his conviction at the time of renewal. Clearly Provident would have demanded a higher premium and, if Dr. Singh had questioned it, the issue of the correct classification of the earlier accident might have surfaced. In that event I think he would probably have been able to persuade Provident that it should be treated as a "no fault" accident and that he should therefore be charged the 'normal' premium. It might therefore be argued that his failure to disclose the conviction did not cause Provident to accept the risk on terms different from those that it would otherwise have prepared to agree because the disclosure would itself have led to the correction of his claims record and the imposition of the same terms.
28. The difficulty with this argument, however, is that one simply does not know what Dr. Singh's reaction to an increase in premium would have been. He might have questioned it, or he might not. If he had questioned it, and if he had simply been told that it was due to his recent speeding conviction, he might have left it at that, or he might not. There is nothing in the evidence that points either way. Only if it could be shown that disclosure of the conviction would also have led to the disclosure of the information relating to the settlement of the earlier loss and to Provident's accepting the risk on the same terms could one say that the non-disclosure had not caused it to accept the risk on terms that it would not otherwise have agreed to. In the present case the evidence does not enable me to reach that conclusion.
29. On the face of it, therefore, Provident was entitled to avoid the policy, but Mr. Purchas submitted that it could not do so insofar as its original decision to avoid or its refusal to investigate the true position and then reverse that decision involved a breach of its duty of good faith. In support of that submission he relied on the decision of Colman J. in Strive Shipping Corporation v Hellenic Mutual War Risks Association (The 'Grecia Express') [2002] EWHC 203 (Comm); [2002] 2 Lloyd's Rep 88.
30. In the Grecia Express the judge considered a similar problem from the point of view of moral hazard and the insured's duty to disclose the existence of circumstances casting doubt upon his own probity. He held that the insured is normally under a duty to disclose to the insurer allegations of dishonesty or criminal conduct since these are material, but that if he succeeds at trial in establishing that the allegations were unfounded, it would be a breach of the insurer's duty of utmost good faith to persist in his avoidance of the contract such that he would be disentitled from invoking the equitable jurisdiction of the court to avoid the contract (see [2002] 2 Lloyd's Rep 88 at page 133). Adopting that approach Mr. Purchas submitted that if it can be shown (as it is agreed it can) that by February 1996 the previous accident could properly have been re-classed as a "no fault" accident, Provident cannot persist in its avoidance of the policy.
31. Although I too feel some unease at the prospect of an insurer's avoiding the contract for non-disclosure in circumstances such as the present, I do not think that the solution is to be found in the exercise of the court's equitable jurisdiction. Whatever the true origin of the insurer's right to avoid for non-disclosure, it is in the nature of a right to rescind the contract and its exercise is subject to the same principles as apply to the exercise of the right to rescind generally. Although equity recognised a right of rescission in a wider range of circumstances than did the common law, modern authorities do not suggest that a distinction is to be drawn between the principles that apply to the exercise of that right in different cases. Whenever a right to rescind arises it is exercisable at the election of the injured party. Moreover, it does not require the intervention of the court but is effective immediately upon the communication by the injured party of his decision to rescind the contract: see Abraham Steamship v Westville [1923] A.C. 773 per Lord Atkinson at page 781. In Horsler v Zorro [1975] Ch. 302, 310 Megarry J. summarised the position in this way:

". . . . the process of rescission is essentially the act of the party rescinding, and not of the court. Of course, if matters are disputed, the dispute may have to be determined by the court, and until the decision is given it will not be known whether or not there has been a proper and effectual rescission: but that does not mean that there is no rescission until the court speaks."

32. In my view the same principles apply to the avoidance of a contract of insurance for non-disclosure. If grounds exist to justify avoidance, the insurer's decision, once communicated to the insured, is effective immediately. The insurer does not need to invoke the assistance of the court, nor does the court have jurisdiction to declare that his right to avoid has been lost retrospectively by reason of subsequent events. This is quite distinct from the question whether the right to avoid has arisen in the first place. If it has, and if it has been exercised in good faith on sufficient grounds, I do not think that the insurer is precluded from maintaining his position by the subsequent receipt of further information or that he can then be required to reinstate the contract. To enable the insured at trial to defeat the insurer's right to avoid, after it has been exercised, by establishing facts of which he was not aware when he wrote the risk would alter the whole basis of the underwriting exercise and introduce an additional and unwelcome element of uncertainty. For these reasons I am unable to accept that the proof at trial of facts showing that the earlier accident should have been treated as a "no fault" accident at the time of renewal can prevent Provident from relying on its avoidance of the policy.
33. Mr. Purchas also submitted that Provident was in breach of its duty of good faith in failing to investigate the nature of the earlier accident after Dr. Singh had raised it in correspondence and in adhering to its avoidance of the policy. However, the first time Dr. Singh put forward the suggestion that that accident had been a "no fault" accident was in March 1997, some seven months after Provident had written to him avoiding the policy. If Provident was entitled to avoid, it had done so months earlier. If it was not, the policy continued in existence in any event. If the source of a continuing duty of good faith is the contract itself (see Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd, (The 'Star Sea') [2001] UKHL 1; [2001] 2 WLR 170), it is difficult to see how it can survive the rescission of the contract. Although I do not think that the way in which Provident dealt with Dr. Singh reflects any credit on it, I do not think that it owed him a continuing duty of good faith once the policy had been avoided.

Waiver

34. Despite the fact that on 2^nd August Provident had given notice to Dr. Singh of its avoidance of the policy, it continued to request and obtain the payment of premiums from his bank under its direct debit mandate. Mr. Purchas submitted that it had thereby waived its right to avoid the policy.
35. 'Waiver' is a broad term used to cover a range of legal principles by which a person is precluded from enforcing his legal rights. When an insurer is entitled to avoid a contract of insurance by reason of material non-disclosure he has a choice: he may exercise his right to avoid the contract or he may affirm it. These are inconsistent courses and the exercise of choice is a matter of election. The principles of election as they apply in the context of contracts of insurance were summarised by Mance J. in Insurance Corporation of the Channel Islands v The Royal Hotel Ltd [1998] Lloyd's Rep. I.R. 151 at pages 161-163. It is important in the context of this case to note that election requires nothing more than the unequivocal communication by the insurer to the insured of the manner in which he has chosen to exercise his rights and that once the insurer has made his election it is irrevocable.
36. Dr. Singh sent his claim form to Provident through his broker, together with a copy of his driving licence, on or soon after 18^th July 1997. It was received by Provident on 23^rd July and it was only then that it became aware of the existence of his conviction. Provident responded by letter on 2^nd August 1996 notifying Dr. Singh in clear terms that the policy was void from inception and reserving its right to recover from him any sums it might be required to pay in satisfaction of third party claims under the provisions of the Road Traffic Acts. The letter thus contained a clear and unequivocal communication by Provident of its decision to avoid the policy. As a result the contract was rescinded with immediate effect.
37. It follows that in the present case Provident did not waive its right to avoid the policy in the sense of electing to affirm it. On the contrary, it chose to exercise that right. Thereafter the only way in which it could lose its right to treat the policy as rescinded was by agreeing to reinstate it in such a way as would prevent it from relying on its earlier decision and render it liable to pay the claim.
38. Throughout the course of its correspondence with Dr. Singh Provincial consistently maintained that it would not accept the claim because the policy had been avoided. One can see from internal documents that there was some uncertainty within the claims handling department about the best way to deal with the problem, mainly in relation to Drake. Mr. Shaw in particular seems to have thought that it was open to Provident to change its mind at any time, and in a sense it was, since both Dr. Singh and Drake would have been delighted if Provident had agreed to deal with the claim as if nothing had happened. What is important for present purposes, however, is that none of those at Provident who spoke or wrote to Dr. Singh in connection with the claim suggested at any time that Provident might alter its position.
39. However, on 2^nd November 1996 Provident wrote a letter to Dr. Singh thanking him for his recent instructions to amend the policy and confirming that the changes he had requested had been made. It is not entirely clear to what changes the letter refers or when they had been requested and unfortunately Dr. Singh did not deal with either of those questions in his evidence. It seems likely, however, that it related to a change of vehicle. Dr. Singh had bought the car involved in the accident in May that year and one can see from a print-out of his account with Provident that in June he had been charged an additional premium in respect of the change of vehicle. That car had been too badly damaged in the accident to be worth repairing, so he had been forced to obtain a replacement. On 20^th July at his request Provident insured him in respect of the new car and issued him with a fresh certificate of insurance, treating the vehicle as insured under the same policy and retaining the same policy number and account reference. Provident continued to operate the same direct debit mandate and in October 1996 Dr. Singh was charged a further additional premium in respect of the changes that had taken effect on 20^th July. All the payments of premium made after July 1996 were eventually refunded in December 1997.
40. Despite the fact that Provident amended the policy terms to cover the new car and continued to collect premium from Dr. Singh between July and December 1996, I am unable to accept that it entered into an agreement with Dr. Singh to reinstate the original cover or to handle the accident claim as if it had not avoided the policy. The delivery of a certificate of insurance in relation to the new vehicle certainly evidenced an agreement to insure Dr. Singh in relation to that vehicle, but that occurred before Provident had received notification of the claim and before it became aware of its right to avoid the policy. In all its subsequent communications with Dr. Singh and his solicitors Provident maintained its avoidance of the policy and no one seems to have been in any doubt as to its position. Certainly Dr. Singh does not seem to have thought that Provident had agreed to reinstate the cover or deal with the claim as if there had been no avoidance. I am unable to accept, therefore, that Provident agreed to treat the original cover as reinstated or that it is precluded by estoppel or otherwise from relying on its original decision to avoid the policy.
41. Drake's claim for a contribution therefore fails on this ground.

Was Drake a volunteer?

42. Mr. Moxon-Browne submitted that even if Provident was not entitled to avoid the policy, Drake could not recover a contribution in equity because it acted as a volunteer in settling the claim against Mrs. Kaur.
43. The policies issued by Provident and Drake contained 'rateable proportion' clauses in very similar terms. The clause in Drake's policy was worded as follows:

"GENERAL CONDITIONS

3. If at any time any claim arises under this Policy there is any other existing insurance covering the same loss damage or liability the Company shall not be liable to pay or contribute more than its rateable proportion of such claim . . . . . "

44. The foundation of the insurer's right to recover a contribution from others who have insured the same risk lies in the law's recognition of the obvious justice of requiring that a common liability should be shared between those liable: see Royal Brompton Hospital National Health Service Trust v Hammond [2002] UKHL 14; 1 W.L.R. 1397, per Lord Bingham of Cornhill at page 1399. This is now regarded as one aspect of a general rule that applies to co-obligors of all kinds: see per Lord Bingham ibid. It is fundamental to the right of one person to obtain a contribution from another, however, that they should both have incurred a legal obligation to the same person in respect of the same matter, as where two insurers insure the same risk on the same interest in the same property.
45. In Legal & General Assurance Society Ltd v Drake Insurance Co. Ltd [1992] Q.B. 887 the plaintiff motor insurers had settled proceedings brought by a third party against their insured. Having discovered that at the time of the accident the driver was also insured by Drake they brought an action seeking contribution from Drake as co-insurers. However, both policies contained 'rateable proportion' clauses which provided that if at the time a claim arose under the policy there was other insurance covering the same loss the company should not be liable to pay or contribute more than its rateable proportion of the loss. Drake argued that since Legal & General was not liable for more than 50% of the loss, it had paid the balance of the claim as a volunteer and could not recover a contribution in respect of it. The Court of Appeal accepted that submission and held that Legal & General's claim failed.
46. A question of a similar kind arose for consideration in Eagle Star Ltd v Provincial Insurance Plc [1994] 1 A.C. 130 (PC). In that case two insurers who had issued certificates of motor insurance were under a statutory liability similar to that imposed by section 151 of the Road Traffic Act 1988 to meet the claim of a third party injured by a negligent driver. Eagle Star had issued a policy to the driver as the insured, but at the time of the accident the policy had already been cancelled and Eagle Star had ceased to be liable under it. Provincial had issued a policy of insurance to a motor repairer which provided third party cover in favour of any person driving one of its vehicles with its consent. The driver had been using a car lent to him by the repairer when the accident occurred. It was a condition of the repairer's policy that the insurer be notified as soon as possible of any occurrence that might give rise to a claim. Neither the driver nor the repairer notified Provincial of the accident and it was therefore entitled to repudiate liability.
47. The Privy Council held that an equitable right to contribution arose between two insurers subject to this form of statutory liability in the same way as between co-insurers under ordinary policies of insurance and that in principle the insurers' contribution to the loss should be determined in accordance with their respective liabilities to the person insured under their separate contracts of insurance. The Board declined to follow that part of the decision of the Court of Appeal in Legal & General v Drake in which it had held that for the purposes of contribution the extent of an insurer's liability to his own insured was to be determined at the date of the loss and held that since both insurers were entitled to repudiate liability to the insured they should contribute equally to the third party's claim. The Board made no comment on the other limb of the case.
48. Mr. Purchas sought to distinguish Legal & General v Drake on the grounds that by refusing to accept the claim Provident had effectively prevented Mrs. Kaur from obtaining protection, whether it was entitled to avoid the policy or not. He submitted that the rateable proportion clause in Drake's policy should not be construed as extending to a situation of this kind, but should be read as referring only to another policy to which the insured could effectively resort. In support of that submission he relied on the well-known passage in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pages 912-913.
49. The starting point when construing a document of this kind must be the natural and ordinary meaning of the words used. This is the ordinary rule because, as Lord Hoffmann himself pointed out, one does not easily accept that people have made linguistic mistakes, particularly in formal documents of which these policies provide good examples. Even in such documents, however, it is sometimes possible to see that something must have gone wrong with the language because the words used would, if given their natural and ordinary meaning, produce an absurd result. Such instances are, however, inevitably rare.
50. In the present case I can see no grounds for construing the 'rateable proportion' clause in Drake's policy in the restricted manner suggested by Mr. Purchas. Its purpose is to prevent the insurer from being called upon to bear more than its rateable share of the loss where that loss is also covered by another policy. As such it complements rather than conflicts with any clause to the same effect in that other policy and since it operates to limit the extent of the insurer's liability to its own insured it is unaffected by the willingness or otherwise of the other insurer to recognise its own obligations. Mr. Purchas was unable to point to any respect in which the clause produces absurd results if given its natural and ordinary meaning and it is interesting to note that a similar clause did not strike the Court of Appeal in Legal & General v Drake as producing an absurd result, although in that case as well Drake had declined liability. As far as the question of construction is concerned, I cannot see that it makes any difference whether the insurer from whom a contribution is sought was entitled to decline liability or not. In either case the insurer who is dealing with the claim must decide whether to accept or contest that position. In my judgment the clause means what it says and if Provident was in fact liable to indemnify Mrs Kaur, Drake's liability to her was limited to its own share of the loss.
51. Mr. Purchas also sought to distinguish Legal & General v Drake on the grounds that Drake could not properly be regarded as a volunteer. He submitted that once Provident had purported to avoid its policy Drake had little choice but to act on the assumption that Provident might be able to justify the course it had taken and so had effectively been forced to deal with the claim. Moreover, although it had reluctantly consented to handle the claim, Drake had expressly reserved its right to make a claim against Provident in due course.
52. It is quite true that although Drake recognised its obligations towards Mrs. Kaur, it consistently maintained that Provident as the primary insurer ought to handle the claim. Drake was initially reluctant to deal with the claim, but after the conviction of Mrs. Kaur for careless driving in September 1997 it agreed to do so and did deal with matter thereafter. In doing so, however, it made it clear to Provident that it maintained its right to pursue the matter and continued to do so up to the commencement of this action.
53. However, none of that is sufficient in my view to prevent Drake from being a volunteer for the purposes of a claim for contribution. The basis of the equitable right to contribution is the discharge of a common liability, not merely the settlement of a claim in respect of which the defendant was liable. By virtue of section 151 of the Road Traffic Act 1988 Drake was under a statutory obligation to pay any judgment obtained by Mr. Beach against Mrs. Kaur. If judgment had been entered against it, it could have argued that it had been compelled to discharge a liability that primarily rested on Provident, but even then it would have been entitled under section 151(7) of the Act to recover from Mrs. Kaur the amount by which its payment to Mr. Beach exceeded its liability to her under the policy. By that means it would have been able, in theory at any rate, to limit its loss to its rateable proportion. In this respect the position is no different from that which obtained in Legal & General v Drake in which this very point was considered and rejected.
54. Finally, Mr. Purchas submitted that since the right to a contribution is one that arises in equity the court should not look simply at the contractual position but should take account of the conduct of the parties generally in relation to the claim. He submitted that an insurer who has wrongly repudiated liability and refused to accept the claim cannot in equity be heard to say that the insurer who paid the claim was a volunteer in order to defeat his right to contribution.
55. An argument of a similar kind was addressed to the Court of Appeal in Legal & General v Drake, but the court concluded, not without some reluctance, that it was not possible to extend the equitable doctrine of contribution in that manner: see per Lloyd L.J. at page 897. In the light of that decision I do not think it is open to me to do so either.
56. It follows that I do not think that this case can be distinguished from Legal & General v Drake and that insofar as Drake paid more than half of the claim it did so as a volunteer. It cannot therefore recover any part of that payment from Provident. For this reason also the claim fails.

The A.B.I. Dual Indemnity Undertaking

57. Finally it is necessary to mention the Dual Indemnity Undertaking of 16^th September 1991 to which most of the motor insurers who are members of the Motor Conference of the Association of British Insurers, including both Drake and Provident, adhere. As it name implies, the Undertaking was developed to resolve certain difficulties created by double insurance, including those arising as a result of extensions to policies of the kind under consideration in this case.
58. The material part of the Undertaking for present purposes provides that, where a policy issued by the direct insurer of a motor vehicle provides third party liability cover to a driver who is also covered for third party liability risks under a policy relating to another vehicle and that policy contains a "driving other vehicles" clause, the direct insurer of the vehicle will not claim a contribution from the driver's insurer. Its effect in the present case would be to require Provident as the direct insurer of the vehicle involved in the accident to bear the full amount of the claim to the exclusion of Drake.
59. If Provident had not been entitled to avoid its policy, the Undertaking would have provided a basis on which Drake could call on Provident to indemnify it in respect of the claim, and indeed Drake has sought to obtain such an indemnity in this action. However, the Notes to the Undertaking expressly recognise that it has no legal significance and there is no evidence that any steps have been taken between Provident and Drake to render it legally binding as between the two of them. In those circumstances Mr. Purchas accepted that it cannot give rise to an enforceable obligation of any kind and that any remedy it may afford must be pursued by other means.