Can't get no satisfaction? Think again!

UK Acorn, a bridging finance lender, obtained two judgments against a surveyor for negligent overvaluations. It sought to recover from Markel, the surveyor's insurer. Markel tried to avoid paying by relying on fraudulent misrepresentation. UK Acorn pointed to an "unintentional non-disclosure" provision in the policy. This said that Markel would waive its right to avoid if UK Acorn was "able to establish to [Markel's] satisfaction that such non-disclosure or misrepresentation was innocent and free from any fraudulent conduct or intent to deceive".

Applying Braganza, the High Court held as follows:

1. Markel was the decision-maker under this provision. The court had no place to make its own determination as to whether the surveyor's misrepresentations were innocent and free from any fraudulent conduct.
2. Even though the policy did not impose any express restrictions on Markel's decision-making powers, common law implied a term that Markel should not exercise these powers arbitrarily, capriciously or irrationally.
3. Markel would only be compliant with the implied term if:
   • it took into account all matters that it ought to take into account and did not take into account any matters that it ought not to take into account;
   • the decision would have been the same despite any errors in the process described above; and
   • it did not come to a conclusion that no reasonable decision-maker could have ever come to.
4. Issues of dishonesty should be assessed on the basis that misrepresentations are more probably made innocently or negligently rather than dishonestly.
5. On the facts, Markel did not meet the requirements set out above and, therefore, could not avoid the policy. It had not approached the question with an open mind and had taken into account immaterial matters.

[Ed: yet another contractual discretion case, they do seem to be one of the contract topics du jour.]