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Insurance proposal forms must be regularly reviewed to reflect law changes

The High Court’s recent interpretation of insolvency on an insurance proposal form highlighted the implications of poorly drafted questions.

The ruling made it clear companies have a responsibility to understand updates in the law which may affect the running of their business. Insurers should be regularly reviewing their questions in light of any case-law developments.

In the case of Ristorante Ltd t/a Bar Massimo v Zurich Insurance PLC [2021] EWHC 2538 (Ch), the High Court interpreted a question on an insurance proposal form that related to the insolvency of persons expressly identified.

Justice Snowden was asked to determine whether a question regarding insolvency was limited to particular persons or could be more widely applied.

 The defendant, the insurer Zurich, had an automated proposal procedure. Policyholders had to complete a proposal form on the system that included various statements of fact and the form included drop-down menu options, to either agree or disagree with the statements.

The wording at the beginning of the form stated that: “No owner, director, business partner or family member involved with the business… has ever been the subject of a winding-up order or company/individual voluntary arrangement with creditors, or been placed into administration, administrative receivership or liquidation.’’

The claimant answered that he agreed to the statement regarding insolvency. But, following an incident involving the insurance policy, Zurich sought to void the policy for misrepresentation and non-disclosure.

Zurich argued that the claimant had misrepresented the facts and had failed to disclose that its shareholders and directors had been the directors of other companies that had been liquidated and dissolved.

The court had to determined what was the proper interpretation of the insolvency question and was it wide enough to include the previous liquidations as claimed by the defendant. If the insolvency question did not itself extend to the previous liquidations, had the Defendant waived its right to know about the previous liquidations by limiting the Insolvency question to just the directors/owners of the Claimant applicant?

The Decision

Justice Snowden held that, according to its clear and unambiguous meaning, the Insolvency Question did not require the Claimant to have disclosed the previous liquidations.

The court held that the question on the proposal form only asked about insolvency events related to persons involved with the claimant’s business. It did not ask about insolvency events of any other person or company with which any of the specified people might have been connected or involved.

Therefore, the answer given by the claimant on the form was not misrepresentation or non-disclosure.

The Judge added that although information relating to the insolvency of other such companies which the specified people were related to was material, the insurer had waived its rights to receive the information by phrasing the questions asked in the manner in which it did.

The court made reference to the judgments in R&R Developments v Axa Insurance UK plc [2009] and Doheny v New India Assurance Co [2004] and the Judge noted that by 2015 (when the claimant started the insurance policy), if Zurich had wanted such information in relation to insolvency of prospective policyholder it had plenty of time to digest the judgments in these cases and understand the importance of using phrasing to include reference to other companies.

 To discuss this further with an expert at W Denis, please contact Daniel Moss at daniel.moss@wdenis.co.uk or on 0044 (0)113 2439812

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