Proposal Questions and Implied Waiver in Insurance Contracts

It is common for underwriters to utilise automated computer underwriting systems through which applications for insurance are evaluated and processed without the need for individual underwriter involvement. Reliance on such emerging technologies inevitable brings attention to the questions posed to potential assureds in the proposal forms used by such systems. Any ambiguity in the wording of questions put forward to the assureds is likely to have an adverse impact on the insurer’s ability to claim non-disclosure or misrepresentation. This was the central issue in Ristorante Ltd T/A Bar Massimo v. Zurich Insurance Plc [2021] EWHC 2538 (Ch).

The facts can be briefly summarised as follows: The assured obtained an insurance policy that provided cover for inter alia business interruption, money, employer’s liability and legal expenses. The insured property was damaged by fire in 2018 and when the assured sought to claim under the policy, the underwriters rejected the claim and purported to avoid it for misrepresentation and non-disclosure of a material risk. At inception and each renewal the assured was asked to answer the following question as part of procuring insurance through the insurer’s electronic automated underwriting system:

“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”.

On each occasion, the assured selected “Agreed” in response to the question. At claims stage, when it transpired that three of the directors of the assured had been directors of other companies that had entered voluntary liquidation, and had subsequently been dissolved, insurers argued that there had been a material misrepresentation by the assured in responding to the question above and/or non-disclosure of material facts and sought to avoid the policy.

The assured disputed that insurers were entitled to avoid the policy and started this litigation requesting the court to order the insurers to indemnify the assure with respect to the loss.

Two issues required legal analysis in this case:

  1. Was there any misrepresentation on the part of the assured by responding wrongly to the question? and
  2. Was there a non-disclosure as the assured failed to disclose insolvency of other persons or companies?

On (i) the assured submitted that the “Insolvency Question” was clear and unambiguous in that it simply asked about insolvency events relating to individuals (i.e. any owner, director, business partner or family member involved with the insured business) and did not ask about insolvency events of any other person or company with which any of them have been connected or involved in some way. The judge agreed with the assured noting especially in the question lack of express reference to any corporate body with which any of the persons expressly identified has been or is involved or connected with in some way.

The insurer’s attempt to rely on the Court of Appeal’s reasoning in Doheny v. New India Assurance Co [2004] EWCA 1705  was not successful given that the question put to the assured in that case was fundamentally different:

“No director/partner in the business, or any Company in which any director/partner have had an interest has been declared bankrupt, been the subject of bankruptcy proceedings or made any arrangement with creditors.”

The Court of Appeal in that case held that this question required disclosure of insolvency events in relation to other companies of which the policyholder’s director had previously served as a director. However, that question in the proposal form was worded rather differently than the present “Insolvency Question”, because it clearly referred to “any Company in which any director/partner have had an interest”. Conversely, the wording of the present “Insolvency Question” is different and on literal construction more restricted. The insurer’s attempt to draw support from another judgment (R & R Developments v. Axa Insurance UK plc [2009] EWHC 2429 (Ch)) that deliberated a differently worded “Insolvency” question was also not successful.

On (ii) the court held that the insurer by asking a well-defined question essentially waived its right to information on the same matters outside the question asked. Several legal authorities pre-dating the Insurance Act 2015, which still represent the legal position on this matter, dictate that the test here is an objective one and requires the judge to question whether a reasonable person reading the relevant question would be justified in thinking that the insurer had restricted its right to receive all material information, and had consented to the omission of specific information (here the other matters relating to insolvency). In holding that this was the case in the present case, Snowden, J, said at [91-92]:

[91] To my mind, having identified previous liquidations as a subject on which the [insurer] required disclosure, and having specified the persons in respect of whom a previous liquidation would be disclosable, the [insurer] thereby limited its right of disclosure in respect of other (unspecified) persons or companies which had been placed into liquidation. The Other Insolvency Events were all liquidations. They were therefore precisely the same type of insolvency matters which were the subject of the Insolvency Question: the difference is that they related to a different set of persons than those identified in the question.

[92] I therefore conclude that it was a reasonable inference for the [assured] to draw that the [insurer] did not wish to know about any other liquidations (or, indeed, administrations, administrative receiverships, company voluntary arrangements, and so on), other than those specified in the Insolvency Question.

Lessons from the Judgment

Given the increased use of electronic platforms for provision of information to insurers at pre-contractual stage, the case is another timely reminder to insurers that they need to check the wording of questions they rely on in proposal forms which appear as part of such platforms. In commercial setting we often advocate the use of clear wording but when it comes to legal matters concerning fair presentation of the risk, a very well-defined and clear question might serve the purpose of limiting the scope of disclosure for the assured- as was the case here (careful readers would remember that a similar point was raised by the assured (unsuccessfully) in Young v. Royal and Sun plc [2020] CSIH 25 (discussed again on this blog)). Also, it is worth keeping in mind that drawing support from previous authorities especially when construing such questions might often be problematic as wordings of questions in proposal forms deliberated in those judgments will inevitably differ- a matter that the insurer found out to its detriment in this case!            

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