Insurance – Disclosure – Insolvency – Claimant alleging breach of contract by defendant insurer by wrongful avoidance of insurance policy and refusal to meet claim – Preliminary issues arising as to meaning of insolvency question in policy – Whether claimant making unfair presentation of risk and/or misrepresentation of material facts – Whether defendant waiving entitlement to information about insolvency of previous companies of claimant’s directors or shareholders – Preliminary issues determined in favour of claimant
The claimant company was the leasehold owner of a property at 3/5 Kirk Road, Bearsden, Glasgow. It had been carrying on business as a bar and restaurant from the property since the early 2000s.
In October 2015, the claimant instructed an insurance broker and the defendant insurance company incepted an insurance policy in respect of the property for the benefit of the claimant.
In answer to a question asked prior to the inception and renewal of the policy (the insolvency question), which formed part of the policy, the claimant 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 directors and shareholders of the claimant had formerly been directors of certain other companies, each of which had entered liquidation at various times and had subsequently been dissolved (the other insolvency events).
In January 2018, the property was damaged in a fire and the claimant sought to be indemnified by the defendant under the policy for the loss caused by the fire. In March 2018, the defendant purported to avoid the policy from its inception, alleging misrepresentation and/or material non-disclosure of risk because the representation did not disclose to the defendant the occurrence of the other insolvency events.
The claimant sought a declaration that the defendant was not entitled to avoid the policy and damages of some £633,000.
Preliminary issues arose about the meaning and legal effect of the words in the policy statement.
Held: The preliminary issues were determined in favour of the claimant.
(1) In interpreting a contract, the court’s task was to ascertain the objective meaning of the language used by the parties to express their agreement. Interpretation was a unitary exercise; where there were rival meanings, the court could give weight to the implications of rival constructions by deciding which construction was more consistent with business common sense. That involved an iterative process by which each suggested interpretation was checked against the provisions of the contract and its commercial consequences were investigated. Once one had read the language in dispute and the relevant parts of the contract that provided its context, it did not matter whether the more detailed analysis commenced with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balanced the indications given by each: Wood v Capita Insurance Services Ltd [2017] AC 1173 followed.
Some agreements might be successfully interpreted principally by textual analysis because of their sophistication and complexity and because they had been negotiated and prepared by skilled professionals. The correct interpretation of other contracts might be achieved by a greater emphasis on the factual matrix because of their informality, brevity or the absence of skilled professional assistance. There might often be provisions in a detailed professionally drawn contract which lacked clarity and the lawyer or judge in interpreting such provisions might be helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type.
(2) There was no dispute that the interpretation of insurance policy documents should broadly follow the principles generally applicable to interpretation of contracts. As was the case for the interpretation of contracts generally, the exercise of interpreting questions posed in proposals for insurance policies did not depend on the subjective intention or understanding of the parties. Rather, it was an objective exercise: R & R Developments v Axa Insurance UK plc [2010] Lloyd’s Rep IR 521 considered.
If there was genuine doubt or ambiguity as to what a clause meant, the court was entitled to prefer the meaning that most accorded with business common sense. If the ordinary meaning of the words used was clear and did not give rise to commercial absurdity, the court was not entitled to choose a different meaning which it considered would have been more commercially sensible or desirable.
When the court was interpreting questions posed by insurers rather than a negotiated contract term, a different approach applied under which any genuine ambiguity was resolved in favour of the applicant. Thus, if faced with two rival constructions, both of which were objectively reasonable, the insurer would not be entitled to impugn, as a misrepresentation of fact, an answer given by the policy holder if that answer was true having regard to a construction which it was objectively reasonable to give to the question.
(3) The claimant accepted that the other insolvency events were (subject to waiver) material, and that the defendant was induced to enter the policy by the representation, such that if the defendant did not waive its entitlement to the information, there was a misrepresentation and/or unfair presentation of risk and the defendant was entitled to avoid the policy. The question was whether a reasonable man reading the insolvency question would be justified in thinking that the insurer had consented to the omission of specific information (here, the other insolvency events). Having identified previous liquidations as a subject on which the defendant required disclosure, and having specified the persons in respect of whom a previous liquidation would be disclosable, the defendant 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 was that they related to a different set of persons than those identified in the question.
Therefore, it was a reasonable inference for the claimant to draw that the defendant 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. Accordingly, the representation was neither a misrepresentation nor an unfair presentation of risk: Doheny v New India Assurance Co [2005] Lloyd’s Rep IR 251 and R & R Developments v Axa Insurance UK plc considered.
Roddy Dunlop QC (Scot) and Jonathan Schaffer-Goddard (instructed by Markel Law LLP, of Manchester) appeared for the claimant; Graham Eklund QC (instructed by Clyde & Co LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Ristorante Ltd (trading as Bar Massimo) v Zurich Insurance plc
