Repudiation of Insurance Contracts
The duty of someone completing a proposal form for insurance is to volunteer information to an insurance company where the information would appear to a prudent insurer to be material to a decision whether to accept a risk, and on what terms.
It is rooted in the “special knowledge” of a risk as being likely to be in the possession of the proposer.
In the Irish case of Manor Park Homes Builders Limited v AIG Europe (Ireland) Limited; the Court stated that there is a heavy onus of disclosure on the insured, otherwise the insurer would have great difficulty in assessing the risk or calculating the premium, but this “does not … mean that the insurer can cover its eyes or abstain from making normal enquiries or investigations”.
The boundaries of the duty of disclosure in Ireland have not been clearly defined. We have the very strict approach of the Manor Park decision that the duty of disclosure does not depend on the proposer’s awareness of the existence of the duty. The proposer is under a duty to disclose material facts even if the insurer or broker fails to ask questions or the insurance is negotiated without the use of a proposal form.
The Supreme Court decision of Chariot Inns stated that “a contract of insurance requires the highest standard of accuracy, good faith, candour and disclosure by the insured when making a proposal for insurance”. Any misstatement in the answers given when they relate to a material matter affecting the insurance, entitles the insurance company to avoid the policy and repudiate liability if the event insured against happens. But the correct answering of any questions asked is not the entire obligation of the person seeking insurance: he is bound, in addition, to disclose to the insurance company every matter which is material to the risk against which he is seeking indemnity”. The test is objective and not subjective.
This rigid approach has been acknowledged as being a difficult standard to operate.
The liberal approach in Irish Courts to the duty of disclosure was set out by the Irish Supreme Court in the case of Aro Road and Land Vehicles Limited v Insurance Corporation of Ireland 1986. In that case the Court considered that the underwriter had forfeited the right to insist upon full disclosure in circumstances where the proposer was not questioned about a particular matter.
In the case of Coleman v New Ireland Assurance plc (2009), the Plaintiff had been diagnosed with MS but had not been informed by her doctors when she took out a Critical Illness policy. The court held that because she was not aware of the condition this did not amount to non-disclosure.
The Irish Law Reform Commission has recommended retaining the duty of disclosure but restricting it to facts or circumstances of which the proposer has actual knowledge.
The duty of disclosure has always been balanced by the insurer’s duty to investigate circumstances within the insurer’s competence and expertise. In some jurisdictions the duty of disclosure has been offset, or indeed removed altogether, by an insurer’s obligation to ask specific questions.
In general, the effect of questions on a proposal form is to limit the duty of disclosure. In cases where the proposal form is not completed, some questions being ignored or the space for insertion of an answer being left blank, it may be that the inference to be drawn is that a negative answer was intended and an insurer who issues a policy without seeking additional information might be held to have waived the requirement of full disclosure.
The provisional recommendation of the Irish Law Reform Commission in its 2011 Report was that “if a proposal form has been completed by the insured, insurers should not be permitted to say that a fact outside the scope of the questions asked is material and ought therefore to have been disclosed”. Insurers should be taken to have waived the duty of disclosure in regard to that fact.
The Commission also noted that questions posed in writing should be drafted in plain intelligible language and that the questions should be specific to the information being sought. If there is a doubt about the meaning of a question, it should be interpreted by reference to a standard of what is fair and reasonable.
If, following discovery of the proposer’s failure to disclose all material facts, the insurer elects to continue with the contract, the insurer may be held to have waived its right to avoid the contract, e.g. receipt of a premium.
As we move into the digital era, the competition for business, the need for speed and over-the-counter or internet insurance may exclude insurers from relying on a proposer’s failure of disclosure.
Copyright © Robert Browne, McKeever Solicitors, 28th April 2015.
This article is a general review of the law on the subject and is not intended to be a complete statement of the law. Specific legal advice must be sought on a case by case basis. For further information please contact Robert Browne at Robert Browne