It is well established that insurance contracts are underpinned by “uberrima fides” – the utmost good faith. But when does a potentially inaccurate representation become a misrepresentation? This was a question that was recently considered by the High Court in Manchester.
The claimant company has operated a bar and restaurant in Bearsden, Glasgow (the premises) for two decades. Some of its directors had held other directorships, including in companies that had since been liquidated.
In 2015, the defendant insurer incepted a policy of insurance relating to the premises.
The specific risks insured under that policy were set out in a schedule and included: business interruption and book debts; money; employers’ liability; public and products liability; frozen goods; goods in transit; legal expenses; and loss of licence.
Excluded risks included: employee dishonesty; personal accident; business travel; terrorism; and household contents.
The policy was renewed in 2016 and 2017.
At inception and renewal, the defendant’s automated system required the claimant to confirm “no owner, director, business partner or family member involved with the business” had, among other things:
…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.
In the drop-down menu, the only options were “Agree” or “Disagree”. The claimant’s broker clicked “Agree”.
Following a fire at the premises, the defendant sought to avoid the policy on the basis of the claimant’s misrepresentation over its directors’ involvement in previously insolvent companies. This led to what was described as the insolvency question: (a) whether there was a misrepresentation on the insolvency question and (b) whether, in asking that question in the way it did, the defendant had waived disclosure of the other insolvencies.
Snowden J (as he then was) construed the insolvency question to be limited to any “owner, director, business partner or family member involved with the business”.
In the absence of any express inquiry about “other insolvencies”, a person completing the insolvency question would not come to it “with any predisposition to think that the defendant was interested” in that information.
Further, by asking a limited question, the defendant limited its right to disclosure beyond that. It was reasonable for the claimant to infer that the defendant had no interest beyond that.
The Representation was not a misrepresentation nor was it an unfair presentation of risk