The High Court’s interpretation of insolvency on an insurance proposal form

Syedur Rahman of Rahman Ravelli considers a case that centred on a company’s awareness of industry-related legal developments

In 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. 

Case Background 

Snowden J was asked to determine, amongst other preliminary issues, 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 that used using a computer system called the Z Trade System. When starting the policy - and during renewals - policyholders were supposed to complete a proposal form on the system that included various statements of fact. 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 duly answered that he agreed to the statement regarding insolvency. But, following an incident where the insurance policy was relevant,  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. 

Decision 

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

Snowden J 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. It was reasonable for the claimant to infer that had the insurer wanted to know about such information, such questions would have been posed. 

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]. 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. 

Conclusion

In this judgment, the court did not allow the insurance company to skirt around its poor drafting of questions that have a serious impact on its business. As there were two previous judgments that Zurich should have known about (given its standing in the insurance industry) this issue could have been avoided. The case illustrates that the courts will take a dim view when parties who have the ability to know better have not taken it upon themselves to understand updates in the law which may affect the running of their business.