Insurers often try to give themselves ‘wiggle room’ to contest claims, which is one reason why they put so many questions in proposal forms. Over the years, the courts have established that where such a question is ambiguous, the legal construction put on it (what it means in law) will be taken as being what a reasonable person would understand by the question.
Recently, a case amplified this principle, when the court decided that the subjective understanding of the insured was irrelevant if the objective construction of an ambiguous question could be deduced from the wording.
In the case in point, the directors of the insured company answered ‘no’ to a question about whether the company or its directors or partners had, either personally or in connection with any business in which they had been involved, been the subject of insolvency proceedings or made bankrupt.
One of the directors was associated with companies which had been placed in administrative receivership or which had been the subject of a creditors’ voluntary liquidation.
The court ruled that the ‘no’ answer in the proposal was correct – the question was intended to deal only with the company plus its directors and partners and was not concerned with companies associated with a director.
What is surprising is that the court went on to say that the insured’s own subjective interpretation of the question in the proposal form is not relevant – what matters is how the question should be construed objectively. Therefore, where the insured answers such a question incorrectly, provided that the question is ambiguous, it could be construed against the insurer.
No doubt insurance companies will be reviewing the questions on their proposal forms in the light of this decision.
Partner Note
R & R Development Ltd. v Axa Insurance UK plc [2009] EWHC 2429 (Ch).