In Earls -v- The Financial Services Ombudsman & anor [2015] IEHC 536, the High Court overturned a finding by the Financial Services Ombudsman (FSO) that an insured had failed to disclose a material fact in their insurance application and remitted it to the FSO for reconsideration.  In doing so the court carried out a detailed analysis of previous case law on non-disclosure and the principles to be applied.

Facts 
In March 2008 gunshots were fired in the vicinity of houses in Limerick. The intended target was unknown but neither the applicant (Ms Earls) nor her house were the target of the shooting. Ms Earls was on holiday at the time of the incident and having learnt of it made a preliminary call to her then home insurers.  When she returned she discovered that the damage to the property was minimal and made no claim on her insurance policy. In November 2010, Ms Earls switched her home insurance to FBD and when asked how many accidents or claims she had in the past 5 years she answered “zero”. Almost three years later Ms Earls' house was the subject of an arson attack.

FBD initially sought to void the policy on the grounds that Ms Earls was not resident in the house however Ms Earls was in a position to prove residency.  Subsequently FBD sought to void the policy on the basis of the non-disclosure of a previous claim and stated that her property had been the subject of a 'gunfire attack' which she had not disclosed.

Ms Earls complained to the Financial Services Ombudsman (the FSO) who found that the shooting incident was a material fact which ought to have been disclosed. The FSO stated that notwithstanding the fact that Ms Earls did not pursue her claim in 2008 there remained an onus on her to ‘declare all facts likely to influence the Insurer in deciding on the acceptance of the risk and the terms to apply.’ It was the view of the FSO that a reasonably prudent underwriter would be influenced in its decision to write a risk if it was informed that the property to be insured had previously been subjected to a gunfire attack.

Decision 
In preliminary comments Barrett J noted that it did not seem correct to state that a person had been subject to a 'gunfire attack'where criminals had shot bullets at an unknown target and some of those bullets hit a property.  Barrett J also noted that Ms Earls did not make a claim, within the ordinary meaning of the word, to her then insurers. 

Barrett J outlined the test in an appeal from the FSO as established by the case law is that (i) the burden of proof is on the appellant; (ii) the onus of proof is the civil standard; (iii) the courts should not consider complaints about process or merits in isolation, but rather should consider the adjudicative process as a whole; (iv) the onus is on the appellant to show that the decision reached was vitiated by a serious and significant error or a series of such errors; and (v) in applying the test, it is appropriate for the court to have regard to the degree of expertise and specialist knowledge of the Ombudsman.

Barrett J went on to note that an insurer has the right to avoid a contract of insurance if the insured was guilty of fraud, non-disclosure or misrepresentation before the contract was entered into. He reviewed the case law on the issue of non-disclosure in insurance contracts, and stated that the applicable principles arising from those cases could be summarised as follows.

  1. A contract of insurance is a contract of the utmost good faith on both sides.
  2. The correct answering of questions asked is not the sole duty of the insured. They must disclose all matters which might reasonably be thought to be material to the risk against which they are seeking indemnity.
  3. The duty involves exercising a genuine effort to achieve accuracy using all reasonably available sources. (To require disclosure of all material facts may well require an impossible level of performance).
  4. The form of questions asked in a proposal form may make the applicant’s duty to disclose more strict than the general duty arising; it is more likely, however, that the questions will limit the duty of disclosure. The acid test is whether a reasonable person reading the proposal form would conclude that information over and above that which is in issue is required.
  5. Materiality falls to be gauged by reference to the hypothetical prudent insurer. 
  6. Absent a question directed towards the disclosure of a particular fact, the arbiter must give consideration to what a reasonable insured would think relevant; relevance in this particular context is not determined by reference to an insurer alone.
  7. In the case of over-the-counter insurance, the insurer is not entitled, in the absence of fraud, to repudiate on grounds of non-disclosure.
  8. The sole and final determiner of materiality is the arbiter, not the insurer.

Barrett J considered that the FSO had erred in law on at least five grounds:

  • It was not clear that due regard was had to the fact that a contract of insurance is a contract of the utmost good faith on both sides. The Judge was of the view that the only regard appeared to have been whether Ms Earls manifested the utmost good faith and not whether FBD did so. Barrett J noted that in this respect, the FSO might wish to consider the possibility that a reasonably assertive claims policy might have strayed across the line into an unreasonably avaricious claims policy which sought to dislodge a genuine claim on specious grounds under the umbrella of uberrimae fidei. 
  • The FSO appeared to have proceeded on the basis that if a material fact was not disclosed then, ipso facto, there had been a breach of the duty of disclosure. Barrett J stated that this may not always be the case as the duty arising for an insured in this regard is to exercise a genuine effort to achieve accuracy using all reasonably available sources. 
  • It was not apparent that the FSO considered the possibility that the form of questions asked in a proposal form might limit the duty of disclosure arising.  Barrett J noted that while the FSO pointed to the importance of reading policy terms and conditions it did not seem to him that this observation properly addressed this issue.
  • The Finding pointed to the fact that materiality fell to be gauged by reference to the hypothetical prudent insurer. Barrett J held that it was not apparent that the FSO had regard to the fact that, absent a question directed towards the disclosure of a particular fact, the arbiter must give consideration to what a reasonable insured would think relevant and relevance in this particular context is not determined by reference to an insurer alone. 
  • There was no acknowledgement in the finding as to whether this is over-the-counter style insurance, and the consequences of this, if so.

For these reasons the court found that the FSO had erred in law in determining the Ms Earls' complaint and remitted the matter to the FSO for review.