The Supreme Court decides the test for insurers/parties who have a contractual power to form an opinion

http://www.bailii.org/uk/cases/UKSC/2015/17.html

The claimant is the widow of an engineer who disappeared from the defendant's oil tanker when it was in the middle of the North Atlantic. His contract of employment with the defendant provided that: "For the avoidance of doubt, compensation for death…shall not be payable if, in the opinion of the Company or its insurers, the death…resulted from…the Officer's wilful act…" (emphasis added). The defendant formed the opinion that the most likely explanation for the employee's disappearance was that he had committed suicide by throwing himself overboard. The issue in this case was whether the defendant had been entitled to form that opinion and what the test to be applied by the court in deciding that question should be. At first instance, Teare J held that the evidence was not sufficiently cogent to warrant a finding of suicide on the balance of probabilities and so the defendant's opinion had been unreasonable (it having been common ground between the parties that the opinion formed by the defendant had to be reasonable). The appeal from Teare J's decision was allowed and so the claimant appealed to the Supreme Court.

It has now allowed that appeal by a majority of 3:2.

The general issue was what it means to say that the decision of a contractual fact-finder must be a reasonable one. The Supreme Court considered whether courts should adopt the same standard of review as that adopted for judicial reviews of administrative action, or whether it should be less demanding. The claimant argued that the defendant should have taken the right matters into account whereas the defendant argued that its decision could only be impugned if its decision was one which no reasonable employer could have reached (the claimant agreed that that was also part of the test). The majority of the Supreme Court found in favour of the claimant: "If it is part of a rational decision-making process to exclude extraneous considerations, it is in my view also part of a rational decision-making process to take into account those considerations which are obviously relevant to the decision in question. It is of the essence of "Wednesbury reasonableness" (or "GCHQ rationality") review to consider the rationality of the decision-making process rather than to concentrate upon the outcome. Concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker" (as per Lady Hale).

Turning to the particular contract in issue here, it was held that a decision that an employee had committed suicide was not a rational or reasonable decision unless the employer had had it clearly in mind that suicide is such an improbability that cogent evidence is required to form the positive opinion that it has taken place. Applying that test to this case, it was found that there had not been such sufficiently cogent evidence.

COMMENT: Although this case concerned the decision of an employer, the principles will be equally applicable to decisions made by insurers where the policy gives them a power to form an opinion. The more unlikely a certain conclusion is generally (as Lady Hale noted, "some things are inherently a great deal less likely than others"), the stronger the evidence will be needed to support the insurer's opinion.