The policy entered into between the parties contained the following clauses: Clause 5, in which the insurers acknowledged that they had received adequate disclosure prior to the start of the policy "on the assumption that such information is not materially misleading", and Clause 6 in which the insurers agreed not to avoid the policy for non-disclosure or misrepresentation "unless deliberate or fraudulent non-disclosure or misrepresentation or breach by that Insured is established in relation thereto".
Of issue in this case was the meaning of "deliberate", as used in Clause 6. Did it (as the insured contended) mean a deliberate decision not to disclose information which it knew was material (such that the non-disclosure involved an element of dishonesty) or did it (as the insurers contended) mean an awareness that information was not being disclosed but the insured held the honest, but mistaken, belief that it need not be disclosed (which was the case on the facts here). Coulson J preferred the insured's argument for the following reasons:
- The dictionary definition of "deliberate" connotes an intentional act or omission. The words used in Clause 6 suggested that serious misconduct or culpability was needed. No distinction could be drawn between a deliberate breach of a (for example) warranty and a deliberate non-disclosure: "A deliberate breach or default incorporates an element of wrongdoing, but so too does deliberate non-disclosure".
- There was no need to give "deliberate" a different meaning to "fraudulent". The presumption against surplusage was not a "hard-edged" rule: "Of course, the court should strive to give meaning to every word in the contract… But at the same time, the court should guard against giving such a rule too much prominence in circumstances where, as we all know, some tautology, some overlapping terms, some surplusage, will often be found in commercial contracts".
- In any event, the judge was not persuaded that "deliberate" and "fraudulent" necessarily meant the same thing. For example, a representation may be deliberate or dishonest but, if there is no intention to deceive, it will not be fraudulent. Similarly, information may be withheld deliberately to save the insured from embarrassment, but without any deceitful intention to obtain an advantage.
- The judge said that his decision was confirmed when Clause 6 was looked at in context and in conjunction with Clause 5. The two clauses were intended to protect the insured against the normal consequences of non-disclosure or misrepresentation, and so any carve-out "would be of relatively narrow compass".
- Finally, the judge held that his interpretation accorded with commercial common sense: the insured loses cover for dishonesty, but not for an honest mistake.
COMMENT: The Insurance Act 2015 retains the right to avoid a policy where the insured acts "deliberately" (or recklessly) and so Coulson J's interpretation of that word will be of interest when the Act comes into force (even where the policy itself makes no reference to deliberate non-disclosure or misrepresentation).