For Non-Disclosure of Material Facts on Strength of Proposal Form
In the recent decision of Richardson v Financial Services Ombudsman & anor the High Court upheld a finding of the Financial Services Ombudsman (the “FSO”) that an insurer was entitled to avoid a life assurance policy on the grounds of non-disclosure. Significantly the decision of the High Court turned on the strength of the proposal form and serves as a useful reminder to insurers of the importance of a well-drafted proposal form.
The life assurance policy in dispute was taken out in 1996 by the claimant's husband, who ultimately died in 2013. Following his death it transpired that prior to inception he had failed to disclose certain aspects of his medical history. The insurer avoided the policy on the basis that had the full medical history been disclosed before the policy incepted, it would not have been in a position to offer cover to the proposer. The FSO held in favour of the insurer and the claimant appealed this decision to the High Court.
The High Court noted that the role of the court in appeals of findings of the FSO is to consider whether, on an examination of the adjudication process as a whole, the finding of the FSO was vitiated by a serious and significant error, or a series of such errors. In this context the High Court considered that the appeal was confined to assessing whether the FSO committed a serious error by finding that Irish Life was entitled to repudiate the policy, in circumstances where there was no suggestion that the answers provided to the questions on the proposal form were deliberately dishonest or deceitful or where the issues underlying the repudiation could be considered as relatively trivial in nature as well as significantly distant in time from the death giving rise to the claim on the policy.
The High Court noted the well-established test of materiality for non-disclosure in insurance law is "every circumstance is material which would influence the judgment of the prudent insurer in fixing the premium or determining whether he would take the risk" and that an insurer may avoid a policy where the insurer proves that there has been a misrepresentation or concealment of a material fact. The Court noted that the test of materiality is purely objective and the subjective state of mind of the actual insurer is irrelevant.
The High Court distinguished the judgment of Clarke J in Coleman v. New Ireland Assurance plc trading as Bank of Ireland Life, noting that the wording of the proposal form in that case required responses to be given to the best of the knowledge of the proposer, permitting a subjective examination of the proposer's state of mind at the time when she responded to the questions at issue in that case. The High Court concluded that the subjective state of mind of the proposer was only relevant in that case because of the manner in which the proposal form was drafted.
By contrast, the High Court considered that in this case the duty to disclose information was set out clearly on the proposal form which required the insured to answer all questions “fully, correctly and truly” and expressly warned that the proposer should disclose facts if they were uncertain as to their materiality. The obligation was not qualified by reference to it being discharged to the best of the proposer's knowledge and had it been so, the Court considered that there may have been a different outcome. There was no reason to believe that the proposer told deliberate untruths in completing the proposal form, and in the circumstances he could have been forgiven for omitting the incidents in his medical history. However, the questions on the proposal form were neither ambiguous nor open-ended and they had not been answered fully or correctly. While the High Court expressed some sympathy for the position of the claimant, the High Court concluded that there had been a material non-disclosure and the insurer was entitled to avoid the policy.
Avoidance is generally considered to be a draconian remedy and in recent years, the Irish courts have shown a marked reluctance to uphold avoidance with the result that insurers are often left without an effective remedy. This decision is therefore significant as it demonstrates that the courts are willing to uphold policy avoidance for material non-disclosure where the proposal form is clear and unambiguous and the proposer's duty to disclose is not qualified by reference to answering the questions in the proposal form to the best of the proposer's knowledge. For insurers, this judgment demonstrates the critical importance of a well-drafted proposal form which seeks to identify the facts which are material to the risk. For brokers, it serves as a reminder of the importance of advising clients to provide full and complete responses to the questions on the proposal form and disclosing all material facts.