The Irish Supreme Court recently determined that a party who had invested in a unit-linked property fund through a life assurance policy could not rely upon the principle of utmost good faith; the principle including a requirement for the life assurance provider to disclose all material facts relating to the underlying property asset.
In 2006 the claimant, Hugh Governey, invested €500,000 in the Kennet Centre Geared Property Fund (the "Fund") through a single premium investment bond in the form of a life assurance policy, the life assured being that of Mr Governey (the “Policy”). The Fund had been established by Anglo Irish Bank Wealth Management and Anglo Irish Assurance Company Limited (the “Company”) and was associated with the Kennet Shopping Centre in Newbury, England (the “Kennet Centre”) that had been acquired by the Fund for GBP£50m.
The Fund's investment in the Kennett Centre ultimately failed resulting in no return to Mr Governey on the Policy and the loss of his investment.
Mr Governey unsuccessfully complained to the Financial Services Ombudsman (the "FSO"), arguing that his contract with the Company was a contract to which the principle of utmost good faith, or uberrima fides, applied, and therefore imposed a fundamental duty on the Company to disclose all material facts relating to his underlying asset. He claimed that the Company acted unlawfully in failing to disclose certain material facts to him at the inception of the Policy including that a newly developed shopping centre represented a risk to the Kennet Centre.
The Company maintained at all times that all material facts had been disclosed to Mr Governey. The FSO agreed and also held that Mr Governey was adequately advised of the high risk nature of the underlying investment.
Mr Governey appealed that decision to the High Court which upheld the FSO’s finding. Mr Governey subsequently sought and was granted leave to appeal that decision to the Supreme Court on a point of law.
The Supreme Court identified the core question of law before it as being whether, in entering into the contractual arrangement with Mr Governey, the Company owed a duty of utmost good faith to Mr Governey or a much greater degree of obligation of disclosure than might otherwise have been the case in relation to the underlying investment.
After reviewing the contractual documentation and the nature of the contract between the parties, the Supreme Court concluded that it could not be simply characterised as an insurance contract. Rather it was seen as an investment arrangement with a life assurance element, the risk being covered by that element being the risk of Mr Governey's death whilst the Policy was in force and not the potential future value of the Kennet Centre. Consequently, facts material to the potential future value of the Kennet Centre were not material to the risk covered by the Policy.
Accordingly the Supreme Court found that neither the principle of utmost good faith nor the obligation to disclose all material facts applied to the wider contractual arrangement. In doing so it determined that there was no duty of disclosure on the Company in relation to the future value of the Kennett Centre and therefore Mr Governey could not maintain a claim to repudiate the contract and obtain the return of the €500,000 premium on the basis of the alleged non-disclosure of material facts.
The determination of the Supreme Court provides clarification that where investments are structured through life assurance products that the insurance undertaking does not owe a duty to disclose all facts that are material to the potential future return on the underlying investment to the policyholder. Consequently, policyholders remain protected by the law in relation to misrepresentation and basic contract law without the imposition of overly burdensome obligations on product producers.