Proposal forms: Insurers need to be crystal clear

Wednesday 3 November 2021

In insurance contracts the proposer will normally have to complete a proposal form and the insurer then uses the information contained on the form to calculate the premium and terms and conditions of the policy.  The policyholder therefore has a duty to make fair presentation of the risk to the insurer and include disclosure of every material circumstance known to them to ensure that the information provided is correct and made in good faith.

Equally, the insurer must avoid asking ambiguous questions because if there is a genuine ambiguity in the question on the proposal form, then the insurer cannot rely upon the answer as a misrepresentation of fact if that answer is true in respect of the question asked.

The importance of fair presentation and the proper interpretation of questions on a proposal form was recently considered by the High Court in the case of Ristorante Ltd v Zurich Insurance Plc.  In that case, Ristorante operated a restaurant in Glasgow.  It took out a policy with Zurich in 2015 which was renewed in the following years. In 2018 the restaurant premises suffered a fire and Ristorante made a claim for £633,000 under the policy.  However, Zurich rejected the claim on the grounds of non-disclosure of a material risk by Ristorante.  Specifically, Zurich claimed that Ristorante had failed to disclose that three of its directors had been directors of companies which had previously entered into liquidation and that cover would not have been provided had this been disclosed.

Zurich‘s online proposal form asked the policyholder to agree or disagree with the statement:

“No owner, director, business partner or family member involved with the business… has ever been the subject of a winding-up order or company/individual voluntary arrangement with creditors, or been placed into administration, administrative receivership or liquidation”

Ristorante answered “agree” to this question.  However, the three directors and shareholders of Ristorante had in fact previously been directors of companies that had been dissolved following liquidations.

Ristorante argued that the insolvency question simply asked about insolvency event of the owner/director of Ristorante and did not ask about the insolvency event of any other company with which they had been involved with.  Alternatively, they argued that their interpretation of that question was objectively reasonable and therefore there was no misrepresentation on their part.

Zurich contended that this was on overly literal interpretation given that the insolvency question was primarily concerned with insolvency events that could only affect companies and not individuals and that the only sensible meaning of the question was that it was directed at the other companies with which the directors were involved.  Accordingly, the answer given by Ristorante had been wrong.

The Judge agreed with Ristorante and found that the questions on the proposal form only asked about insolvency events related to persons involved with Ristorante’s business, and as such, the answer given by Ristorante was not a misrepresentation or constituted non-disclosure.  The Judge said that although the information relating to the insolvency of such other companies which the specified people were related to was material, Zurich had waived its rights to receive this information by phrasing the questions asked in a manner in which it did.  It was reasonable for Ristorante to infer that had Zurich wanted to know about such information, then it would have asked such questions separately.

This judgment is a reminder to insurers of the importance of clear and careful drafting of questions on proposal forms.  Where there is any ambiguity in a question posed by the insurer, it will normally be resolved in the favour of the policyholder.  However, policyholders should always err on the side of caution if they are unsure about the wording of a question to avoid giving the insurer an opportunity to avoid the policy on the grounds of material non-disclosure.

If you are involved in any dispute with an insurer and require assistance please contact a member of our Dispute Resolution team via email or on 0113 207 0000.