If you are less than frank when answering an insurer’s questions, any policy you obtain is unlikely to be worth the paper it is written on. However, as a High Court ruling showed, the issue of whether an answer is true or false very much depends upon the precise meaning of the question asked.
The case concerned a company that owned a bar and restaurant that was seriously damaged by fire. The company claimed more than £600,000 on its insurance, but the insurer declined to pay. It asserted that the relevant policy was void from the outset in that the company, when applying for cover, had provided an answer to a question which amounted to a material misrepresentation.
The question in issue asked whether any owner, business partner or family member involved with the business had ever been the subject of a winding up order or a company or individual voluntary arrangement with creditors, or been placed into administration, administrative receivership or liquidation. In its response, the company indicated that the answer to that question was no.
The three directors of the company had all previously been directors of one or more companies that had been dissolved after entering liquidation. On that basis, the insurer argued that the company’s answer to the question was the opposite of what it should have been and that it was entitled to avoid the policy. The company argued that, given the wording of the question, its answer was true.
Resolving that issue in the company’s favour, the Court noted that its argument was plainly supported by the literal meaning of the question. The scope of the question was limited to natural persons and made no mention of any corporate body with which relevant directors, owners or family members were or had been involved or connected in some way.
The company’s interpretation of the question was objectively reasonable and the answer given did not amount to a misrepresentation. The company also reasonably took the view that, by framing the question as it did, the insurer waived any right it may have had to be informed of the insolvency events. The Court heard further argument on consequential matters arising from its decision.