Insurance Company of the West Indies v Michael Campbell
| Jurisdiction | Jamaica |
| Judge | BROOKS, J. |
| Judgment Date | 07 January 2011 |
| Judgment citation (vLex) | [2011] 1 JJC 0703 |
| Court | Supreme Court (Jamaica) |
| Docket Number | CLAIM NO. 2009 HCV 6034 IN CHAMBERS |
| Date | 07 January 2011 |
IN THE SUPREME COURT OF JUDICATURE OF JAMAICA
IN CIVIL DIVISION
CLAIM NO. 2009 HCV 6034
IN CHAMBERS
Miss Camille Wignall instructed by Nunes Scholefield DeLeon & Co. for the Claimant
Miss Kayann Balli for the Defendant
Insurance Law – Return of premiums – Motor policy - Policy avoided for non-disclosure and misrepresentation – Whether insurer obliged to refund premiums paid under the policy – Whether insurer entitled to rely on allegation of fraud said to be committed by the assured – effect of the renewal of the policy prior to discovery of the misrepresentation
The Insurance Company of the West Indies (ICWI) has brought the present claim seeking to have a motor vehicle insurance policy, which it issued to Mr Michael Campbell, declared null and void. ICWI claims the declaration on the basis that Mr Campbell breached the requirement of utmost good faith by failing to fully and truthfully answer a question on the policy proposal form.
At the hearing of the claim, Mr Campbell, through his counsel Miss Balli, conceded that he did, in fact, fail to declare relevant facts. Based on his concession, it was accepted, applying the principle of utmost good faith, which assured and insurers owe to each other, that ICWI is entitled to avoid the policy, which it issued to Mr Campbell.
In formalizing the orders to be made, the question arose as to whether or not, the policy having been declared null and void from the beginning, ICWI was obliged to return the premiums which Mr Campbell had paid.
Miss Wignall, for ICWI, asserted that ICWI had no obligation to return the premiums. She submitted that Mr Campbell is guilty of fraud and in those circumstances he is not entitled to a refund of the premiums.
Miss Balli submitted that the issue of fraud was only raised by ICWI, after her concession, mentioned above. Learned counsel argued that ICWI did not plead fraud and accordingly it could not raise it as an issue in the course of closing submissions.
Two broad questions arise to be determined. The first is whether, in cases of fraud by an assured, an insurer is entitled to forfeit premiums paid in non-marine insurance policies. The second is whether the insurer must specifically plead and prove fraud in order to secure that entitlement.
The Law
Are premiums returnable where there is fraud by the assured?
The general principle is that where a policy is obtained by misrepresentation or non-disclosure of material facts, it is voidable on the election of the insurer (see Jester-Barnes v Licenses and General Insurance Co. Ltd. (1934) 49 Ll. L. Rep 231 ). The principle was accepted in our Court of Appeal in Insurance Company of the West Indies v Elkhalili SCCA 90 of 2006 (delivered 19 December 2008). Further, if the insurer elects to avoid the policy, it is void from the very beginning, as if there had been no policy whatsoever. The parties are therefore to be replaced in the positions which they held at the instant before the contract was made. This means that all premiums paid, are to be returned to the assured and the insurer is deemed not to have been at risk in respect of the subject matter of the policy (see Stevenson v Snow (1761) 3 Burr. 1237, 1240; 97 ER 808 ).
That general principle is based on the fact that the power, to declare the policy void, lies in the equitable jurisdiction of this court. The equitable maxim, ‘he who seeks equity, must do equity’, is normally applied in those circumstances. As such, if an insurer seeks to avoid the policy it must be willing to return the premiums which it has collected. This is because, applying the principle of avoidance, it was never at risk in respect of that policy, and therefore had not earned the premiums. That quid pro quo was recognized in the case of London Assurance v Mansel [1879] 11 Ch D 363. At page 372 of the report, Jessel M R stated:
‘The order will be – The Plaintiffs being willing and hereby offering to return the premium, declare that the acceptance by the Plaintiffs of the Defendant's life was void and of no effect, that they were not bound to deliver the policy, and that the contract be delivered up to be cancelled.’
There are certain exceptions to the principle concerning the return of premiums. Among those is the rule, specifically the subject of legislation in marine insurance, that if the policy were obtained by fraud, the assured would not be entitled to benefit from his fraud, by claiming a refund of the premium. Section 89 (1) of the Marine Insurance Act states:
‘Where the consideration for the payment of the premium totally fails, and there has been no fraud or illegality on the part of the assured or his agents, the premium is thereupon returnable to the assured.’
It is accepted that, generally speaking, the Marine Insurance Act represents a codification of the common law regarding insurance (see Swiss Reinsurance Co v United India Insurance Co Ltd [2005] EHWC 237 at paragraph 53). There is, however, some difference of opinion as to whether, in non-marine insurance, the insurer is entitled to forfeit the premiums paid, where the assured has been guilty of fraud in securing the policy.
This difference has perhaps arisen from the fact that there was some variance in the approach used by different courts in the early years of insurance law. According to the learned editors of MacGillivray on Insurance Law , 10 th Ed. at paragraph 8-28, two very early cases in the Court of Chancery seem to be the source of ‘the proposition that where the insurers came to a court of equity for cancellation the premium should be returned even if the policy were cancelled on the ground of the fraud of the assured’. The cases cited in support are Whittingham v Thornburgh (1690) 2 Vern. 206; 23 ER 734 and De Costa v Scandret (1723) 2 P.Wms. 170; 24 ER 686. The former involved a life insurance policy and the latter was a case involving marine insurance. The learned editors of MacGillivray admit, however, that the reporting of those two cases is less than satisfactory.
In the latter case the Lord Chancellor decided that the assured had ‘not dealt fairly with the insurers’, by failing to disclose certain intelligence which he had about his ship. He ruled that the concealing of the intelligence was ‘a fraud’. He therefore ordered ‘the policy to be delivered up with costs, but the premium to be paid back and allowed out of the costs’.
A similar approach, whereby the premium was used to defray the costs, was used in The Prince of Wales etc. Association Company v Palmer (1859) 25 Beav. 605; 53 ER 768. In a gross case of fraud, effected by Mr William Palmer, ‘as a part of a scheme to get large sums of money from various insurance offices’, it was held that Mr William Palmer had no insurable interest in the policy. Romilly MR ruled:
‘the company is entitled to have the policy delivered up to be cancelled, and to have a declaration that it was obtained by fraudulent means or for fraudulent purposes, and that nothing is due upon it.
As to the £710. paid them for the premium, that must be applied in payment of the costs and the residue paid into court with liberty to apply.’ (Emphasis supplied)
It was the custom, and it was expected, that an insurer seeking to avoid the policy, would pay the premiums into court. It was, however, not fatal if the insurer did not do so, provided that the insurer's willingness to repay the premiums could be inferred. The issue was raised in Barker v Walters (1844) 8 Beav. 92; 50 ER 36. There Lord Langdale MR at page 96 outlined the issue and resolved it in these terms:
‘This bill contains sufficient allegation of equitable matters, to form the foundation for relief against the Defendant Croft and Mary Walters, but they have filed demurrers on technical grounds, for want of equity and for want of parties.
The want of equity is, that the Plaintiffs have not, by their bill, offered to repay the money received by way of premiums on the policy…
First, it is to be observed that the prayer of the bill is, that the policy may be delivered up to be cancelled, ‘or that the Plaintiffs may be relieved in such manner as the Court may think fit.’ The Plaintiffs, therefore, have, by their bill, in effect, asked for relief, on such terms and in such manner as the Court may seem fit. If it were necessary to make the offer, this, I own, seems to me to be sufficient. It is, in...
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