Smith-Thomas (Hillary) v Insurance Company of the West Indies

• Jurisdiction: Jamaica
• Judge: BROOKS, J.
• Judgment Date: 24 November 2008
• Judgment citation (vLex): [2008] 11 JJC 2402
• Docket Number: CLAIM NO 2006 HCV 01883
• Court: Supreme Court (Jamaica)
• Date: 24 November 2008

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

CLAIM NO 2006 HCV 01883

BETWEEN

HILLARY SMITH-THOMAS

CLAIMANT

AND

INSURANCE COMPANY OF THE WEST INDIES

DEFENDANT

INSURANCE LAW - Motor vehicles - Insurance policy - Whether non-disclosure or misrepresentation on proposal form - Whether insurer induced by breach to accept the risk - Whether insurer entitled to repudiate policy - Whether renewal affected insurer's right to repudiate

BROOKS, J.

1 On 18 ^th August 2005 Mrs. Hillary Smith-Dyer, then Mrs. Smith-Thomas, accidentally crashed her Toyota 4 Runner motor car into a utility pole. The vehicle was extensively damaged. She claimed indemnity for her loss on her motor insurance policy but her insurer, the Insurance Company of the West Indies (ICWI), has refused the indemnity. ICWI claims that Mrs. Smith-Dyer breached the requirement of utmost good faith by failing to fully and truthfully answer a question on the proposal form for the insurance policy. This form was completed on July 12 2004. Her breach, ICWI says, lies in the fact that Mrs. Smith-Dyer concealed from it the fact that two vehicles owned by her were involved in separate collisions a few months before the proposal form was completed. The concealment, ICWI says, was of a material fact which, if the information had been revealed, would have affected its decision to accept the risk of insuring her vehicle on the terms that it did, or at all.

2 Mrs. Smith-Dyer accepts that the two collisions were not set out on the proposal form but denies any concealment on her part. She contends that she did tell ICWI's representative about one of the collisions (where her sister was the driver) but that the representative failed to include it on the form. In respect of the second collision, Mrs. Smith-Dyer states that she did not know about that collision; she was not aware that her vehicle, which was being driven by her brother at the time, had been damaged and she did not know that an accident report had been made to her insurer for that vehicle; British Caribbean Insurance Company Ltd. (BCIC). She insists that ICWI is wrong to refuse her indemnity and asks this court to order it to pay the cost of repairing her Toyota 4 Runner.

3 In deciding whether ICWI is entitled to avoid the policy, the questions to be answered by the court are:

• 1. Was there a misrepresentation or non-disclosure on Mrs. Smith-Dyer's part?

• 2. Was it a material misrepresentation or non-disclosure, that is, one which could have affected ICWI's decision to accept the proposal on the terms that it did?

• 3. Did the misrepresentation or non-disclosure actually induce ICWI to accept the risk?

• 4. Should ICWI have done an investigation of Mrs. Smith-Dyer's claim record on the common insurance claims website before it accepted her claim?

4 The Law

5 It is one of the foundation principles of insurance law that the parties to a contract of insurance owe to each other a duty of utmost good faith. On the part of the assured (Mrs. Smith-Dyer in this case), that duty requires full disclosure of every material fact which may affect the insurer's decision to accept the risk involved in entering into the contract. It has long been a principle that an insurer is entitled to avoid liability under the policy if the assured has breached the duty of full disclosure. In Jester-Barnes v Licenses and General Insurance Co. Ltd. (1934) 49 LI. L. Rep 231 at pages 234–5 MacKinnon, J. stated:

"...and in regard to that contract, being one of insurance, it is obvious that the ordinary implied term of any contract of insurance would be part of it, namely, that if the assured had made any misrepresentation of fact, even innocent, or had failed to disclose any material fact, the insurance company should have a right to be relieved of any liability under the policy." (Emphasis supplied)

6 The phrase highlighted above indicates that even an inadvertent misrepresentation on the part of the proposer will not excuse a breach of the duty to disclose.

7 While innocence is not a defence to misrepresentation it does excuse non-disclosure, although the line between the two is sometimes blurred. The authorities recognize that non-disclosure can arise for any number of reasons. The case of Joel v Law Union and Crown Insurance Co. [1908] 2 K.B. 863 is often cited as authority for the principle that a proposer can only disclose what he knows. The case is also cited for the proposition that the burden of proving non-disclosure or misrepresentation is on the insurer.

8 In Joel v Law Union Ms. Robina Morrison effected insurance on her own life, in pursuance of a proposal in which she answered, in the negative, the question whether she had ever suffered from mental illness. She, however, was not aware that she had been previously treated for acute mania . She committed suicide and the insurer sought to avoid the policy on the basis of misstatement and non-disclosure.

9 In the Court of Appeal, Fletcher Moulton, L.J. outlined the nature and the rationale of the duty to disclose. At page 883 he quoted from the judgment of Lord Blackburn in Brownlie v Campbell 5 App. Cas. 925 at p. 954:

"In policies of insurance, whether marine insurance or life insurance, there is an understanding that the contract is uberrima fides (sic) that if you know any circumstance at all that may influence the underwriter's opinion as to the risk he is incurring, and consequently as to whether he will take it, or what premium he will charge, if he does take it, you will state what you know, and the concealment of a material circumstance known to you, whether you thought it material or not, avoids the policy."

10 Fletcher Moulton, L.J. at page 884, stated however:

"But in my opinion there is a point here which often is not sufficiently kept in mind. The duty is a duty to disclose, and you cannot disclose what you do not know. The obligation to disclose, therefore, necessarily depends on the knowledge you possess.. ..Your opinion of the materiality of that knowledge is of no moment." (Emphasis supplied)

11 It is also necessary to cite the principle that "[w]here the assured has signed a proposal or warranted the accuracy of a declaration the onus of proof is on him to establish that, despite formal appearances, he did not in fact give the answers written down and attributed to him". (See MacGillivray on Insurance Law 10 ^tn Ed. paragraph 18–49.)

12 Whereas the older cases on the point emphasised only the duty on the insurer to prove the non-disclosure or misrepresentation of a material factor, in 1994 the House of Lords added to the requirement by stating that the insurer also had to prove that the non-disclosure or misrepresentation actually induced it to accept the risk on the terms that it did. This was in the case of Pan Atlantic Insurance Ltd. and another v Pine Top Ltd. [1995] 1 A.C. 501. The principle has since been accepted as valid but there has been some divergence as to the level of evidence which would satisfy that duty.

13 In the Pan Atlantic case Lord Mustill and Lord Lloyd of Berwick disagreed as to whether a material non-disclosure or misrepresentation gave rise to a presumption of inducement. In the later case of St. Paul Fire and Marine Insurance Co. (UK) Ltd. v McConnell Cowell Constructors Ltd. and others [1995] 2 LI. L. R. 116, the Court of Appeal held that there was a presumption in favour of the innocent party and that that party need only prove that the non-disclosure or misrepresentation was an inducement to take the risk, and not necessarily that it was the inducement so to do. The court also accepted the principle that inducement cannot normally be inferred from proved materiality and approved as a correct statement of the law the following excerpt from Vol. 31 of Halsbury's Laws of England 4 ^th Ed. at paragraph 1067:

"Inducement cannot be inferred from proved materiality, although there may be cases where the materiality is so obvious as to justify an inference of fact that the representee was actually induced, but, even in such exceptional cases, the inference is only a. prima facie one and may be rebutted by contrary evidence."

14 At paragraph 4.62 of Insurance Disputes 2 Ed., the learned editors report that Longmore, J. in the case of Mark Rich & Co. AG v Portman [1996] 1 Lloyd's Rep. 430, ruled that the presumption of inducement did not apply unless the underwriter could not "for good reason", be called to give evidence (pg. 442 col. 1). The finding was not addressed on appeal. In St. Paul the Court of Appeal did uphold the presumption despite the absence of an underwriter, though it could fairly be said that there were three underwriters from other companies who would have assisted the court in determining that the absent underwriter was actually induced.

15 I shall now examine the questions which I have previously posed.

16 Was there a misrepresentation or non-disclosure on Mrs. Smith-Dyer's part?

17 The Proposal Form

18 There were very few disputes as to fact. Those that there were, surrounded the preparation and completion of the Proposal Form. The relevant question on that form was question (f). It stated:

"Give particulars of all accidents or losses during the past three years (whether insured or not) in respect of all vehicles

• (1) owned by you, whether or not you were the driver

• (2) used or driven by you, whether or not you were the owner

• (3) used or driven by any other person who will regularly drive the motor vehicle.

19 The questions do not have the level of ambiguity which Beswick J. found in the proposal form in Elkhalili v ICWI & anor 2003 HCV 0852 (del. 21/9/06)

20 The issue as to whether there was misrepresentation or non-disclosure must be...