Bankruptcy question was unclear

R&R Developments v Axa Insurance UK High Court of Justice — Chancery Division — 28 September 2009

The proposal form for a commercial combined and contract works policy taken out by R&R (a small building company) with Axa included the question (answered in the negative by R&R): "Have you or any partners or directors either personally or in connection with any business in which they have been involved ever been declared bankrupt or are the subject of any bankruptcy proceedings or any voluntary or mandatory insolvency?"

It subsequently emerged that one of R&R's directors had been a director of a number of companies which had gone into liquidation. Axa claimed this meant the answer was inaccurate (misrepresentation) and that R&R's failure to volunteer the information amounted to material non-disclosure. R&R sought declarations that both claims were wrong.

On the first point the court found in favour of R&R, holding that the question related only to the insolvency of the directors and not to that of companies in which they had been involved. This was both the literal meaning of the words used and also made good commercial sense.

Furthermore, the court held that the proper approach was to determine the objective meaning of the question and not to enquire into how it had been (subjectively) understood by the insured.

On the second point the court also found in favour of R&R, holding that insurers, by asking the specific and restricted question, had waived any further and wider disclosure: "It is clear from the question that Axa had the concept of businesses with which the directors or partners of the insured were involved in their minds, but chose not to ask questions about the position of such businesses."

Comment

This case is a reminder to insurers that any lack of clarity in questions will be construed in favour of the insured and that the very act of asking questions may limit the duty of disclosure. Philip Vallance QC, BLM London

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