Insurance Company of the West Indies (Cayman) Ltd v Banks and Yee

• Jurisdiction: Cayman Islands
• Judge: (McMillan, Ag. J.)
• Judgment Date: 30 June 2015
• Date: 30 June 2015
• Court: Grand Court (Cayman Islands)

Grand Court, Civil Division

(McMillan, Ag. J.)

INSURANCE COMPANY OF THE WEST INDIES (CAYMAN) LIMITED

and

BANKS and YEE

T. Lowe, Q.C. and W. Jones for the plaintiff;

P. Murphy for the first defendant;

M. Dors for the second defendant.

Cases cited:

(1) British Caymanian Ins. Co. Ltd. v. Lindo, 2011 (2) CILR 282, followed.

(2) Brotherton v. Aseguradora Colseguros S.A., [2003] 2 All E.R. (Comm) 298; [2003] 2 CLC 629; [2003] Lloyd”s Rep. I.R. 746; [2003] EWCA Civ 705, applied.

(3) Carter v. BoehmENR(1766), 3 Burr. 1905; 97 E.R. 1162, considered.

(4) Drake Ins. plc v. Provident Ins. plc, [2004] Q.B. 601; [2004] 2 W.L.R. 530; [2004] 2 All E.R. (Comm) 65; [2004] 1 Lloyd”s Rep. 268; [2004] 1 CLC 574; [2003] EWCA Civ 1834, distinguished.

(5) Joel v. Law Union & Crown Ins. Co., [1908] 2 K.B. 863, referred to.

(6) Law Acc. Ins. Socy. Ltd. v. Boyd, 1942 S.C. 384; 1942 S.L.T. 207, considered.

(7) Manifest Shipping Co. Ltd. v. Uni-Polaris Ins. Co. Ltd., [2003] 1 A.C. 469; [2001] 2 W.L.R. 170; [2001] 1 All E.R. 743; [2001] 1 All E.R. (Comm) 193; [2001] 1 Lloyd”s Rep. 389; [2001] CLC 608; [2001] UKHL 1, considered.

(8) Pan Atlantic Ins. Co. Ltd. v. Pine Top Ins. Co. Ltd., [1995] 1 A.C. 501; [1994] 3 W.L.R. 677; [1994] 3 All E.R. 581; [1994] 2 Lloyd”s Rep. 427; [1994] CLC 868, considered.

(9) Royal Star Assur. Ltd. v. Foster, Grand Ct., Cause No. 242 of 2013, November 13th, 2014, unreported, referred to.

(10) Strive Shipping Corp. v. Hellenic Mutual War Risks Assn. (Bermuda) Ltd. (‘The Grecia Express’), [2002] 2 All E.R. (Comm) 213; [2002] 2 Lloyd”s Rep. 88; [2003] 1 CLC 401; [2002] EWHC 203 (Comm), referred to.

(11) Zeller v. British Caymanian Ins. Co. Ltd., 2008 CILR 11, followed.

Legislation construed:

Vehicle Insurance (Third Party Risks) Law (2012 Revision), s.15: the relevant terms of this section are set out at paras. 6 and 7.

Insurance-misrepresentation and non-disclosure-continuing representations-ongoing duty to disclose material facts to insurer (e.g. before renewal of policy) based on relationship of uberrima fides-failure to disclose may induce insurer into agreement it would not otherwise enter

Insurance-misrepresentation and non-disclosure-insurer avoiding policy-insurer entitled to avoid policy of motor insurance for non-disclosure of criminal charges of careless driving, driving under influence of alcohol and driving without licence-charges material to prudent insurer”s calculation of risk of insuring driver-ongoing duty to disclose charges to insurer (e.g. before renewal of policy) based on relationship of uberrima fides-failure to disclose may induce insurer to enter agreement it would not otherwise enter

The plaintiff sought a declaration that it was entitled to set aside a contract of insurance between it and the first defendant.

The plaintiff issued a policy of motor insurance to the first defendant in 2009. The first defendant was required to complete a proposal form in which she confirmed that no one would drive her vehicle if he or she had been fined or prosecuted for a motoring offence or had had their licence endorsed or revoked. In mid-2010, the first defendant was charged with careless driving, driving under the influence of alcohol and using a vehicle with an expired licence.

The plaintiff subsequently renewed the insurance policy on two occasions. No enquiries were made of the first defendant and she was not required to complete any additional proposal forms, and she did not disclose the motoring offences or the charges brought against her. Her vehicle was subsequently involved in a collision which resulted in the death of the second defendant”s husband. The second defendant, as executrix of his estate, commenced an action against the first defendant seeking damages, and the first defendant sought to rely on her insurance policy with the plaintiff.

The plaintiff sought a declaration that its contract of insurance with the first defendant be set aside for non-disclosure. It submitted that it would not have issued an insurance policy for the vehicle if it had known that one

of the proposed drivers had been charged with motoring offences, and therefore (a) the fact that the first defendant had been charged was ‘material,’ as it was capable of influencing a prudent insurer; (b) the failure to disclose the charges induced it to agree to insure the vehicle; (c) the first defendant had an absolute duty to disclose that she had been charged on the basis that it was a material fact; (d) the duty to disclose was not circumscribed by any failure on its part to act in accordance with recognized industry standards requiring an insurer to make explicit enquiries on renewal of an insurance policy; and (e) it had not breached the relationship of utmost good faith between it and the first defendant, and, in any event, good faith applied only to the formation of a contract and not to its attempted avoidance.

The defendants submitted in reply that (a) the proposal form completed in 2009 required disclosure of ‘prosecutions,’ which should be taken to include convictions but not charges, and therefore did not require the disclosure of the motoring offences; (b) the offences had been committed after completion of the proposal form, and as no enquiries were subsequently made of the first defendant she had not breached her duty to disclose material facts; (c) industry standards indicated that the plaintiff ought to have made explicit enquiries of the first defendant, and the failure to do so circumscribed the plaintiff”s duty of disclosure; and (d) the plaintiff lacked utmost good faith as it was seeking unconscionably to avoid the contract of insurance on the basis of an insignificant failure by the first defendant, and, in the absence of legislation protecting insureds from having their insurance policies voided on the basis of technicalities, the court should provide safeguards via the common law.

Held, setting aside the contract of insurance:

(1) The first defendant had breached her duty of disclosure to the plaintiff by failing to bring a material fact (i.e. the motoring offences) to its attention, and the contract of insurance would therefore be set aside. The natural meaning of the phrase ‘prosecution’ within the proposal form encompassed charges and acquittals as well as convictions, and therefore the charges brought against the first defendant were facts which the plaintiff had asked to be disclosed. Further, the failure to bring them to the plaintiff”s attention was ‘material’ in that the offences were relevant to the plaintiff”s calculation of the risk entailed in insuring the first defendant. It was clear that being charged with offences such as careless driving and driving under the influence of alcohol were pertinent for assessing the risk presented by an individual seeking motor insurance and would influence the judgment of a prudent insurer in determining whether to insure that individual (paras. 50–56).

(2) The first defendant had a duty to disclose all material facts of which she was aware, including the charges brought against her, as the relationship between an insurer and the insured was one of uberrima fides, requiring the insured to disclose all material facts. This duty was ongoing and consequently arose on each renewal of the policy, requiring the first

defendant to communicate any relevant change in circumstances, such as the motoring offences. The first defendant”s failure to notify the plaintiff of the charges brought against her therefore breached her duty of disclosure (para. 60; paras. 63–69).

(3) The non-disclosure of the charges had induced the plaintiff into agreeing to insure the first defendant, as it would not have insured her had it known that she had been charged with careless driving, driving under the influence of alcohol and using a vehicle with an expired licence (paras. 73–78).

(4) The various industry regulations and standards, which suggested that an insurer should make explicit and clear enquiries regarding an individual”s changed circumstances on renewal of a policy, did not qualify the first defendant”s common law duty of disclosure. While it was unsatisfactory that the plaintiff had not complied with the recognized standards, they did no more than indicate good practice for insurers and therefore did not affect the legal position between the parties (para. 88; para. 91; para. 94).

(5) The plaintiff”s failure to comply with industry standards was not a breach of the relationship of utmost good faith between the parties so that the first defendant”s duty to disclose was waived, as professional inadvertence or incompetence in the form of breach of industry regulations did not amount to a lack of fair dealing or want of good faith. The plaintiff had not unconscionably intended to take advantage of the first defendant, and, in fact, it had been the first defendant who had failed to disclose material facts and thereby induced the contract (paras. 107–111).

(6) In any event, as a matter of Cayman law, a lack of utmost good faith did not curtail an insurer”s right to avoid a contract. Case law suggesting otherwise had not subsequently been followed and was contrary to dicta indicating that good faith was only relevant to the formation of a contract, and not to its enforcement. In addition, the lack of consumer protection legislation in Cayman for those taking out insurance policies did not indicate that the court should necessarily provide safeguards to protect them (para. 107; paras. 118–123).

1 McMILLAN, Ag. J.: In these proceedings the Insurance Company of the West Indies (Cayman) Ltd. (‘the plaintiff’ or ‘ICWI’) seeks a declaration that it was entitled to avoid a policy of insurance entered into with Victoria Jane Banks (‘the first defendant’) on the ground that a renewal of the policy was obtained through the non-disclosure of a material fact, viz., that the first defendant was facing pending...