Zeller v British Caymanian Ins Company Ltd

• Jurisdiction: Cayman Islands
• Judge: (Levers, J.)
• Judgment Date: 07 March 2005
• Court: Grand Court (Cayman Islands)
• Date: 07 March 2005

Grand Court

(Levers, J.)

ZELLER

and

BRITISH CAYMANIAN INSURANCE COMPANY LIMITED

A. Turner and Ms. A.J. Dunsby for the plaintiff;

Ms. I. Pierce for the defendant.

Cases cited:

(1) Bates v. HewittELR(1867), L.R. 2 Q.B. 595, considered.

(2) Brownlie v. CampbellELR(1880), 5 App. Cas. 925, dicta of Lord Blackburn applied.

(3) Carter v. BoehmENR(1766), 3 Burr. 1905; 97 E.R. 1162; [1558–1774] All E.R. Rep. 183, referred to.

(4) Economides v. Commercial Assur. Co. Plc., [1998] Q.B. 587; [1997] 3 All E.R. 636, distinguished.

(5) Joel v. Law Union & Crown Ins. Co., [1908] 2 K.B. 863; (1908), 99 L.T. 712; 24 T.L.R. 898, dicta of Fletcher Moulton, L.J. applied.

(6) Lee v. British Law Ins. Co. Ltd., [1972] 2 Lloyd”s Rep. 49, referred to.

(7) Pan Atlantic Ins.Co.Ltd. v. Pine Top Ins.Co. Ltd., [1995] 1 A.C. 501; [1994] 3 All E.R. 581, referred to.

Insurance-misrepresentation and non-disclosure-uberrima fides-insurance contract uberrima fides-parties under duty to disclose voluntarily before contract made any material information-standard of duty that of reasonable man-insured to have reasonable grounds for believing information provided complete and correct and not shut eyes to truth-insured”s subjective belief that fact not material irrelevant

Insurance-misrepresentation and non-disclosure-insurer avoiding policy-insurer entitled to avoid policy for misrepresentation or non-disclosure of material fact if induced policy-in health insurance policy failure to disclose medical consultations and less than perfect health caused by combination of minor existing cardiac problems is material non-disclosure

The plaintiff sought a declaration that the defendant”s cancellation of his contract of health insurance was invalid, and damages for breach of contract.

The plaintiff joined his employer”s health insurance scheme operated by the defendant (‘BCIC’), for which he had to complete a health questionnaire. Under the first section, which referred to the previous seven years, the plaintiff declared a thyroid problem but denied having heart trouble. The second section asked, in relation to conditions within the previous five years not already mentioned, if he had had (a) a physical examination; (b) consultation(s) for any condition(s) not already listed; and (c) any departure from good health, whether treatment or advice was sought or not, not previously mentioned. The plaintiff answered ‘Yes’ to (a) and ‘No’ to (b) and (c), effectively claiming that apart from his thyroid problem he was otherwise in good health. The questionnaire also contained a clause stating that the answers were to be complete and correct to the best of the plaintiff”s belief, or the contract might be cancelled by the insurer.

Between June 1997 and December 2001, however, the plaintiff had visited a doctor in the United States approximately 10 times and had been informed that whilst he was asymptomatic for any type of heart disease he did have a heart murmur, which was heard on two of the visits. The heart murmur would require him to take antibiotics if he were to undergo

any kind of surgery. Doctors had also told him that he had high cholesterol and advised him to work on his diet and exercise to reduce it, though it did not require medication.

On the basis of his answers to the questionnaire, BCIC agreed to cover him, excluding anything in relation to hypothyroidism, from December 1st, 2001. In April 2003 a doctor detected the plaintiff”s heart murmur, which after various consultations, all approved by BCIC, culminated in expensive heart surgery. BCIC, having requested and received the plaintiff”s medical reports, discovered that he had had a heart murmur and high cholesterol which it considered were pre-existing conditions he should have disclosed on his health questionnaire. Consequently BCIC wrote to the plaintiff cancelling the cover retroactively to the original effective date of December 1st, 2001 and sought to reclaim the benefits, in excess of US$7,000, which they had already paid, following which they would refund to the company all premiums collected.

The plaintiff then commenced the present proceedings for a declaration that the defendant”s cancellation of his contract of health insurance was invalid, and damages for breach of contract.

He submitted that (a) the heart murmur and high cholesterol were not material facts; or (b) if material, he honestly believed they were not material; (c) they were not pre-existing conditions, the heart murmur not being an illness or condition and having no ill effect on the plaintiff”s health and his high cholesterol not requiring medication; (d) had these matters been material, specific questions should have been asked about them; (e) the questions as constructed were ambiguous and the ambiguity should be construed contra proferentem, the maker of the document; and (f) the plaintiff completed the questionnaire to the best of his knowledge and belief, he honestly believed that he was not ill and BCIC was therefore not entitled to cancel the contract.

The defendant submitted in reply that (a) the heart murmur and high cholesterol were pre-existing conditions and had it known of them, one in conjunction with the other, it would not have taken the risk of insuring the plaintiff; (b) the plaintiff knew about the pre-existing conditions and should have disclosed them and was therefore in breach of his duty not to make misrepresentations or material non-disclosure; (c) the plaintiff”s obligation was to disclose what he knew whether or not he thought it material and he could not wilfully shut his eyes to the truth; (d) the plaintiff was dishonest as he knowingly gave untrue answers to questions at the time of application; and (e) it would be too onerous to tailor every questionnaire to suit the individual being insured and it would be unrealistic to expect it.

Held, declaring the insurance policy avoidable for non-disclosure:

(1) The parties to the insurance contract, being a contract uberrima fides, were under a duty of the utmost good faith and were required to voluntarily disclose to each other, before the contract was concluded, any information that was material. Measured against the standard of a

reasonable man (the insured having to show that he had reasonable grounds for believing that the information he had provided was complete and correct and that he had not blindly shut his eyes to the truth) the plaintiff was in breach of his duty of disclosure. The onus on him was greater as the facts upon which the contingent chance was calculated were in his knowledge only. Although he did not consider the facts in question material, or considered that his failure to disclose was innocent, the defendant was entitled to void the contract ab initio (para. 17; para. 26; para. 28; para. 30; para. 41).

(2) The question in the health questionnaire, which asked whether the plaintiff had suffered any departure from good health not previously mentioned, for which treatment or advice might or might not have been sought, was not ambiguous. Anything discovered following a physical examination should have been declared in the answers. The questions unambiguously asked for the sort of information that the plaintiff failed to disclose when he was under a duty to do so. His belief that his condition did not require any serious medical attention was irrelevant (paras. 37–38; para. 40).

(3) The plaintiff”s heart murmur and high cholesterol were material conditions, the test being whether a prudent insurer might be influenced in fixing the premium or assuming the risk if he knew of the facts stated or withheld. It was not necessary for the insurer to ask a specific question about a condition for it to be regarded as material (para. 32; para. 38).

(4) When the plaintiff answered that he had had no consultations for conditions already listed, or any departure from good health, he was guilty of misrepresentation or non-disclosure, as it could not have been his honest belief that he did not have a condition that made him not in the best of health or for which he had not sought advice, particularly as he had been told that his heart murmur meant that he would need antibiotics if he were to have any surgery and that he needed to diet and exercise to reduce his cholesterol. The contract of insurance was therefore avoidable as the non-disclosure induced BCIC to enter into it (para. 32; para. 37; para. 39).

1 LEVERS, J.: A writ of summons and a statement of claim was filed in this matter, by which the plaintiff, Mr. Zeller, sues the defendant, British Caymanian Insurance Co. Ltd. for-

(a) damages for breach of contract;

(b) an order that the defendant”s cancellation of the contract is invalid and of no effect;

(c) interest pursuant...