R&R Developments Ltd v AXA Insurance UK Plc

Insurance proposal questions are construed objectively. Where a question is genuinely ambiguous, the contra proferentem principle may apply, and the insured’s subjective understanding is generally irrelevant except in cases involving fraud. Insurers cannot rely on an expansive meaning that the wording does not reasonably convey.

Specific questions may limit the insured’s independent duty of disclosure where a reasonable reader would infer that the insurer has restricted its interest to the matters asked about. Such a restriction must be identified from the proposal’s wording and does not amount to a general waiver of material information.

The claimant appealed from a deputy master’s refusal to grant declarations on summary judgment. The dispute concerned a commercial combined and contract works policy and alleged non-disclosure or misrepresentation in the proposal form.

The insurer relied on questions about insolvency, losses and claims involving the insured and its directors. Certain matters concerned companies with which a director had previously been involved. The principal issues were the proper construction of the questions, the effect of ambiguity, whether administrative receivership constituted voluntary or mandatory insolvency, and whether the questions limited the duty of disclosure.

1. Appeal allowed in substance. Declarations were to be granted in accordance with the judge’s conclusions, with the parties to agree the form of order and consequential matters.
2. Proposal questions are construed objectively. Where ambiguity exists, the court applies the contra proferentem principle. It is unnecessary to investigate the insured’s actual understanding, except where fraud makes subjective intention relevant. The question must contain a genuine ambiguity; a merely grammatically possible meaning which no reasonable insured could adopt is rejected.
3. The first General Details question concerned the insured and its directors, not companies or other separate legal entities in which the directors had been involved. Its grammar and syntax supported that construction. The insurer’s wider construction would have produced an unreasonably vague and extensive enquiry, and the wording could readily have been drafted more clearly if that had been intended.
4. The negative answer was therefore correct. It was unnecessary to decide whether administrative receivership was voluntary or mandatory insolvency. The judge nevertheless indicated that extra-judicial appointment of administrative receivers under security documents would not ordinarily fall within those words.
5. Questions in a proposal form may limit the independent duty of disclosure. The relevant test is whether a reasonable reader would be justified in thinking that the insurer had restricted its interest and accepted omission of the information. Here the questions implied no interest in the insolvency or insurable losses of companies connected with the directors. The declarations requiring disclosure of all material facts did not reverse that implication, because information falling within the implied restriction was not information which might influence the insurer for this purpose.
6. The same reasoning applied to the alleged judgment and insurance losses involving the Galliers companies. The questions were also properly understood as concerning losses or claims capable of being insured. The claimant was entitled to declarations reflecting these conclusions.

High Court (Chancery Division): On appeal from the deputy master’s judgments of 22 December 2008 and 4 February 2009, the court granted declarations reflecting its conclusions on construction and waiver.