The Good, the Bad and the Ugly

The Good, the Bad & the Ugly: 100 cases every policyholder needs to know. #11 (The Good). R&R Developments v AXA

14 December 2020

By Alex Rosenfield

Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.

Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.

Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.

Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.

At Fenchurch Law we love the insurance market. But we love policyholders just a little bit more.

#11 (The Good)

R&R Developments Ltd v AXA Insurance UK Plc [2010] Lloyd’s Rep. I.R. 521

The case concerned a question in a proposal which asked if any of the insured’s directors had ever been declared bankrupt, either personally or in connection with any business with which they were involved. The Court held that the question did not extend to the insolvency of any company with which they may have been involved. The Court also held that, by asking a limited question, the insurer had waived disclosure of the insolvency of any party other than the insured and its directors.

Background

R&R Developments Limited (“R&R”) was insured by AXA Insurance UK plc (“AXA”). Prior to inception of the relevant policy, R&R completed a proposal, which asked:

“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?”

R&R answered this question (“the Insolvency Question”) in the negative. AXA contended that this was a misrepresentation, since one of R&R’s directors had been a director of a company which had gone into administrative receivership. AXA also said that R&R should have disclosed that insolvency in any event, as it was material.

The Decision

The Judge, Nicholas Strauss QC, held that the Insolvency Question was clearly worded. As a matter of simple grammar and syntax, it did not relate to anybody other than R&R and its directors. So, since R&R was solvent and none of R&R’s directors had ever been made bankrupt, the Insolvency Question was answered correctly. Three further considerations supported that conclusion:

• AXA contended that the Insolvency Question referred, in effect, to “… you or any Partners or Directors or any business in which they had been involved”. Had this been its intention, it would have been very simple drafting to achieve that result.

• On AXA’s interpretation, the disclosure required from R&R would have been unreasonably wide. In particular, the meaning of “involved” could potentially have extended to any company of which one of the directors had been employed in a junior position.

• Looking at the proposal as a whole, and particularly the fact that a further question asked “Had any losses … or … any claims …. made against you (in this or any existing or previous business”), it was clear that the questions were targeted solely at R&R and its directors.

The Judge also rejected AXA’s secondary argument. Although AXA had in its mind the concept of other businesses with which R&R’s directors were involved, it chose not to ask about them. Therefore, by asking a limited question, R&R was entirely justified in thinking that AXA had waived its right to that information.

Comments

The decision is a helpful endorsement of the ‘natural and ordinary meaning’ rule of interpretation. AXA tried to argue, in effect, that words needed to be implied into the Insolvency Question which would significantly change its meaning, and that that should be done for its own benefit. Quite rightly, the Court gave short shrift to that argument.

Alex Rosenfield is a Senior Associate at Fenchurch Law.