The issue in Zeller v British Caymanian Insurance Co Ltd1 was whether a material non-disclosure had been made by an insured in completing a proposal form relating to the relevant insurance cover. As discussed in a previous article dated 27 October 2005, the majority of the Court of Appeal of the Cayman Islands had found in favour of the insurer, holding that it was entitled to avoid the policy as a consequence. In a judgment which marks a triumph for the "consumerist" approach to issues of non-disclosure, the Privy Council has now overturned the Court of Appeal's decision. The judgment of the Privy Council represents one of the leading decisions in the offshore and other common law jurisdictions dealing with the application of the duty of full and frank disclosure, and in particular the duties owed by a prospective insured in completing a proposal form for insurance cover.
The facts of the case are set out in more detail in the article dated 27 October 2005.
The Court of Appeal's Decision
The Cayman Court of Appeal was divided in its decision. It was possible to discern a tension between the more traditional approach adopted by the majority of the Court of Appeal (per Forte JA and Zacca P) and the more modern, "consumerist" approach adopted by Taylor JA in his dissenting judgment, which followed the approach advocated by the English Court of Appeal (per Simon Brown LJ) in Economides v Commercial Assurance Co Plc.2
The majority of the Court of Appeal had dismissed Mr Zeller's appeal against the judgment at first instance, finding that Mr Zeller had made a material non-disclosure in completing the proposal form relating to his health insurance cover. Mr Zeller had failed to disclose in the proposal form the fact that he suffered from a heart murmur and high cholesterol levels. The majority of the Court of Appeal held that Mr Zeller could not truthfully have said that he did not know that he had been diagnosed with these conditions as a result of his previous physical examinations. Forte JA held that a reasonable person acting in the utmost good faith would have disclosed this information, and it was irrelevant whether Mr Zeller believed these were diseases or illnesses.
In a strong dissenting judgment, Taylor JA considered that the question of whether the proposal form called for disclosure of the conditions turned on whether these would have appeared to a reasonable person in Mr Zeller's position to be matters to which the proposal form was addressed. Taylor JA held that elevated cholesterol levels and a heart murmur would not be regarded by an ordinary applicant in Mr Zeller's position as amounting to a sickness, illness or disease from which he had been diagnosed as suffering. Taylor JA concluded that the conditions were not covered by any of the questions posed and found that the insurer had waived the disclosure of the conditions as a consequence.
The Decision of the Privy Council
The Privy Council allowed Mr Zeller's appeal, agreeing with the dissenting judgment of Taylor JA and holding that the insurer's avoidance of the policy was invalid.
Delivering the Privy Council's judgment, Lord Bingham noted that Mr Zeller had in signing the proposal form expressly stated that his answers were true to the best of his knowledge and belief, and Lord Bingham held that this statement was the very basis of the contract of insurance. Accordingly, the key question for determination was whether Mr Zeller, if he honestly believed he was answering the questions posed in the proposal form truthfully, had been guilty of any non-disclosure. Lord Bingham held that the insurer was not entitled to avoid the policy in the event of a material fact not being disclosed if the questions posed had been answered fully to the best of Mr Zeller's knowledge and belief. Lord Bingham noted that this approach was entirely consistent with the decision of the English Court of Appeal in Economides, where it was held that the duty of an applicant in such circumstances was one of honesty.
Lord Bingham agreed with Taylor JA's analysis of the questions posed in the proposal form and Mr Zeller's answers to these. Lord Bingham held that the evidence clearly established that, leaving aside some minor ailments (which he was not required to disclose) and his thyroid condition (which had been disclosed), Mr Zeller believed himself to have been in excellent health. On the basis that Mr Zeller genuinely did not know, and honestly did not believe, that his heart murmur and raised cholesterol levels amounted to a departure from good health, Lord Bingham held that Mr Zeller was not required to disclose these conditions. Mr Zeller was, therefore, found to have answered the insurer's questions completely and correctly to the best of his knowledge and belief, and as a consequence the insurer was not entitled to avoid the policy.
This decision ultimately turned on the construction of the proposal form and the particular questions posed by Mr Zeller's insurer. In assessing the answers given to such questions, the Privy Council expressly approved the "consumerist" approach advocated by Taylor JA and the English Court of Appeal in Economides, and held that the duty of the applicant insured in such circumstances, at least in non-commercial insurance, is one of honesty. In so holding, the Privy Council's decision brings the law in the Cayman Islands into line with that in England and Wales.
The Privy Council's decision highlights the importance for insurers of ensuring that questions posed in a proposal form are sufficiently precise and comprehensive. There is already existing (albeit limited) Cayman authority applying the contra proferentem rule to consumer contracts of insurance and supporting the proposition that ambiguities in a proposal form should be resolved in the insured's favour.3 The combination of this authority and the Privy Council's decision in Zeller means that the law in this area is now heavily in favour of consumer insureds.
Given that insurers should know precisely what underwriting information they require from proposed insureds and are in a position to be able to draft their proposal forms accordingly, this appears to strike a fair balance between the interests of insurers and insureds.
Given the Privy Council's ruling, insurers writing consumer insurance business in the Cayman Islands (and in other offshore jurisdictions) may want to reconsider the wording of their proposal forms to ensure that these are drafted with sufficient clarity and precision, and will elicit all required underwriting information from proposed insureds.
1  UKPC 4.
2  QB 587.
3 See the decision of Harre CJ in Jackson v Cayman Insurance Co. Ltd [1994-95] CILR 313, which was upheld by the Court of Appeal on appeal (see [1994-95] CILR n 19).
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