Insurance - failure to disclose depression and illegal drug use permits life insurer to decline indemnity
Tara Cosgrove, Seán O'Halloran and Conor Williams review the judgment of the Irish High Court in Saunders v Irish Life Assurance plc  IEHC 312 given 24 June 2020.
The plaintiff had jointly taken out a life assurance policy with her partner two years before the death of her partner. The defendant insurer declined to pay out on the plaintiff's claim in circumstances where it was alleged that the deceased had misrepresented his medical history (particularly concerning his use of illegal drugs) by failing to disclose these facts in an online pre-contract questionnaire.
The plaintiff's evidence was that as the questionnaire had been completed on her and her late partner's behalf by an employee of a bank, whom she claimed had not asked the deceased the relevant questions about his health, no further obligation to disclose existed.
The court rejected this, holding that irrespective of the fact of whether the deceased was specifically asked the questions by the bank official, he was under an obligation to correct the replies given in the questionnaire before entering into the contract of insurance.
The plaintiff, together with and her late partner, Eamon Dunne, applied for a joint life assurance policy with the defendant insurer in 2008. The online application was completed in the branch of Permanent TSB bank by an employee of that bank.
The application process required the plaintiff and deceased to answer a series of questions on their health. However, the plaintiff's evidence was that the bank official did not, in fact, put the questions in the proposal form to her and her late partner, and instead completed the questionnaire on both her and her partner's behalf, presumably based upon the bank official's own knowledge of the applicants' health and circumstances.
After the questionnaire was completed, the plaintiff and Dunne signed a declaration that acknowledged that they understood their obligation to disclose all material facts to the defendant. Shortly thereafter, a copy of the policy documents was sent to the plaintiff and Dunne together with a printout of the questions and answers submitted by the bank official on their behalf. The plaintiff and her partner were required to review the questionnaire prior to the commencement of cover. They did not do so.
Following the murder of Dunne in 2010, the plaintiff sought to claim on the policy. However, the defendant refused to pay out on same, citing non-disclosure of key material facts arising from medical records received from Dunne's GP. The records noted treatment from 2001-2005 for depression, and further recorded abuse of illegal drugs and alcohol by the deceased.
The defendant insurer noted that in his replies to the pre-contractual questions the deceased had not mentioned his depression, use of illegal drugs, or alcohol abuse. The defendant submitted that as it was its standard practice to not offer cover to persons who had taken illegal drugs in the five years preceding any application, it would not have offered coverage.
O'Connor J dismissed the plaintiff's case. Holding that Dunne was obliged to disclose his drug abuse to the defendant when he confirmed his replies to the questions posed, even if he was not specifically asked those questions by the bank official or prompted to review them prior to submission to the defendant insurer, and that his failure to do so was dishonest.
Rejecting the plaintiff's written submission that Dunne should have been prompted or spurred on in his memory – predicated upon the judgment of McCarthy J in the Supreme Court in Aro Road and Land Vehicles Ltd v Insurance Corporation of Ireland Ltd  IR 403 – O'Connor J noted that despite both matters being cases of "over-the-counter" insurance, unlike in Aro Road, where no questions were asked of the insured before opening the policy, "quite specific" questions were as ked by the defendant of Dunne.
The court similarly rejected the plaintiff's reliance upon the judgment of Clarke J in Coleman v New Ireland Assurance plc  IEHC 273. Firstly, O'Connor J noted that, unlike in Coleman, the defendant in this case did not rely on the doctrine of utmost good faith. Secondly, the facts were significantly different: the insured in Coleman had forgotten to mention the fact that she had undergone medical testing as a teenager which showed negative results, whereas the deceased in this case had, in the court's view, likely deliberately omitted to mention his health difficulties and related drug and alcohol abuse.
The plaintiff's insurance expert did not find favour with the court. O'Connor J noted that the (unnamed) expert appeared to have limited knowledge of the law in Ireland, and instead relied solely upon the UK's Insurance Act 2015, and decisions of the UK Financial Services Ombudsman in support of the plaintiff's case.
Finally, the court noted that the plaintiff's case at trial had to be "distinguished" from her replies to interrogatories, where she had stated that Dunne had given negative responses to specific questions about drug abuse, whereas at the hearing it was her evidence that the bank official did not put those questions to Dunne.
The unique circumstances of the deceased combined with the fact that the judgment appears to be predicated upon a breach of a basis of contract clause– a type of warranty which is due to be prohibited following the imminent commencement of s. 19 of the Consumer Insurance Contracts Act 2019 (the "2019 Act") – means that it is likely that this case will be of limited use to practitioners and insurers for disputes arising with respect to policies written post-commencement of the 2019 Act.
Basis of contract clauses convert pre-contractual representations made by the proposer into warranties. They arise where a proposer signs a proposal form that contains a statement to the effect that all answers given "are true and complete in every respect" and form "the bas is of the contract". Generally, breach of a warranty of this type allows the insurer to treat the insurance contract as being void ab initio since the breach of warranty occurs at the time of entering into the contract.
Noting the reference in the introduction to the judgment of the decision by McMahon J in the High Court in Manor Park Homebuilders Ltd v AIG (Europe) Ireland Ltd  IEHC 174, and the court's reliance upon a letter sent by the defendant setting out the decision to accept cover was predicated upon the information provided in the application form, we expect that the policy in this case contained a "bas is of contract" clause which acted to convert pre - contractual representations made by the deceased into a warranty. We assume that that the defendant sought to rely on this breach of warranty to void the policy.
Upon commencement of s. 19 of the 2019 Act, warranties of fact and opinion (including basis of contract clauses) shall merely amount to representations. Should similar facts to this case arise in a dispute regarding a policy written post-commencement of the 2019 Act, an insurer would instead have to rely on the misrepresentation or non-disclosure provisions of that act to apply one of the proportionate remedies set out in the 2019 Act. However, it should be noted that the commencement of the 2019 Act is being staggered, with s. 19 (which prohibits basis of contract clauses and converts warranties into representations) commencing September 2020, and s. 9 (which introduces the proportionate remedy provisions) commencing September 2021. Accordingly, insurers should be cautious to avoid potential lacunae that may exist in the September 2020 – September 2021 period.
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