New disclosure rules which will come into effect with the Contracts of Insurance Act 2024 will require insurers to review policy proposal questions and content to ensure that the right questions are being asked of potential customers, and the consequences of inaccurate disclosure are highlighted. When tackling this job, insurers should also keep in mind the importance of asking clear and unambiguous questions. A recent English decision highlights the importance of unambiguous questions in a digital application or proposal form.

In Ristorante Limited v Zurich Insurance Plc [2021] EWHC 2538, the insurance had been placed through a broker using Zurich’s “Z-Trade” platform, which was an automated underwriting system that used an algorithm to accept risks. The underwriting was completed exclusively through the system, without individual underwriters overseeing the process.

The Z-Trade platform required the insured to answer a series of questions including the following:

“No owner, director, business partner or family member involved with the business:

(i) has ever had a proposal or renewal for insurance declined or cancelled; a policy voided, withdrawn or suspended, or special terms imposed by any insurer. (The Insurance History Question)

(ii) has ever been convicted of, or charged (but not yet tried) with any criminal offence, other than motoring offences or offences that are spent under the Rehabilitation of Offenders Act 1974.

(iii) has ever been the subject of a winding-up order or company/individual voluntary arrangement with creditors, or been placed into administration, administrative receivership or liquidation. (The Insolvency Question)

(iv) is currently insured with Zurich Insurance plc. for the covers being requested.”

The insured was required to choose from a drop-down menu offering “Agree” or “Disagree” in response to each statement. The insured’s three directors and shareholders had each been directors of other companies which had previously gone into liquidation. They had answered “agree” to the Insolvency Question.

After a fire damaged the insured’s restaurant premises, Zurich advised that:

The insured was required to disclose the liquidations of the directors’ previous companies by answering “Disagree” to the Insolvency Question.
Had the insured answered the Insolvency Question in this way, the Z-Trade platform would not have offered cover under any circumstances.

Zurich therefore purported to avoid the policy for material non-disclosure and misrepresentation.

Construction of the questions

The insured challenged the avoidance by arguing that on its true construction the question did not require the disclosure of the insolvency of the directors’ previous companies. The Court found that an insurer is not entitled to impugn as a misrepresentation of fact an answer given by the insured if that answer was true, having regard to a construction which was objectively reasonable to give to the question.

The Court found that if Zurich had wanted to know about the insolvency events of other companies that the directors or owners had been involved with, it could have easily included the words in the question. It found that Zurich’s interpretation of the question would require the Court to re-write the underwriting question. It would also result in a different meaning being given to the opening words of the question depending on the particular sub-paragraph it applied to. For example, Zurich conceded in argument that it would not have been interested in the insurance history of the companies that directors were previously involved with (in relation to the Insurance History question).

Waiver

The Court considered whether, by asking about the specific matters in the Insolvency Question, Zurich had waived its entitlement to be told about the insolvency of other companies the directors had been involved with. The parties had both accepted that these other insolvencies were material. The Court accepted that the questions asked on the Z-Trade platform had the effect of limiting the insured’s duty to disclose information about other company insolvencies which the directors had been involved in. A reasonable person would be justified in thinking that Zurich did not wish to know about other insolvencies involving the directors. Zurich had therefore waived its entitlement to know that information by the way the question was drafted.

Comment (Melissa Bell)

As our insurance placement platforms become increasingly digitised, both through direct customer channels and intermediated digital platforms, the clarity of the insurance application/ proposal questions becomes more important. This is particularly the case where the platform also performs the underwriting through a series of rules or parameters, and a decision is made about the terms of cover without input from an underwriting “person”.

Insurers should take care that bundled questions, such as those that were utilised by Zurich in the present case, do not have the effect of inadvertently restricting disclosure of matters which the insurer considers are material. Each part of a bundled question should make sense independently; if it requires content to be implied into it to make sense, the question should be standalone. Courts will be reluctant to imply additional content into questions, so it is important to ensure that they adequately capture the information needed. Often the insurer’s systems or platforms have technological limitations resulting in the need to use less-than-ideal language. This case serves as a reminder of the need to balance such limitations against the law’s expectation that comprehensive language is used.

The same care will need to be taken in relation to the drafting of consumer underwriting questions for the new consumer disclosure regime established by the Contracts of Insurance Act 2024. The consumer duty of disclosure will be restricted to answering the specific questions asked by the underwriters.

Fee Langstone’s lawyers have experience in approving both the content and structure of digital underwriting and online insurance sales platforms. We are available to provide advice on these matters as well as implementation of the Contracts of Insurance Act.

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Asking the right underwriting questions in the digital age

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