If a question in a proposal form is ambiguous it will be construed against the person who drafted it, usually the insurer. It is well established that the court will consider how the question would be interpreted by a reasonable insured. More surprisingly, a recent decision has suggested that the insured's subjective understanding of the question is irrelevant – all that matters is the objective construction of it.

The case concerned a question in a proposal form for a commercial combined and contracts work insurance policy which asked whether the insured or any partners or directors have either personally or in connection with any business in which they have been involved been declared bankrupt or the subject of bankruptcy proceedings or any voluntary or mandatory insolvency. The insured answered no to this.

The court concluded that the question had been correctly answered even though certain companies with which a director had been involved had been placed either into administrative receivership or into creditors' voluntary liquidation. The question was not concerned with those companies, but rather only with the individual directors/partners and the insured company itself.

Amongst other things, the court set out the following principles.

  • A question will be construed objectively – how would it have been interpreted by a reasonable insured?
  • Where a question is ambiguous it will be construed against the person who drafted it, known as contra proferentum. Generally this means against the insurer.
  • Of course, the contra proferentum principle can only be used where there is ambiguity. It cannot be used to create ambiguity.
  • If an insurer asks questions on a discrete subject, this does not automatically mean a waiver of the requirement that all other material circumstances are disclosed. The test is: do the questions asked when viewed objectively imply that the insurer is "not interested" in the matter not disclosed?

So far, so straightforward. However, the court went further and suggested that the insured's subjective interpretation of the question in the proposal form did not matter. The only issue was how objectively should it be construed. This is surprising. It seems to run contrary to some previous judicial comments, which emphasise that the insured must have genuinely (bona fide) understood the question in a particular way. And if correct, it means that the insured who knowingly answers a question incorrectly according to the insurers' intended meaning may get away with it provided the question is open to another reasonable interpretation which would make the response correct.

These comments from the court were not a central part of the decision. When faced with a situation in which this point needed to be decided we doubt the court would follow the same line of thought.

Further reading: R & R Development Ltd v Axa Insurance UK Plc [2009] EWHC 2429 (Ch).

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 08/10/2009.