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Insurance company loses high court case – Part II

Attorney-at-law Daniella Williams

Female high court judge, Justice Agnes Actie has ruled against a local insurance company that was refusing to honour an agreement with a motor vehicle owner that was one of its clients.

Vehicle owner Selwyn Redhead was forced to seek legal redress after NEWIM tried to avoid ownership of a policy of insurance signed with him on the basis of non-disclosure or misrepresentation of a material fact by the policyholder.

The issue arose after the vehicle got into an accident and the insurance company did not want to honour any financial liability on the grounds that Redhead was not the material owner of the vehicle as the necessary transfer of ownership was not recorded in Inland Revenue even if he had purchased it from the sellers.

Redhead purchased the Vehicle from Cosmos Williams and Richard Steele for $13,500.00, and upon purchasing the vehicle paid the relevant fee at the Inland Revenue Department(IRD) and signed the appropriate transfer form.

However, the previous owners did not go into IRD to complete the transaction in full.

NEWIM claimed in the case that Redhead did not disclose this information to the company when it entered into the policy agreement with him.

“Based on the failure of the claimant (NEWIM) to prove that the non-disclosure by the defendant was material, and further, that the non-disclosure induced the claimant to enter into the contract with the defendant, the claimant is accordingly not entitled to avoid the policy of insurance in issue,” the female high court judge said in her ruling.

As a public service, THE NEW TODAY reproduces the decision handed down by the judge in which NEWIM was held liable:

[23] The defendant has failed to convince this court on a balance of probabilities that as a businessman, he would pay a significant amount of money to purchase a vehicle and not be in possession of some documentary proof to his claim of ownership, nor ensure that same is transferred to his name. The defendant offers no explanation as to why the transfer of ownership was completed in 2013 and does not support his statement that one of the owners signed the transfer while the other did not. Neither does he explain why Richard Steele, one of the previous owners, is included as an authorised driver evidenced in certificates of insurance for the periods 21st May to 20th July 2007, 8th August 2007 to 20th May 2008, 21st May 2008 to 20th August 2008, and 21st August 2008 to 20th May 2009.

[24] The defendant has failed to provide the court with pertinent evidence to shed light on the entirety of the factual matrix involving his transaction in obtaining possession of the Vehicle, and therefore the court finds for the claimant, in that the defendant breached his duty of disclosure by affirming that the statement that he was the registered owner was true.

Whether the non-disclosure or false representation of facts was material and induced the claimant to enter into the policy of insurance contract with the defendant

[25] The court having determined that there was non-disclosure by the defendant, it follows that the materiality of the non-disclosure must be discussed.

[26] A circumstance is material if it would have an effect on the mind of a prudent insurer in estimating the risk. The court in N.E.M. (West Indies) Insurance Limited v Eugenia Vernette Brooks, outlined that the law of materiality has three main features:

(1) “The yardstick of the ‘materiality’ of a circumstance that has not been disclosed, or has been misrepresented prior to the conclusion of the contract of insurance is the notional influence on the judgment of a prudent underwriter. It is not the actual influence on the judgment of the actual underwriter;

(2) In order to be ‘material’, the non-disclosed or misrepresented circumstance must be one that, if disclosed or properly represented, the prudent insurer would want to take into account when reaching his decision whether or not to accept the risk and, if so, on what terms;

(3) The consequence of material non-disclosure or misrepresentation prior to the conclusion of a contract of insurance or reinsurance is that the insurer may avoid the contract.”

[27] The facts in N.E.M. (West Indies) Insurance Limited v Eugenia Vernette Brooks, on which the claimant placed heavy reliance, indicate that Mrs. Brooks in the said proposal form declared as follows:

(1) That she was the registered/legal owner of the vehicle.

(2) That the vehicle was a convertible.

(3) That it was a 1997 model vehicle.

(4) That it had never been in any previous accidents prior to the proposal for insurance.

[28] Subsequently, a Private Loss Adjuster and Surveyor, investigated the circumstances surrounding an accident involving the vehicle and the Policy of Insurance. His investigations revealed a number of inconsistencies namely, that Ms. Brooks did not appear on any of the Transport Board registers as the registered or legal owner of the vehicle despite the allegation that she purchased it from her boyfriend. She failed to disclose that the vehicle was involved in at least 2 accidents prior to the Proposal of Insurance. The issues which arose for determination were, inter alia, were:

(1) Whether Ms. Brooks was the registered or legal owner of the vehicle or alternatively, did she have an insurable interest in the vehicle?

(2) Whether Ms. Brooks failed to disclose and /or misrepresented material facts then known to her but unknown to NEMWIL.

The court held in relation to the registration that there was not an iota of evidence that the insurer was induced by the non-disclosure of the fact that Ms Brooks failed to produce the registration certificate from the transport board. The court held that had it been,the claimant would not have found itself in this legal quandary.

[29] Section 14 (5) of the Motor Vehicle Insurance (Third Party Risks) Act Cap 202 (hereafter “the Act”) provides:

“In this section, the expression “material” means of such a nature as to influence the judgment of a prudent insurer in determining whether he or she will take the risk, and, if so, at what premium and on what conditions…”

[30] Alison Padfield in Insurance Claims states the following with respect to circumstances generally accepted to be material:

“For these purposes, a ‘circumstance’ includes any communication made to, or information received by, the insured. As materiality is a question of fact, past cases have no status as precedents on the question of materiality and their only relevance is in providing a ‘sanity test’ or reasonableness check on the conclusion reached by the court on the evidence in a particular case.”

[31] Padfield goes on to list said circumstances to include:

(1) Previous claims;

(2) Refusal of risk by other insurers;

(3) Refusal by a previous insurer to increase the insured value under the policy;

(4) Criminal convictions;

(5) Excessive valuation; and

(6) A recent allegation of serious dishonesty

[32] Materiality is a question of fact , and accordingly the claimant Insurance Company is required to adduce evidence in this regard. Thereafter, it is the court’s responsibility to assess all evidence to determine whether the insurer has discharged the burden of proving that the non-disclosure influenced it in accepting the risk on the terms that it did.

[33] On the evidence before the court, the court is not satisfied that the claimant has sufficiently demonstrated the materiality of the non-disclosure of the defendant.

The claimant makes the bare assertion that the premium of the policy would have been affected had the disclosure been made of the defendant. The evidence for the claimant given by Michelle Chase, then working in the underwriting department of the claimant, does not expound on how the premium would have changed, what amount the premium would have been, or the instances where a policy with the claimant would have been granted to someone who is not a registered owner of a vehicle. Further, the evidence of Patsy Lewis, then Office Clerk of the claimant, was not helpful in furthering the claimant’s position.

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