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The
terms "bankrupt" and "bankruptcy" should be read
as applying to both to individuals and companies in the context of a
declaration concerning an applicant's financial history on an insurance
proposal form.
The appellants
claimed under an insurance policy against the defendant insurers in
respect of their commercial premises which had been damaged by fire.
In order to get insurance for the premises the appellants had completed
several proposal forms which ended with a section headed 'Declarations'.
Declaration 5 stated that "no director/partner in the business
or any company in which any director/partner had an interest, had been
declared bankrupt, been the subject of bankruptcy proceedings or made
any arrangement with creditors". The appellants declared that the
information given was true and that they had not withheld any material
facts.
Subsequently
the defendants refused to meet the claims on the ground that two of
the appellants had been directors of companies that had gone into liquidation,
and those facts had not been disclosed in the proposal. The appellants,
however, contended the defendants were not entitled to refuse the claim
on two grounds.
First,
they contended that "bankruptcy" referred to personal insolvency
and as such they had not made any untrue or false declarations. Secondly,
they contended that the defendants had restricted their duty of disclosure
of "material facts" to the matters referred to in the declarations
and had not provided any space on the proposal form for them to provide
details of other material facts beyond the specific questions asked.
At first
instance it was held that the defendants were entitled to decline liability
on the basis that there had been no waiver of the duty to disclose all
material facts. It was said that it would have been difficult for the
defendant to devise any wording which more clearly and fairly warned
proposers of the need to disclose all material facts and the consequences
of failure to do so, without limiting the meaning of "all material
facts" to anything materially affecting the risk with regard to
matters about which specific questions had been put. It was held additionally
that the defendants should have phrased the declaration so as to make
it clear that "bankruptcy" covered both personal and corporate
insolvency, and the claimants' construction of the declaration was correct,
although the defendants were still entitled to decline liability because
of the clear wording.
On appeal
however, it was held that given the context of the declarations on the
proposal form, the terms "bankrupt" and "bankruptcy"
were clearly intended to apply to both the appellants in their individual
capacities and also to any companies in which they had had an interest.
In particular the terms were accompanied by the phrase "made any
arrangement with creditors" which can apply to both personal bankruptcy
and corporate insolvency and therefore indicated that the defendants
had intended both to be included. In light of that construction, the
appellants were held to be in breach of the declaration which was the
basis of the contract and accordingly the defendants were entitled to
decline liability.
In relation
to the point about the defendant's waiver of the duty of disclosure,
it was held, as a side issue, that this depends entirely on the construction
of the declaration in the proposal form. If the declaration had been
construed as only applying to individuals, then it would have been reasonable
to infer that the defendant had waived disclosure of material facts
relating to the insolvency of companies in which the appellant had an
interest.
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