Cuthbertson v. Friends Provident Life Office [2006] ScotCS CSOH

"3. The Pursuer having failed to disclose facts material to the risk which influenced the Defenders, the Defenders were entitled to declare the said contracts of insurance void from inception and are entitled to Decree of Absolvitor.

4. Separatim the Pursuer having discharged her entitlement to any benefit under policy number 10286066 as condescended on, is not entitled to any payment from the Defenders in respect of said policy.

5. The Defenders, in the circumstances condescended upon, not being obliged to indemnify the Pursuer, Decree should not be pronounced as concluded for".

The point raised in plea 4 is no longer a live issue since in a Joint Minute, No.24 of process, it was agreed inter alia that if it were established that the defenders were not entitled to a void policy no. 10286066 (the Homebuyer Plus policy) the defenders would make payment of the guaranteed minimum death benefit. In the course of the proceedings prior to the proof, it was also agreed that the defenders should lead at the proof, the onus of establishing material non-disclosure being upon them and an interlocutor was pronounced to that effect.

[9 ] On the morning of the first day of the diet of proof before answer, counsel for the defenders tendered a Minute of Amendment, the principal effect of which was to aver that the policies in question were governed by English law and that in English law the test of what was material for the purposes of the obligation of disclosure was the same in all types of insurance, namely what was described in the proposed Minute of Amendment only as "the prudent-insurance-broker (sic) test". The motion to allow that Minute of Amendment to be received was opposed by counsel for the pursuer on a number of grounds which I endeavour to summarise shortly as being: (a) questions of English law, if founded upon as the law governing the contract, would be matters of fact requiring to be established by evidence and so a new area of factual inquiry was sought to be introduced (cf McGowan v Summit at Lloyds 2002 S.C.638); (b) the validity of the governing law clause in the policies was open to challenge under the Unfair Contract Terms Act 1974 and the Unfair Terms in Consumer Contracts Regulations 1999 (S.I.1999/2083); (c) there were questions as to whether the provision in the policy conditions was an effective choice of law; and (d) the question of a possible difference between English and Scots law in this area was not a new issue in the litigation. It had been canvassed previously in the course of the preliminary procedure (cf. No.18 of process, para.1).

[10 ] I refused the motion to allow the amendment for, broadly, the reasons advanced by counsel for the pursuer. The question whether the aspects in which the English and Scottish law of insurance contracts differ include the nature or scope of the proposer's obligation of disclosure of material facts was something which could plainly have been considered well in advance of any proof diet. Indeed, it appeared that it had been considered earlier by counsel instructed for the defenders and it was evident that a decision had been taken not to plead English law as a foreign law. To allow English law to be pled as a foreign law would introduce a new area of fact, requiring (at least in the absence of agreement) expert evidence on English law. There were possible issues under the consumer protection legislation. Consequently it was difficult to see that the proof could proceed if the Minute of Amendment were allowed to be received. Importantly, no excuse or reason for the lateness of this proposed amendment was put forward by counsel for the defenders.

[11 ] It is convenient in this context also to record that following the closure of his proof Mr Stewart made a further motion to amend the defenders' pleadings. The proposed Minute of Amendment sought to substitute for the defenders' third plea-in-law (quoted supra) the following:-

"The defenders being entitled to void said policies for untruth/misrepresentation/non-disclosure in the said applications, decree of absolvitor should be pronounced".

As best as I understood counsel for the defenders, what he sought to do by the proposed amendment was to put forward a different basis upon which the defenders were entitled to avoid the policies, being one which did not involve any issue of the materiality of what was not disclosed. Any inaccuracy in any of the answers to the questions in the application or proposal forms entitled the defenders to avoid, irrespective of its materiality. The motion was opposed by counsel for the pursuer who, put shortly, apprehended that counsel for the defenders was in effect seeking now to make a case of breach of warranty despite his opponent having at one point presented the proposed new plea as being a mere reformulation of the existing third plea. The scope of the proof and the issue for resolution had been settled in the Joint Minute and the earlier proposals for further procedure as being material non-disclosure. That accorded with the state of the defences.

[12 ] I refused Mr Stewart's motion. As counsel for the pursuer had observed in the course of his opposition to the motion, if the new plea were simply a "reformulation" it was unnecessary and should be refused on that ground. But if it did make a difference in that it was intended to advance a new line, in effect avoidance for breach of warranty, it came far too late. Such a ground of avoidance had not been invoked in the letter avoiding the policy, nor in the defences; nor had it been suggested at any preliminary or procedural hearing. It was not suggested that the omission of such a ground of avoidance was in any way an oversight and I had no grounds for believing that it might be so. It is also to be noted that counsel for the defenders called, as his first witness, the pursuer (though not on the defenders' list of witnesses). The way in which the pursuer might have been "cross examined" by her counsel might have been materially different were a question of breach of warranty to have been in issue. I therefore believed that forensic prejudice to the pursuer could not be excluded were the proposed amendment to be allowed.

[13 ] Having thus described the procedural controversies in relation to the pleadings I turn now to the substance of the action.

The proposal forms

[14 ] The proposal, or application, form for the Homebuyer Plus policy is No.6/4 of process. At its head it states, in a font size used substantially throughout the application form:-

"You should disclose all material facts as they can influence the assessment and acceptance of this Application. If you are in any doubt as to whether any fact is material, you should disclose it, as failure to do so may invalidate a future claim. Friends Provident must be notified of any changes prior to the assumption of risk".

Section E of the application form is headed "E Full Health Statement". For the insurance benefits which were sought by the pursuer in this application it was necessary that she complete this section, which consisted of a number of questions, of varying scope or generality, to which there were "yes" or "no" boxes to be completed by a tick mark. The only questions in section E directly pertinent in the present case and canvassed in the defences are questions E(2)(e); E(2)(f); E4 and E6. The terms of those questions and, in square parentheses, the pursuer's responses are as follows:-

"E2. Have you ever suffered from any of the following

......

(e) Any disorder of the brain, spinal trouble, or any muscular, rheumatic, bone or other joint problem, multiple sclerosis or any form of paralysis? [No]

(f) Any problem with your eyes or vision (not wholly corrected by spectacles), or your ears, hearing or balance? [No]

E4. Have you within the last 7 years consulted anyone (e.g. doctor, hospitals, clinics, osteopaths, etc) in connection with your physical or mental health other than as mentioned in E2 above? [Yes]

E6. Have you at any time undergone or been advised to undergo any type of x-ray examination, laboratory test, special investigation or surgical operation? [Yes]".

As respects the positive responses given in the tick boxes the pursuer provided - as requested - further information in section G by mentioning certain procedures which she had undergone.

[15 ] The application form for the Income Protection Plus policy (6/6) is broadly similar, in the aspects raised in this litigation, to the application form for the Homebuyer Plus policy in that it also includes a medical history questionnaire. The questions are however slightly differently framed. The apparently pertinent questions were questions 6(i) - "Any problem with your eyes or vision (not wholly corrected by spectacles)?" - and 6(j) - "Any problem with your ears, hearing or balance.?" - to both of which the pursuer had ticked the "No" box. As regards certain other questions the pursuer had given a positive response with further details. As I ultimately understood matters, no independent or special question arose as respects the Income Protection policy.

The GP consultations invoked by the defenders

[16 ] Although in her letter of 15 November 1999 avoiding the policies, Miss Hodgson, reflecting the internally communicated comments and opinions of an underwriter and the Chief Medical Officer employed by the defenders, mentioned only two entries in the GP notes as being grounds for the avoidance of the policy, by the stage at which the defences were finally adjusted the catalogue of entries invoked by the defenders had increased to five. The catalogue, and the terms noted in the GP records may be shortly mentioned as follows:-

(i) October 1990: Painful left eye

(ii) 15 May 1992: Otalgia in the left ear

(iii) 30 June 1992: Symptoms affecting both arms over the previous weekend. Possible tetany for 15-20 minutes. Excessive consumption of alcohol.

(iv) 6 April 1994: Tingling pain in right thigh and buttock

(v) 29 November 1994: Back pain and tingling of right thigh followed by x-ray at Belvedere Hospital on same date and on 16 December 1994, the latter confirming appearance of local sacroileitis.

The medical evidence

[17 ] It is convenient first to consider the medical evidence respecting the significance of the consultations invoked by the defenders in their defences. Though leading in the proof, the defenders did not tender any medical witness. However, counsel for the pursuer called, in addition to Dr Metcalfe, the general practitioners who had been involved with the bulk of the entries in the GP records which the defenders had put in issue.

[18 ] One of the general medical practitioners who gave evidence was Dr Alan Mackinnon, a partner in the practice in Glasgow of which the pursuer was a patient from the 1980s until 1996, when she moved house from Glasgow to Paisley. In 1993 Dr Mackinnon had been requested by the defenders to provide a medical report in connection with an application submitted to the defenders by the pursuer. In the defenders' organisation such reports are referred to as a "medical attendant's report" (MAR). Dr Mackinnon deponed that he had been completing such reports for over 30 years and was well aware of what was required by insurers. Practitioners would mention what was clinically significant, particularly for future health prospects, and omit what was short lived or trivial. In the MAR which he submitted to the defenders on 8 October 1993, (No.7/13 p.238ff) Dr Mackinnon mentioned certain health events (which included those disclosed by the pursuer in November 1994). However, he did not mention any of the entries (i) to (iii) above, all of which pre-dated his MAR of 8 October 1993. He did not regard them as having any clinical significance. As respects the entry for 1 October 1990 (entry (i)) if the irritation had cleared up promptly it was without significance. Although there had been a referral to the Eye Infirmary, at that time the Eye Infirmary did not notify a general practitioner in the absence of some positive finding of disease or ill-health. The practice records did not contain any such report from the Eye Infirmary. The irritation evidently resolved itself without further intervention. In regard to the entry for 15 May 1992 (entry (ii)), the mention in parenthesis of "tingling face and left eye" was interpreted by Dr Mackinnon was meaning that this was not the principal symptom. It was apparent that this was a transient ear condition. As respects the entry for 30 June 1992 (Entry (iii)), Dr Mackinnon explained that the term "tetany" is used to describe an episode when the muscles go into spasm. It is usually the result of a lack of calcium and the lack of calcium can be induced by excessive consumption of alcohol. In regard to the entry for 6 April 1994 (Entry (iv)) the treating GP had thought that the tingling pain of which the pursuer had complained might be indicative of early shingles. One could not definitively diagnose shingles until the rash appeared, which apparently it did not.

[19 ] Dr Mackinnon also confirmed that if he had been asked for a MAR in November 1994 he would not have included these entries. Had he been asked as a "special question" whether the patient had eye problems, Dr Mackinnon said that he would have responded by reporting the terms of the pertinent entry in the medical notes but with the commentary that it was not of any significance. When asked by counsel for the defenders as to how he would have answered the question contained in the proposal form relating to ear and eye problems, Dr Mackinnon indicated that he would not have given a positive answer. Nor would he have expected the pursuer to do so, because she would not think she had any problem.

[20 ] Evidence was also given by one of Dr Mackinnon's partners, viz Dr Carolyn Calder respecting entries (ii) and (iii) since she was the partner who saw the pursuer on those occasions. From the entry relating to the ear (entry ii) it was apparent that there was some fluid or "glue" in the left ear, for which a medication - Xylomet - was advised in order to assist nasal dispersal of the fluid. As respects the words in brackets, Dr Calder thought the mention of the tingle in the fact might have been an afterthought, or that she included it in the note as a reminder, were the patient to return with the same complaint. But there was nothing significant in the entry. Many patients have such entries in their notes. Similarly, the entry of 30 June 1992 lacked any clinical significance. Dr Calder thought, from the pursuer's account, that there may have been cramp in the muscles of the forearm and she came up with possible tetany as the nearest description. There were no evident symptoms observable on examination and no treatment to suggest.

[21 ] The evidence of a further member of the Baillieston Medical Practice, Dr Alison Tough, was presented, of consent, in affidavit. According to the affidavit, No.36 of process, Dr Tough had no recollection of the pursuer but from the notes she evidently saw the pursuer in October 1990 when the pursuer attended complaining of a painful eye and blurring of her vision. In her affidavit, having noted that she had referred the pursuer to the Infirmary, Dr Tough goes on to say -

"It is unusual to see pain in the eye in a person of this age. Basically, I would have not know (sic)what was going on, and I would have wanted her to be seen at Accident and Emergency and for them to check the pressure behind her eyes and have a clear look at her fundi. I think I was possibly thinking of a detached retina. I am usually quite cautious about problems with eyes, and it wouldn't be unusual for me to refer on in these circumstances. There is absolutely no question of my considering some sort of condition such as MS at this stage".

[22 ] The consultation held on 6 April 1994 - Entry (iv) - was not with the pursuer's normal GP but as a temporary patient with a GP in Edinburgh where the pursuer was then working for a short time. The Edinburgh GP was Dr Alison McLean who in her evidence observed, understandably, that she had no recollection of seeing the pursuer but in commenting on her entry in the medical records, Dr McLean observed that there was nothing in the notes to indicate anything of any seriousness. The diagnosis of early shingles was not a definitive diagnosis. Such symptoms as the pursuer is noted as having reported were quite common in every GP practice.

[23 ] The consultation of 29 November 1994 (Entry (v)) occurred after the submission of the application forms to the insurers, but is not disputed that (whatever its scope) a continuing duty to disclose material facts persisted until the acceptance of the risk. That consultation and the ensuing radiological examinations took place against the background, from the pursuer's point of view, that she had already disclosed in the application forms her longstanding back problem and had completed a specific back pain questionnaire.

[24 ] Medical evidence casting light on these entries and radiological reports came principally from Dr Mackinnon, who thought them to be consistent with an inflammatory condition of the sacro-iliac joint which was a possible explanation of the back pain. While given the presence of the pursuer's history of back pain, he would favour ankylosing spondolitis, sacroileitus was a possibility. As I understood his evidence the symptoms of which the pursuer complained on 29 November 1994 and which were explored radiologically in the x-rays in question related to, and would be understood by the pursuer as relating to, her longstanding back problem.

[25 ] Dr Metcalfe (the consultant at the Southern General who diagnosed the pursuer as suffering from multiple sclerosis) was asked for his views of the significance of the entries in question in the GP records, particularly as respects their being indicative of the future onset of multiple sclerosis. In his evidence Dr Metcalfe explained that the origins of multiple sclerosis were not well known; typically it presents, remits and then recurs, and statistically it incurred to 1 to 2 per thousand of the population. The symptoms were very varied. The optic nerve might be affected, leading to optic neuritis; the brain stem could be another affected area producing particularly double vision, loss of feeling in the face and difficulty in speech or swallowing; or problems might occur in the spinal cord resulting in weakness or loss of control of the limbs. The condition could also have cognitive or emotional effects, were the disorder to affect the white matter in the brain.

[26 ] Against that background Dr Metcalfe thought that with the benefit of hindsight and knowing that the patient had later been confirmed as suffering from multiple sclerosis, the entry for 1 October 1990 (entry (i)) was possibly a very early episode of mild optic neuritis. However, Dr Metcalfe stressed that there were many other disorders which can cause pain in the eye or blurring of the vision. In the absence of any report from the Eye Infirmary, the inference is that nothing significant was found. A GP would normally and reasonably ignore such a minor incident. As respects the entry for 15 May 1992 (entry (ii)), the primary concern appeared to be with the left ear. In retrospect, now knowing the pursuer to have multiple sclerosis, there might be significance in the tingling of the face but it was very easy to over-read this entry. It would be unreasonable to expect a GP to pick up on the entry as having significance. Like most people, the pursuer would regard it as a very transient symptom, quickly forgotten. The third entry (30 June 1992) could not be characterised as an early symptom of multiple sclerosis. It appeared to be some unexplained phenomenon. A GP would reasonably take the view that since it had gone away there was no reason to worry about it. As respects the entry for 6 April 1994, while it could possibly have been an episode of demyelation of the lumbar spine that would be very unusual. The GP's tentative conclusion of possible onset of shingles was reasonable. On the final entry in question while Dr Metcalfe would not normally have expected burning and tingling from sacro-ileitus he recognised that it would produce pain at the joint going through the buttock and down the thigh so a GP would reasonably think it related to the pursuer's back problem.

[27 ] In short, although with the benefit of hindsight, knowing the pursuer now to have multiple sclerosis, it might be possible to discern in some of the entries in question a possible indication that the pursuer was developing the unfortunate disorder from which she now suffers, Dr Metcalfe did not suggest that there was anything which one might have expected to alert a general practitioner to the possible significance of these incidents.

The pursuer's account

[28 ] The description of the circumstances pertaining to each of these consultations given by the pursuer in her evidence may be summarised as follows:

Entry (i) October 1990: The pursuer said that she attended the Eye Infirmary on one occasion only in 1990. The circumstances were that she had been working in a disused engine shed to be known as 'the ship' which was to be used for theatrical events. It was dark, dirty and dusty and she worked long hours in these premises. When she told her employer that she had a sore eye, the employer asked that she attend the Eye Infirmary, where she was advised that she had been over-working, required a holiday and she would take care to wear her corrective spectacles. The eye cleared up without treatment in a few days thereafter. It has to be said however that this chapter of the pursuer's evidence was somewhat confused. It was not clear whether her attendance at her GP in October 1990 was part of the same episode of over-work, or a separate occasion when the pursuer in fact did not pursue the referral because the condition resolved spontaneously. The latter appears more likely. At all events, even if the pursuer did attend the Eye Infirmary on two occasions in 1990, it is apparent that no adverse findings were reported to her general practitioner.

Entry (ii): 15 May 1992: So far as the pursuer could recall the consultation at all, the principal problem was the infection of her left ear. The GP did not express any concern about it or the tingling of her face. The condition simply went away.

Entry (iii): 30 June 1992: The pursuer narrated that she had drunk far too much alcohol over that weekend and on her way home in a taxi she had a feeling of severe tension in her arms while gripping the bars of the cabin of the taxi. On arriving at her parent's house (where she then lived) she vomited. Her parents were insistent that she should go to her GP on the Monday. There were, however, no symptoms to present to the GP.

Entry (iv): 6 April 1994: The GP whom she attended in Edinburgh told the pursuer that she might possibly be developing shingles. The pursuer said that she took some analgesics and within a few days the condition just went away. She was much relieved not to have developed shingles.

Entry (v): 29 November 1994: According to the pursuer, she thought that the pain which she was experiencing when she went to her GP on 29 November 1994 was simply a further occurrence of her longstanding back problem. She had mentioned in the proposal form that she had this back problem and she had completed the defenders' back pain questionnaire. She did not regard this further manifestation of back pain as a change in the condition which had been reported to the insurers. The pursuer added that she was expecting the insurance to exclude her back condition anyway (as in fact occurred).

The underwriters' evidence

[29 ] Counsel for the defenders tendered as the second of the two witnesses in his proof the underwriter who took the decision on the pursuer's applications in late 1994, namely Miss Ruth Chare. At that time Miss Chare had been a limited underwriter with the defenders for some 7 years. I did not understand her to have been employed as an underwriter in any other insurance office before or since. Although at the outset of her evidence in chief Miss Chare stated that if "appropriate disclosure" had been made she would have declined critical illness cover and applied a rating to the life cover, it quickly became apparent that in truth she would simply have sought a medical attendance report and only if the medical attendance report contained all the information with which she was later furnished once the claim was made would she have adopted that course. The basis upon which Miss Chare said she would have made her judgement was the defenders' internal "medical impairment guide", No.7/15 of process. However, when counsel for the defenders in the course of his examination in chief sought to establish how the symptoms recorded in the entries in question in the GP notes such as "blurring of vision" fitted the categories in the Guide (a matter far from self-evident) Miss Chare reverted to the position that she would have sought a MAR. Miss Chare also recognised that a proposer would not have his GP records available to him and would have to proceed on memory. People could not be expected to remember every consultation with a GP. As respects the pursuer's back problem, Miss Chare accepted that the pursuer had made full disclosure and that if a new symptom of the same condition appeared subsequently that would not be a change in the pursuer's health. It appeared indeed that the consultation on 29 November 1994 was in respect of the pursuer's back problem and if that was a recurrent condition it was not a change in the pursuer's state of health. The witness agreed with an observation in a report by a Mr Philip Cleverley (who did not give evidence) that this consultation was not significant from her point of view, as an underwriter, since a decision had been taken to exclude cover respecting the pursuer's back condition.

[30 ] With respect to the other entries in the GP notes relied upon by the defenders in their pleadings, Miss Chare accepted - with varying degrees of readiness or reluctance - that the pursuer would not have regarded these as significant or material. She recognised that even if a proposer were to think an episode or consultation significant or material, the disclosure would not be in the words of the general practitioner's notes but would reflect the proposer's own impression and employ his own wording. As already indicated, Miss Chare's position was that had the pursuer given any indication of the matters about which she consulted her GP in the entries invoked by the defenders in their defences, she, Miss Chare, would simply have sought a MAR, possibly with a special question. Her initial underwriting thought, as recorded in 7/10 p.24 of process was to seek a MAR because of the pursuer's back condition, but she evidently considered later that the responses given in the back pain questionnaire gave sufficient information to justify an exclusion.

[31 ] Miss Chare agreed that if the defenders had an earlier MAR relating to the pursuer it would be reasonable to consider it and, indeed, imprudent not to do so. Taken to Dr Mackinnon's earlier MAR of 8 1993, Miss Chare agreed that Dr Mackinnon had not listed every consultation but had been selective, exercising a judgement reasonable in his eyes. That was normal and proper, since he was taking what was material. While three of the consultations now invoked by the defenders were covered by the period of the 1993 report, the witness was unable to say whether she had seen it. It would, however, be reasonable, she said, for a proposer to assume that the defenders would look at previous reports and good underwriting practice would be to that effect.

[32 ] The only underwriting evidence tendered by counsel for the defenders having thus been Miss Chare, counsel for the pursuer in the course of his subsequent proof nonetheless elected to adduce as a witness Mr Anthony Bartholomew, who was on the defenders' list of witnesses. Mr Bartholomew joined the defenders on leaving school and has served in their employment for the succeeding 43 years. He sat examinations with the Insurance Institute in 1974. In 1993 he became manager of the defenders' underwriting central services.

[33 ] Mr Bartholomew was not involved in any way in the underwriting decision involved in processing the two applications submitted by the pursuer to the defenders in November 1994. He was, however, involved in the decision to avoid the policies in respect that he was asked to give an underwriting view on the claim submitted by the pursuer and the report by Susan Hodgson contained within 7/11, page 177, in which Miss Hodgson had identified from her trawl of the GP notes possible grounds for avoiding the policy. The opinion which Mr Bartholomew expressed respecting the six entries selected by Miss Hodgson was in these terms:-

"Non-disclosure of 'blurred vision' in 1990 and re 'tingling face + (L 'eye vision altered') in 5/92. Had we been aware of these consultations we would have declined critical illness cover (including multiple sclerosis) and would also have declined the PHI application. The life cover would have been rated at + 100% EM [Extra Mortality]".

In his evidence Mr Bartholomew stated that, as an underwriter, the two episodes to which he had referred in that note were in his view sufficiently significant to lead to a decline. As respects the other matters mentioned in Miss Hodgson's note, which he had not included in his comments, Mr Bartholomew's evidence in chief was to the effect that he thought that they "added weight". He also stated in evidence that the selection by him of only two of the six entries mentioned by Miss Hodgson was a matter which had been raised with him in the days preceding his evidence. In the course of cross-examination counsel for the defenders sought to encourage Mr Bartholomew to include within the categories leading to avoidance the other entries mentioned in the defences. To this matter I shall revert.

[34 ] Mr Bartholomew accepted that he was viewing the GP notes with the benefit of hindsight, it being known to him that the insured had multiple sclerosis. If one were to reconstruct events in 1994, assuming the pursuer to have made the disclosure desiderated by him when reviewing the claim, one would have to work out the approximate phraseology likely to be used by the pursuer, or reasonably to be expected of the pursuer. If that phraseology would have the consequence of simply triggering a request for a MAR, one would then have to reconstruct what the terms of that report might be.

The law relating to disclosure

[35 ] In inviting the Court to assoilzie the defenders, Mr Stewart advanced, as his first submission, that on a proper construction of the contracts the pursuer had vouched that the proposals were complete as to the disclosure of material facts and truthful as to the replies to the specific questions. He referred to the declaration at p.5H in the Homebuyer Plus policy application and a similar, though not identical, declaration in the Income Protection policy, and also the back pain questionnaire. The contracts were expressed to be governed by English law and there was, said Mr Stewart, no need for the Court to be instructed in English law because English law had been noted in Hooper v Royal London General Insurance Co Ltd 1993 S.C.242. The effect of the declaration signed by the pursuer was as expounded in Unipac (Scotland) Ltd v Aegon Insurance Co (UK) Ltd 1996 S.L.T.1197.

[36 ] Turning to the issue whether a fact was material for the purposes of the duty to disclose, counsel for the defenders submitted that materiality was of three kinds which he described as being:-

"(i) Deemed Materiality;

(ii) Presumed Materiality; and

(iii) Materiality at Large".

[37 ] "Deemed Materiality", said Mr Stewart, was where there was in the insurance contract a clause making the pre-contractual statement - i.e. the proposal or application from - the "basis of the contract". Such "deemed clauses" were supplemented by a declarator of truth. Counsel referred to Anderson v Fitzgerald (1853) 4 H.L.C. 484 per Cranworth, L.C. at 503. A dictum to the same effect was to be found in Thompson v Weems (1884) 9 A.C.671 [although the case is reported as Standard Life Assurance Co Ltd v Weems (1884) 11R (H.L.76)]. Reference was also made to Dawsons Limited v Bonham [1922] 2 A.C.413 and Glicksman v Lancashire & General Assurance Company [1925] 2 K.B.593. [1927 A.C.139]. However, said counsel for the defenders, the rigour of the law was mitigated by the statement of insurance practice disclosed in McGillivray & Parkinson, 10^th Edition, para.10-41.

[38 ] Turning to his second category of "presumed materiality", Mr Stewart submitted that matters to which questions are directed in an application form are presumed to be material to the assessment of the risk. Counsel referred to Becker v Marshall (1992) 11 Ll.L.R.114 and (1992) 12 Ll.L.R.413; Glicksman v Lancashire & General Insurance Co cit. supra and the Privy Council decision in Mutual Life Insurance Co of New York v Ontario Metal Products Co [1925] A.C.344. Where a question was asked it was the duty of the proposer to answer it truthfully, since it was presumed to be material.

[39 ] The third category which counsel described as "materiality at large" was, said counsel, a residual category which required little explanation.

[40 ] Counsel for the defenders next embarked on a further branch of his submission which he described as being concerned with the legal test of materiality. He submitted that in Scots law, as in English law, the test whether a fact was material was the same in all classes of insurance, including life assurance and health insurance, and was whether the fact would be regarded as material by a prudent underwriter. The decision of the First Division in Life Association of Scotland v Foster (1873) 11 M 351 was not, said counsel, authority for the existence in Scots law of the test of the "reasonable assured". The statement of the Lord Justice Clerk (Ross) in Hooper v Royal London General Insurance Co Ltd 1993 S.C.242 to the effect that in Scots law in life assurance the test was that of the reasonable insured was incorrect, and also obiter. The test described by the Lord President (Inglis) in Life Association of Scotland v Foster was truly directed towards the prudent underwriter test. The idea of the "reasonable assured" test was introduced in para.7-49 of McGillivray & Parkinson, 6^th Edition (1975) which expressly rejected the Privy Council decision in Mutual Life of New York. However, the authors of McGillivray & Parkinson recanted as regards English law in the 7^th edition, because in Lambert v Co-operative Insurance Society Ltd [1975] 1 Lloyd's Rep.485 the Court of Appeal had taken the view that Mutual Life applied to all classes of insurance contracts. Further, it was wrong to think that there was a line of authority in Scotland supporting the reasonable insured test. Reference was made to the first edition of McGillivray, p.313, which only cited Foster. However, Foster had been followed by Standard Life Association Co Ltd v Weems cit. supra which disapproved Hutchison v National Loan Association Co (1845) 7D 467, which had been the basis for Lord Deas' Opinion in Foster. Accordingly when the Lord Justice Clerk opined in Hooper his agreement with McGillivray & Parkinson that Foster established a reasonable insured test it was not at all obvious that Foster was authority for that view. Further, the reasoning of the Lord Justice Clerk had been and was open to criticism.

[41 ] For his part, Mr O'Neill, for the pursuer, disputed the contention advanced by counsel for the defenders that the obligation to disclose material facts included what counsel had described as "deemed materiality", enabling him to treat any inaccuracy in the response to the questions in the application form as being material, irrespective of whether it was in fact material. As set out in the written note of his submissions, counsel for the pursuer submitted that the line of authority relied upon by counsel for the defenders from Weems to Unipac was not concerned with non-disclosure of material fact but with facts warranted in the proposal form as being true but which were in fact not true. In other words, all the cases invoked by counsel for the defenders for his category of "deemed materiality" were what are described as breach of warranty or basis of the contract cases. In any event in the present case the application forms contained no warranty or undertaking as to accuracy. Insofar as they had any reference to "basis of the contract" that was to be found only in the event of a Homebuyer Plus application in joint names, as respects the responses of the other applicant. The declaration that the information was true was qualified by the phrase "to the best of my knowledge and belief". Moreover the presentation of "deemed materiality" as part of the duty to disclose material facts was simply an attempt to advance the breach of warranty defence for which counsel for the defenders had sought amendment at the end of his proof. Breach of warranty formed no part of the pleadings presented by the defenders.

[42 ] So far as I can see, the tripartite arrangement of materiality essayed by counsel for the defenders is not one routinely followed by the textbooks on insurance law. In my opinion it is clear that what counsel for the defenders presented as "deemed materiality" cases are all, in fact, "warranty" or, in the equivalent term, "basis of contract" cases. There is a well recognised distinction between such cases and the duty to disclose material facts. In contrast to ordinary commercial contracts, contracts of insurance are treated as contracts uberrima fide so that the proposer is required, as a matter of the general law, to disclose to the insurer any material fact. However, in supplement of that duty, in the course of the 19^th century insurance offices sought to impose contractual warranties by the proposer that certain facts existed, irrespective of the state of knowledge or bona fides of the proposer. As put by Fletcher Moulton L.J. in Joel v Law Union & Crown Insurance Co [1908] 2 K.B.863, 885:-

"Insurers are thus in the highly favourable position that they are entitled not only to bona fides on the part of the applicant, but also to full disclosure of all knowledge possessed by the applicant that is material to the risk. And in my opinion they would have been wise if they had contented themselves with this. Unfortunately the desire to make themselves doubly secure has made them depart widely from this position by requiring the assured to agree that the accuracy, as well as the bona fides, of his answers to various questions put to him by them or on their behalf shall be a condition of the validity of the policy. This might be reasonable in some matters, such as the age or parentage of the applicant or information as to his family history, which he must know as facts. Or it might be justifiable to stipulate that these conditions should obtain for a reasonable time - say during two years - during which the period the company might verify the accuracy of the statements which by hypothesis had been made bona fide by the applicant. But insurance companies have pushed the practice far beyond these limits and have made the correctness of statements of matters wholly beyond his knowledge, and which can at best be only statements of opinion or belief, conditions of the validity of the policy. For instance, one of the commonest of such questions is 'have you any disease?'. Not even the most skilled doctor after the most prolonged scientific examination could answer such a question with certainty, and a layman can only give his honest opinion on it. But policies issued by many companies are framed so as to invalid unless this and many other like questions are correctly - not merely truthfully - answered, though insurers are well aware that it is impossible for anyone to arrive at anything more certain than an opinion about them. I wish I could adequately warn the public against such practices on the part of insurance offices. I am satisfied that few of those who insure have any idea how completely they leave themselves in the hands of the insurers should the latter wish to dispute the policy when it falls in".

It is no doubt the case that on occasions the justification for upholding the avoidance of a policy on the ground of breach of warranty (or "basis of contract") has been suggested as being that in agreeing the warranty parties were presumed to have thought the warrranted state of fact to be "material". Counsel for the defenders referred in that context in particular to a passage in the judgment of Cranworth L.C. in Anderson v Fitzgerald (1853) H.L.C., 503 and a passage in the speech of Lord Blackburn in Standard Life v Weems at (1884) 11 R 48, 51⅔. However, that does not mean that breach of warranty is subsumed in, or equiparated with, a failure of the general common law duty to disclose material facts. As is plain from the cases, breach of warranty claims must be based on the particular terms of the contract; the duty to disclose material facts arises ex lege. The two concepts are distinct.

[43 ] The distinction between the two concepts is recognised in the cases. Thus in Life Association of Scotland v Foster the insurer tabled two separate pleas, one to cover breach of the declaration of truth and the other for non-disclosure of material fact (p.353). The distinction is made in other cases, one example being Joel.

[44 ] In my opinion the only defence pled in the present case is that of material non-disclosure. The question of breach of warranty or a basis of contract clause is not put in issue. It is to be noted that at the outset the defenders did not seek to avoid the policies on the grounds of breach of warranty. They relied entirely on "the legal concept of 'utmost good faith'" - see letter of 15 November 1999 (no.7/11, page 174). The same position is adopted in the defences. I have already quoted the defenders' pleas-in-law. The terms of the answers are entirely consistent with the advancing only of a defence of failure to disclose material facts - in Mr Stewart's sense of materiality at large. The fact that the defenders were not contending for any breach of warranty is apparent from, inter alia, the defenders' statement of proposals for further procedure in which they say:

"the pursuer appears to accept that information provided by her on the proposal forms was inaccurate but disputes the materiality of the inaccurate information. Accordingly there will require to be a proof relating to this issue. The defenders will require to lead evidence to satisfy the Court that the failure by the pursuer to provide inaccurate (sic) information amounted to failure to disclose material facts entitling them to declare the contracts of insurance void from inception".

[45 ] There may, I believe, be good reasons for which the insurers and counsel acting on their behalf in the stages of the case prior to the proof should have eschewed any defence on "breach of warranty" or its alternative, "basis of the contract". It is questionable whether the application form was ever intended as a warranty or "basis of contract declaration". The only reference to basis of contract is in respect of a joint application. That apart there are no words to the effect that the proposer warrants the truth of the answers, the declaration asked being qualified to best knowledge and belief. Further, it is generally known that in response to the many judicial and other criticisms of the unfairness of such warranty or basis of the contract clauses, in relation to non-commercial insured, the insurance industry has adopted various statements of practice and, assuming it were otherwise open to them, the defenders might well, and advisedly, consider that a "breach of warranty" or "basis of contract" avoidance of the policy would be inconsistent with industry practice in insurance contracts of this type.

[46 ] I would add that, as respects Mr Stewart's category of "presumed materiality" one can understand that where a question is included in a proposal form the general topic covered by the question is identified as being potentially material. But I do not accept that the posing of a question must lead to the consequence that the proposer warrants the accuracy of the answer. Much may turn on the terms of the question. In the present case the questions in issue are cast broadly. Miss Chare and Mr Bartholomew readily recognised that in responding to the questions the proposer required to exercise judgment. In my view they were correct so to construe the application form. I consider in particular that in asking whether an applicant had suffered "problems" with his eyes or other organ or faculty the questionnaire invites a subjective consideration of what constitutes a "problem". One might be said to have a "problem" with one's vision if dust or a smut had entered the eye. But it would be a transient problem and in my view, seen in context, the application form is not to be construed in a literalist fashion so as to require disclosure of such a transient problem. The exercise of judgment is implied.

[47 ] Rejecting, as I do, the attempt by counsel for the defenders to present a breach of warranty or basis of contract case not contained within the pleadings under the cloak of a presentation of "deemed" and "presumed" materiality I turn now to the issue of the test, in Scots law, which is to be applied in the case of life assurance (within which critical health insurance was implictly conceded by counsel on both sides to be included).

[48 ] The starting point must of course be the decision of the First Division in Life Association of Scotland v Foster. As already indicated, in that case the insurer pled both breach of warranty and, alternatively, non-disclosure of material fact. Much of the judicial discussion was concerned with the former issue. Insofar as the House of Lords in Weems subsequently disapproved of the decision in Hutchison, on which Lord Deas' Opinion proceeded, it must be observed that that aspect of Lord Deas' Opinion was concerned with the breach of warranty. In regard to the alternative issue of the failure to disclose material facts the Lord President (Inglis) with whom all of the other judges concurred, said (359) this:

"Concealment or non-disclosure of material facts by a person entering into a contract is, generally speaking, either fraudulent or innocent, and in the case of most contracts where parties are dealing at arm's-length, that which is not fraudulent is innocent. But contracts of insurance are in this, among other particulars, exceptional, that they require on both sides uberrima fides. Hence, without any fraudulent intent and, even in bona fide, the insured may fail in the duty of disclosure. His duty is carefully and diligently to review all the facts known to himself bearing on the risk proposed to the insurers, and to state every circumstance which any reasonable man might suppose could in any way influence the insurers in considering and deciding whether they will enter into the contract. Any negligence or want of fair consideration for the interests of the insurers on the part of the insured leading to the non-disclosure of material facts, though there be no dishonesty, may therefore constitute a failure in the duty of disclosure which will lead to the avoidance of the contract. The fact undisclosed may not have appeared to the insured at the time to be material, and yet if it turned out to be material, and in the opinion of a jury was a fact that a reasonable and cautious man proposing insurance would think material and proper to be disclosed, its non-disclosure will constitute such negligence on the part of the insured as to void the contract".

Since the plea relating to the warranty was not upheld, the views of the Lord President, with whom, as already indicated, the other judges concurred on the alternative submission is not, in my view, obiter.

[49 ] Given the use of the shorthand expressions such as "the reasonable insurer" test and the "prudent underwriter" test it is appropriate for me to state my understanding, or analysis, of what the Lord President Inglis says in this part of his Opinion. Clearly, before any fact may be material in respect of a contract of insurance, it has to be material in the view of the reasonable underwriter. If the fact were regarded by such an underwriter as of no significance, cadit quaestio. The Lord President's reference to every circumstance which could influence the insurers is therefore plainly comprehensible. But assuming that the fact is indeed one which is of significance to the reasonable underwriter, that is in itself not sufficient. As I understand the Lord President one must then inquire whether the proposer appreciated that the fact in question would have had that significance; and, assuming the proposer did not have that appreciation, whether a reasonable person making the proposal and possessed with the factual knowledge possessed by the actual proposer would think that fact to be material to the insurer.

[51 ] In the later Scottish case of Hooper v Royal London General Insurance Co Ltd the Inner House was required to consider whether the Foster test applied in Scotland to all insurances. The Inner House drew a distinction between life assurance (and implicitly health insurance) and all other forms of indemnity insurance and held that, while the Foster test applied to life assurance, other types of insurance were subject only to the prudent insurer test. It is no doubt correct that, as was said by counsel for the defenders, certain criticisms have been made in some legal and academic journals of the decision in Hooper. However, it is an Inner House authority and in my view it is clear that the Inner House considered that Foster continued to apply in life and health insurance. I would add that given the reservations expressed in Lambert as to the unsatisfactory nature of the law which the Court of Appeal considered itself required to apply, it might be thought unattractive to depart from the law which was established in Foster and preserved in Hooper. I would also record that subsequent to the decision in Lambert, as counsel for the pursuer pointed out, the view of the Lord President in Foster was referred to with approval by Simon Brown L.J. in Economides v Commercial Insurance Co plc [1998] Q.B.587, 602.

[52 ] In these circumstances I take as the test to be applied in this case that which was set out in Foster.

Application of the materiality test

[53 ] In applying that test I shall assume, for the moment, that the consultations invoked by the defenders in their defences were matters which a prudent underwriter would have regarded as material. On that important assumption (to which I shall revert) one asks first whether the evidence discloses that the pursuer in fact appreciated that the matters would be seen by the insurer as being material. In my view the evidence provides a negative answer to that question. It was not suggested to the pursuer that she was aware that these matters were material but deliberately suppressed them and indeed counsel for the defenders made plain that no such suggestion was being advanced. I am satisfied that at the time of answering the matters raised in the application forms, the pursuer did not think that the consultations with her GP resulting in entries (i) to (iv) were of any materiality; and as respects entry (v) she regarded that as simply a continuing part of her longstanding back complaint of which ample disclosure had been made. It may also be added that none of the consultations resulted in medical treatment or in any significant period of absence from work and it may be observed that the pursuer did indeed exercise some judgement by disclosing a number of medical matters. One must next turn to the question of constructive knowledge, namely whether a reasonable person with the knowledge of the pursuer would have appreciated that the consultations, or any of them, might be seen as material by the prudent insurer. In my opinion the answer to that question must also be in the negative. It is clear from the evidence of the general medical practitioners that, certainly judging matters contemporaneously, they did not regard the consultations in issue as being material for the purposes of health or life insurance. Indeed, as already mentioned, the first three consultations now invoked by the defenders had been considered by Dr Mackinnon earlier in his preparation of a MAR. He did not regard them as matters which were material from an insurance point of view and therefore they received no mention. If the pursuer's medical advisers did not, and do not, consider the consultations to be matters which ought to have been disclosed as being material to the underwriter, I am unable to see how constructive knowledge of materiality in the eyes of the prudent underwriter can be attributed to the pursuer. In these circumstances I consider that the defence fails.

Other matters

[54 ] While that is sufficient for the disposal of the action, there are some further matters canvassed in submission, including the assumption upon which the preceding paragraph proceeds, which it is appropriate for me briefly to record and discuss.

[55 ] First, the position adopted by counsel for the pursuer through the course of the proof was that having in their letter to the pursuer avoiding the policy founded initially only on two matters - entries (i) and (ii) - it was not open to the defenders to invoke any other entries. In short, where particular grounds were invoked on the act of avoidance it was not competent for an insurer subsequently in legal proceedings to invoke further grounds of invalidity. No particular authority was advanced for this proposition. It seems to me that in principle an insurer must be able to found on new matters coming to his attention which provide further grounds for avoiding a policy. In the present case, however, the additional items founded upon in the defences, as opposed to the decision to avoid, were not new matters since the medical records were there and had been thoroughly combed at the time when the decision to avoid was taken. Not having been provided with clear authority in insurance law that in the absence of new material or information (res noviter) an insurer cannot competently add to his initial grounds of avoidance, I would be hesitant to make such a finding. There are possible analogous fields, such as irritancy of leases or unreasonable refusal of a landlord to consent to a sub-lease or assignation, to which I was not taken. But in my view, whatever the position respecting competency, the fact that the defenders selected only two items as grounds for avoidance goes very much to the reliability or weight of any evidence that these additional items might be material to the prudent insurer. On reviewing not only Miss Hodgson's report but also the medical records, Mr Bartholomew selected only two entries, namely (i) and (ii) as being matters which should have been disclosed. I have no doubt that Mr Bartholomew carefully considered the other entries to which his attention had been drawn by Miss Hodgson, and indeed the whole medical records. Had he regarded any of the other consultations as being material at that time, it would be surprising that he did not list them along with items (i) and (ii). It is also to be noted that the Chief Medical Officer did not suggest any additional items for Miss Hodgson's selection. Insofar as Mr Bartholomew may have responded to the encouragement extended by counsel for the defenders to categorise the other items as material, I am not willing to accept that part of his evidence. As I have already recorded, when first asked about the fact, to which he had been alerted shortly before giving evidence, that the defences invoked entries other than those which he had identified as material, Mr Bartholomew, in an answer which struck me as intended as a diplomatic one, responded that they "added weight".

[56 ] The next matter relates to the important assumption which I made in paragraph [53] supra. Counsel for the pursuer also submitted that insofar as it was necessary for defenders to show that the non-disclosed fact was one which would influence the reasonably prudent underwriter they had failed to do so because the only evidence on the matter came from their employees and no external expert evidence had been tendered. The reasonable prudent underwriter test was an objective one, and it was not satisfied simply by the underwriter in question saying that it regarded its decision as being a reasonable one. Counsel referred to the passage in the Opinion of the Lord Justice Clerk (Ross) in Hooper, 249 in which the Lord Justice Clerk observed with reference to evidence from an assistant claims manager with the defenders in that case that it was clear that the witness had been referring to the practice of his own company. The Lord Justice Clerk went on to say:

"I accept that a fact is not proved to be material merely because a particular insurer expresses the view that he would regard it to be material (McGillivray & Parkinson, para.663). The test of materiality is an objective one".

It was, said counsel for the pursuer, to be noted that in the present case both Miss Chare and Mr Bartholomew had only worked for Friends Provident. They had no personal experience of underwriting practices in other insurance companies. The defenders had instructed an expert report but they had elected not to call that expert, whose report was therefore not part of the evidence.

[57 ] As respects this part of the submission of counsel for the pursuer I accept that the ipse dixit of the insurer concerned may not in itself suffice to establish prudent underwriting practice. But I would not say that in every case expert evidence is essential. The materiality of the non-disclosed fact may be so clamant that even applying the "reasonable insured" test, no expert evidence is necessary. Thus, for example, in an application for motor insurance, a failure to disclose, say, two very recent convictions for careless driving and an earlier conviction for driving with excessive alcohol might be so plainly material to the risk that expert evidence would not be required. Indeed that appears to me to have been the approach adopted by the Court in Hooper in that the non-disclosure was regarded by the Court as being plainly material. Similarly in life or health insurance non-disclosure of a material fact such as a major surgical operation might be self-evidently material.

[58 ] However, in my opinion the present case does not come within that category. The consultations in questions were - and largely remain - insignificant in the view of the medical witnesses. If the Foster approach is not to be applied it therefore becomes important to establish that reasonable underwriting practice would adopt a very different view from that held by the medical witnesses, and the reasonable person proposing the insurance. The only evidence suggesting that the entries invoked by the defenders would have been material to an underwriter comes from two of the defenders' employees, neither of whom had any experience of working for a different employer. Both were personally involved in the case, Ms Chare having taken the initial underwriting decision, Mr Bartholomew having prompted the decision to avoid. In the particular circumstances of this case, in which the medical witnesses do not regard the consultations in question as being of significance, I consider that evidence simply from two employees of the insurer in question does not suffice to establish that the objective test of the reasonable insurer has been satisfied. I would therefore have held that even on the reasonable insurer test, the defenders have not established to the requisite objective standard that the consultations would have been regarded as material.

[59 ] Counsel for the pursuer also submitted that it was necessary for the defenders to show that the alleged non-disclosure induced the issuing of the policy. However, since Ms Chare was ultimately of the view that disclosure would simply have triggered a MAR, the defenders, said counsel, required to complete the further step of showing that the MAR would have led to a result that the policy would have been declined or issued on different terms. Since the defenders had not established the probable terms of that MAR their proof failed also on that account. While, technically, there may be arguable force in this submission, in the event the GP evidence in fact supplies the answer - adversely to the defenders.

[60 ] Finally, I would record that Mr O'Neill sought to advance an argument that the characterisation of insurance contracts as contracts of uberrima fide applied bi-laterally. Reference was made to the observations of the Lord Ordinary (Penrose) in Fargnoli v G A Bonus plc [1997] 6 Reinsurance Law Reports 374, 386 and what was said in Drake Insurance plc v Provident Insurance Plc [2004] Q.B.601, per Rix L.J. pp.85-89. However, as I understood matters, this was an additional response to the attempts by counsel for the defenders belatedly, and perhaps under some camouflage, to introduce a case for repudiation of liability on the basis of breach of warranty. Since I have rejected or refused those attempts the issue no longer arises. But, with retrospect, it might, perhaps, have been a factor supportive of my decision to accede to the opposition of counsel to the pursuer to the motions made by counsel for the defenders to amend his pleadings.

Disposal

[61 ] Counsel for the pursuer invited me to uphold the first, second and fifth pleas-in-law for the pursuer. The first and second pleas relate to the Homebuyer Plus policy and seek respectively decree of declarator and payment, which accords with the terms of the Joint Minute No.24 of Process. Upholding the fifth plea-in-law would result in granting decree of declarator in terms of the third conclusion, respecting the Income Protection Plus policy. (Counsel expressly did not invite me to uphold the pursuer's sixth plea-in-law, respecting the equivalent conclusion for payment under the Income Protection Policy, in view of the terms of the Joint Minute). However, on now examining matters more closely it appears to me that there are difficulties in upholding the fifth plea at least at this stage. The first difficulty is that in the finally adjusted and amended version of the summons (No.29 of Process) there is on any view an evident drafting or typographical infelicity in branch (a), after its fourth word, of the declarator sought in the third conclusion. Secondly, but more importantly, it appears to me that the terms of the declarator in the third conclusion may be inconsistent with the terms of para.(iii) of the Joint Minute which envisages that, the issue of material non-disclosure having been resolved in favour of the pursuer, the pursuer's claim would be processed in terms of the policy conditions.

[62 ] Given these possible, technical issues I consider that the appropriate course is to put the case out By Order for discussion of the terms of the Court's interlocutor.

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Cuthbertson v. Friends Provident Life Office [2006] ScotCS CSOH_74 (10 May 2006) URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_74.html Cite as: 2006 SCLR 697, [2006] ScotCS CSOH_74, [2006] CSOH 74

Scottish Court of Session Decisions