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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Earls -v- The Financial Services Ombudsman & anor [2015] IEHC 536 (09 July 2015)
URL: http://www.bailii.org/ie/cases/IEHC/2015/H536.html
Cite as: [2015] IEHC 536
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Judgment
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Neutral Citation [2015] IEHC 536 THE HIGH COURT [2014 No. 506 MCA] IN THE MATTER OF THE CENTRAL BANK ACT 1942 AS AMENDED AND IN THE MATTER OF PART VIIB THEREOF AND IN THE MATTER OF AN APPEAL PURSUANT TO SECTION 57CL THEREOF DEIRDRE EARLS APPELLANT - and -
THE FINANCIAL SERVICES OMBUDSMAN RESPONDENT - and -
FBD INSURANCE PLC NOTICE PARTY JUDGMENT of Mr Justice Max Barrett of 9th July, 2015 PART I BACKGROUND 1. If a couple of random bullets graze my property and the damage is so utterly trivial that I never make an insurance claim, and the event is so haphazard that I put it from my mind, is that a fact that my new home insurer can rely upon lawfully to disavow my home insurance policy when my house is years later destroyed by fire? Ms Earls does not think so. FBD does. The court does not have to resolve this issue. However, it does have to consider whether the Financial Services Ombudsman erred in law when addressing a complaint brought by Ms Earls against FBD in respect of the dispute arising between the two. 2. In March 2008, a taxi was stolen somewhere in Limerick City, driven into St Mary’s Park, and a machine-gun used to spray bullets indiscriminately. Apart from the criminals involved, nobody knows why this event happened, or who the intended target was. It is not clear whether the bullets were fired at houses in St Mary’s, some of which were hit by bullets, or whether the intended target was a person walking in the area. It is possible that the shooting was connected with a criminal feud which was then on-going in Limerick City. But even this is not certain. What is certain is that neither Ms Earls nor her house was the target of the shooting. 3. Fortunately, Ms Earls was away on holiday with her partner at the time of the incident. On her way home from her holidays, Ms Earls made a preliminary call to AXA, her then home insurers. But when she and her partner returned to St Mary’s, they discovered that the damage which had occurred to Ms Earls’ property was minimal. One bullet had struck the front wall. Another had struck the border-wall that marks the boundary with her neighbour’s house. But the damage was limited and Ms Earls, an honest woman, made no claim. As she puts it in her affidavit evidence, “[T]here was nothing to claim for.” 4. The court does not wish in any way to diminish the fact that, when it comes to the shooting incident, Ms Earls and her neighbours were clearly the hapless victims of a random and vicious incident that evinced no respect for human life. However, the court cannot but note, indeed Ms Earls emphasises in her affidavit evidence, the trivial nature of the damage that was occasioned to her property as a result of the incident. Indeed, had Ms Earls not been away on holiday when the incident occurred, had she seen the damage herself immediately after it happened, it seems implicit in her affidavit evidence that she would not even have troubled AXA with a telephone call. As it was, she chalked up the event to experience. It was nothing to do with her, it was not targeted at her, and she had suffered next-to-no damage. That was the end of matters as far as she was concerned. 5. After 2008, Ms Earls’ home insurance premium increased year-on-year but in truth it had done so since she bought her home back in 2002. She had no reason to think that the incident of March 2008 was anything to do with the hike in insurance premia,and there is nothing in the evidence that would lead the court to conclude otherwise. When, in November 2010, Ms Earls’ partner found cheaper home insurance being offered by FBD on the internet, Ms Earls switched her home insurance to FBD. 6. When asked on the FBD website “How many accidents or claims have you had in the past 5 years?” Ms Earls’ partner entered “O”. Based on the inputted information, a policy documentation pack arrived a couple of days later. Ms Earls signed the necessary policy documentation and sent it back to FBD. 7. Almost three years later, in August 2013, Ms Earls and her partner were away on an overnight visit that included a trip see Ms Earls’ mother in Kileely. While they were away someone set Ms Earls’ house on fire. The fire caused serious damage to Ms Earls’ house. Structurally, the building remains intact. However, the inside was very badly damaged. The fire seems to have burnt itself out internally but there was a lot of smoke damage. 8. As a result of the fire, Ms Earls was left homeless. She was reduced to a peripatetic existence, staying at her partner’s house in Pallaskenry, andwith friends and relatives. She had no clothes to her name apart from the clothes she had with her when she visited her mother. All her belongings were destroyed in the fire. But her troubles were only beginning. 9. Ms Earls had paid for the ‘Home Emergency Assistance’ package offered by FBD. Under that package, FBD was supposed to provide an emergency repair service to secure Ms Earls’ home and prevent any further loss or damage occurring. FBD, however, denied that Ms Earls had taken this package and indicated further that if Ms Earls did not board up the house herself they might not indemnify her for the loss occasioned by the fire. So Ms Earls secured her home at her own expense. She avers: “FBD later acknowledged that my policy covered emergency assistance but refused to refund me the cost of securing my home even then.” Presumably this was because, as will be seen hereafter, FBD was to decide that in fact Ms Earls was not covered by it at all. 10. FBD appointed Thornton Loss Adjusters as their investigator. Ms Earls asked First Call Assessors to assist her with her claim. In September 2013, Ms Earls, her partner, and a representative of First Call attended a meeting with FBD at the latter’s offices. During the course of the conversation, Ms Earls avers in her affidavit evidence, “[T]hey asked why I had [not] told FBD about the shooting and we answered ‘because we weren’t asked’”. A question was asked why no claim had been made to AXA and an answer apparently volunteered by an FBD representative before Ms Earls had a chance to answer. The representative suggested that it was because of the paperwork involved. Ms Earls regrets now that she did not challenge this answer at the time, though we could all likely do some things better if we were to do them again. Ms Earls avers:
12. By registered post, dated 8th October, 2013, FBD sent a letter to Ms Earls’ now boarded-up home where she no longer resided. In this letter FBD, indicated that it intended to treat Ms Earls’ home insurance policy as void. The relevant portion of the letter reads:
As this is the case, and in view of the non-disclosure of the previous claim and its serious nature, which are both relevant material facts which should have been disclosed when seeking a quotation for home insurance, we have no option to treat the above policy as null and void from inception.” 14. Ms Earls is considerably vexed by FBD’s disavowal of her policy. She views herself as having behaved honourably in effecting her policy and expects FBD to honour that policy. As she succinctly puts it in her affidavit:
‘I confirm that I have declared all facts likely to influence the Insurer in deciding on the acceptance of the risk and the terms to apply. I declare that the above statements are true and complete and I have not suppressed or mis-stated any material fact. I desire to effect an insurance with FBD Insurance plc in the terms, limitations and endorsements of the FBD Home MultiPeril Policy to be issued by the Company and the Company’s Memorandum and Articles of Association and I agree that this proposal will form the basis of the contract between me and the Company and will be deemed as incorporated in the Policy to be issued.’”
- second, an insurance company that is doing something as financially serious as disavowing a home insurance policy could at least trouble itself to get the facts right - and if it gets the facts wrong, one might reasonably expect the insurer’s Complaints Department to pick up on the error. Ms Earls never made any claim, within the ordinary meaning of the word, to AXA. The fact that she never made that claim had nothing to do with the level of paperwork required by AXA. She had and has no home insurance claims history apart from her claim for the fire damage done to her house in August 2013. Stating that Ms Earls “reported” a claim when she spoke to AXA does not have the effect of converting her non-claim into a claim. - third, if the court might paraphrase its understanding of Ms Earls’ affidavit evidence, it is that slight damage was caused to her property by two bullets during an entirely random incident that had nothing to do with her and which, in terms of damage to her property, was so trivial she never made any claim for it and did not think it relevant when, for reasons of cost, she moved to a new home insurer. To the court that seems a more correct description of events than that of FBD in the above-quoted text. PART II MS EARLS COMPLAINS TO THE FINANCIAL SERVICES OMBUDSMAN 18. Clearly getting nowhere with FBD as regards a pay-out on her claim, Ms Earls complained to the Office of the Financial Services Ombudsman which issued a Finding in August 2014. 19. At p.4 of the Finding, the Deputy Financial Services Ombudsman sets out her understanding of the duty of uberrimae fidei (‘utmost good faith’):
It appears from the Complainant’s submissions that she was of the view that as she had previously disclosed the shooting incident to her previous insurer (a third party insurer), but did not pursue her claim, she was not required to disclose same to her new insurer. In this regard she raised the issue that she responded to all questions in section 4 “supplementary questions” of the written proposal form correctly. These questions included inter alia the following: ‘How many accidents or claims have you had in the past 5 years? 0’ I would explain in this regard that as the Complainant intended to accept a new insurance policy with a new insurer, the onus was on the Complainant again to make a full disclosure of all material facts under the proposal for the new policy. Notwithstanding the fact that the Complainant did not pursue her claim in 2008 with the third party insurer, there remained an onus on the Complainant to ‘declare all facts likely to influence the Insurer in deciding on the acceptance of the risk and the terms to apply.’ It is my view that a reasonably prudent underwriter would be influenced in its decision to write a risk if it was informed that the risk property to be insured had previously been subjected to a gunfire attack. The Company correctly asserted that any view taken by the third party insurer was irrelevant to the Company’s assessment of the risk. Furthermore, it correctly informed the Complainant that it would not have had access to any centralised claims database at the time the Complainant proposed for insurance…”. PART III THE NATURE OF THE COMPLAINT NOW BEFORE THE COURT 22. The court does not understand there to be much if anything separating the parties as regards their respective understandings of the role of the court in its review of the decision of the Financial Services Ombudsman in the within application pursuant to s.57CL of the Central Bank Act 1942, as inserted by the Central Bank and Financial Services Authority of Ireland Act 2004. Even so, it is appropriate for the court briefly to summarise the applicable law and principles concerning its role in this regard. 23. In Ulster Bank v. Financial Services Ombudsman & Ors [2006] IEHC 323, Finnegan P. laid down the authoritative test for an application such as that now before the court. Per Finnegan P., at p.9 of his judgment:
25. In the relevant passage from Orange that was applied by Finnegan P., Keane C.J. stated, at p.184:
28. Finally, as to the options open to the court by way of orders to be made in the within application, these are set out in s.57CM of the Central Bank Act, 1942. Thus: (1) the court is to hear and determine an appeal made under s.57CL and may make such orders as it thinks appropriate in light of its determination; (2) the resultant orders that may be made by the court include, but are not limited to, (a) an order affirming the finding of the Financial Services Ombudsman, with or without modification, (b) an order setting aside that finding or any direction included in it, and (c) an order remitting that finding or any such direction to the Financial Services Ombudsman for review. Lastly, if the court makes an order remitting to the Financial Services Ombudsman a finding or direction of that Ombudsman for review, the Ombudsman is required to review the finding or direction in accordance with the directions of the court. PART IV THE DUTY OF UTMOST GOOD FAITH 29. It is trite law that an insurer has the right to avoid a contract of insurance in its entirety if the insured was guilty of fraud, non-disclosure or misrepresentation before the contract was entered into. The questions of fraud and misrepresentation are common to all contracts. Non-disclosure is peculiar to a class of contracts, of which the contract of insurance is the prime example. 30. It appears generally to be accepted both in Ireland and the neighbouring jurisdiction that the duty of disclosure was likely first, and certainly most famously, identified by Lord Mansfield in Carter v. Boehm (1766) 3 Burr. 1905, as applied in this jurisdiction by Henchy J. in Aro Road and Land Vehicles Limited v. The Insurance Corporation of Ireland [1986] IR 403 and affirmed by Finlay C.J. in Kelleher v. Irish Life Assurance Company Limited [1993] 3 I.R. 393 at p.401. The last two cases mentioned were among a trio of useful Supreme Court precedents placed before the court for consideration in the within application. The third was Chariot Inns Limited v. Assicurazioni Generali S.p.a. [1981] IR 199. 31. The court turns now to examine each of those cases. Before doing so, the court notes in passing that this case is concerned with a consumer contract and thus all of the comments and findings of the court in the within judgment are made exclusively within that context. A. Chariot Inns Limited v. Assicurazioni Generali S.p.a. 32. In Chariot Inns, a director of Chariot was a director of another company which had previously made claim under a fire insurance policy. When Chariot came to place its own fire insurance, the director of Chariot acting in that capacity stated that Chariot had no previous fire claims history. Following a later fire at Chariot’s premises, the defendant insurer disclaimed liability on the ground that the plaintiff had failed to disclose material facts to the defendant insurer. Chariot sued the insurer successfully on the policy in the High Court but lost on appeal to the Supreme Court where a single judgment was delivered by Kenny J. (Henchy and Griffin JJ. concurring). What principles can be drawn from the Supreme Court judgment? It seems to the court that there are at least four key principles arising. 33. First, the correct answering of questions asked is not the sole obligation of the insured; s/he must disclose all matters material to the risk. Thus, per Kenny J. at pp.225-226:
36. Third, the sole and final arbiter of materiality is the court (or in the within proceedings, the Financial Services Ombudsman). Per Kenny J., at p.226:
B. Aro Road and Land Vehicles Limited v. The Insurance Corporation of Ireland [1986] IR 403. 38. This was a case in which a carrier, acting as the agent of a corporate customer for which it was to transport goods, arranged for insurance of the goods in transit. Some of the goods were destroyed while in transit. When the customer sought to be indemnified under the insurance policy, the insurer denied coverage on the basis that there had been non-disclosure of the fact that the managing-director of the customer, had been convicted of various offences of dishonesty two decades previously. In the High Court, Carroll J. stated that she did not think the convictions would have been material to the risk. However, she accepted evidence on behalf of the defendant that a reasonable underwriter would have regarded the convictions as relevant to the risk, and she dismissed the plaintiff’s claim. 39. In the Supreme Court, the judges were unanimous that the appeal should succeed but divided into a majority judgment (of McCarthy J; Walsh and Hederman JJ. concurring), and a minority judgment (of Henchy J; Griffin J. concurring). Notably, in that case, as in the case of Ms Earls, although a great number of different issues were canvassed, the ultimate issue that fell to be resolved was the right claimed by the insurer to repudiate liability on the basis of non-disclosure. What principles can be drawn from the Supreme Court judgments in Aro Road? It seems to the court that there are at least six key principles arising. 40. First, the sole and final arbiter of materiality is the arbiter, not the insurer. Thus, per McCarthy J., at p.411:
….If the determination of what is reasonable were to lie with the insurer alone I do not know how the average citizen is to know what goes on in the insurer’s mind, unless the insurer asks him by way of the questions in a proposal form or otherwise. I do not accept that he must seek out a proposed insurer and question him as to his reasonableness, his prudence and what he considers material. The proposal form will ordinarily contain a wide ranging series of questions followed by an omnibus question as to any other matters that are material….For the reasons I have sought to illustrate, in my view, the learned trial judge failed correctly to apply the very stringent test; in my judgment, the insurers failed to discharge the onus of proof that lay on them.” 44. Fourth, as regards the substance of the duty of utmost good faith, per McCarthy J., at p.412 of his judgment, “the insured is bound to disclose every matter which might reasonably be thought to be material to the risk against which he is seeking indemnity”. However, the arbiter of reasonableness is the determining tribunal. Thus, per McCarthy J., at p.412 of his judgment, “[T]hat test of reasonableness is an objective one not to be determined by the opinion of underwriter, broker or insurance agent, but by, and only by, the tribunal determining the issue.” 45. Fifth, the duty of utmost good faith requires a genuine effort to achieve accuracy using all reasonably available sources; to require disclosure of all material facts which are known to an insured may well require an impossible level of performance. Per McCarthy J., at pp.413-414 of his judgment:
47. Sixth, McCarthy J. states, at p.414 of his judgment, that in the case of “over-the-counter” insurance “in the absence of fraud, the insurer is not entitled to repudiate on grounds of non-disclosure”. Regrettably, McCarthy J. does not define what he means by “over-the-counter” insurance. The examples to which he refers are carrier and travel insurance. Thus per McCarthy J. in Aro Road, at pp.414-415:
C. Kelleher v. Irish Life Assurance Company Limited
[1993] 3 I.R. 393 48. This was a case in which a husband and wife availed of life assurance that was offered ‘free of medical evidence’ to a certain level. They did not reveal that the husband was being treated for cancer, presumably because the policy was offered ‘free of medical evidence’. When the husband died, the insurer refused to pay and held that it was an express or implied condition of the contract between insured and insurer that all material facts are disclosed that might influence the assessment and acceptance of the proposal by the insurer. Ms Kelleher brought a failed action in the High Court but succeeded on appeal in the Supreme Court. Giving judgment for a unanimous court, Finlay C.J. referred, at p.403 of his judgment, to a paragraph in MacGillivray on Insurance Law, which continues to survive largely intact in the present edition, as to how it is more likely that questions asked in a proposal form will limit an applicant’s duty to disclose (although the opposite can apply). Finlay C.J. continued, at p.404 of his judgment:
PART V SUMMARY OF APPLICABLE PRINCIPLES ARISING 50. The applicable principles arising from Chariot Inns, Aro Road and Kelleher can perhaps be summarised as follows. 1. Utmost good faith
2. Disclosure of material matters
(3) The duty involves exercising a genuine effort to achieve accuracy using all reasonably available sources. (To require disclosure of all material facts may well require an impossible level of performance). (Aro Road). (4) The form of questions asked in a proposal form may make the applicant’s duty to disclose more strict than the general duty arising; it is more likely, however, that the questions will limit the duty of disclosure. The acid test is whether a reasonable person reading the proposal form would conclude that information over and above that which is in issue is required. (Kelleher). 3. Test of materiality
(6) Absent a question directed towards the disclosure of a particular fact, the arbiter must give consideration to what a reasonable insured would think relevant; relevance in this particular context is not determined by reference to an insurer alone. (Aro Road). 4. Over-the-counter insurance
5. Determiner of materiality
PART VI
HAS THE FINANCIAL SERVICES OMBUDSMAN ERRED IN LAW? 51. Because it falls to the court to review decisions of the Financial Services Ombudsman and because the court sometimes finds fault with those decisions, there is perhaps a risk that Ombudsman and court may sometimes be perceived as being opponents. The truth is very different. Both are engaged in the law and justice ‘business’, and certainly this Court freely acknowledges the public good served by the Office of the Financial Services Ombudsman in ensuring that financial services law and regulation is observed. 52. In this particular case, the court considers that the Deputy Financial Services Ombudsman has erred in law on at least five grounds. 53. First, it is not clear to the court that due regard was had to the fact that a contract of insurance is a contract of the utmost good faith on both sides. (Aro Road). Sole regard appears to have been had to whether, on the facts, Ms Earls manifested the utmost good faith. No regard appears to have been had to the issue of whether, on the facts, FBD did so. In this respect, the Office of the Financial Services Ombudsman may wish to consider the possibility that a reasonably assertive claims policy may have strayed across the line into an unreasonably avaricious claims policy which sought to dislodge a genuine claim on specious grounds under the ostensibly legitimising umbrella of uberrimae fidei. 54. Second, as regards the disclosure of material matters, the Deputy Financial Services Ombudsman appears from her Finding to have proceeded on the basis that if a material fact is not disclosed then, ipso facto, there has been a breach of the duty of disclosure. So, for example, she states that “A contract of insurance is voidable if a party fails to disclose a fact material to the risk.” As is clear from the above analysis of the relevant Supreme Court case-law, this may not always be the case in all instances. Specifically, it does not appear to the court from a reading of the Deputy Financial Services Ombudsman’s Finding that she had any regard to the fact that, per McCarthy J. in Aro Road, the duty arising for an insured in this regard is to exercise a genuine effort to achieve accuracy using all reasonably available sources (in Ms Earls’ case her own memory and experience, following her accurate and genuine characterisation of the March 2008 event as, in the end, a ‘nothing’ so far as property damage was concerned). 55. Third, it is not apparent in the Finding at any point that the Deputy Financial Services Ombudsman has considered the possibility that the form of questions asked in a proposal form may, Kelleher-style, limit the duty of disclosure arising, even though it appears from the pleadings that the form of questions asked has been raised as an issue. The Deputy Financial Services Ombudsman points in her Finding to the importance of reading policy terms and conditions but it does not seem to the court that this observation properly addresses this third issue. 56. Fourth, insofar as the test of materiality is concerned, the Deputy Financial Services Ombudsman points to the observation in Chariot that materiality falls to be gauged by reference to the hypothetical prudent insurer. However, it is nowhere apparent that the Deputy Financial Services Ombudsman has had regard to the fact that, per McCarthy J, in Aro Road, absent a question directed towards the disclosure of a particular fact, the arbiter must give consideration to what a reasonable insured would think relevant; relevance in this particular context is not determined by reference to an insurer alone. In this regard, the Office of the Financial Services Ombudsman may wish to have regard to the issue of whether in the apparent absence of any question as to whether a particular property has been the subject of any criminality, a general reliance on an ‘any other material facts’-type question satisfies the particularity that McCarthy J. expressly envisions as requiring the disclosure of a certain fact. 57. Fifth, there is no acknowledgement in the Deputy Financial Services Ombudsman’s decision as to whether or not she is dealing with over-the-counter style insurance, whether of the type envisioned in, or anticipated by, the judgment of McCarthy J. in Aro Road, and the consequences of this, if so. PART VII CONCLUSION 58. For the reasons stated above, the court: (1) considers that the Respondent erred in law in determining the Appellant’s complaint against the Notice Party; (2) sets aside the Finding of the Respondent; and (3) remits this matter to the Respondent for review. |