Scottish Court of Session Decisions

This was an action brought in the Sheriff Court at Glasgow by Reid & Company, Limited, bakers and confectioners, Cross-myloof, Glasgow, against The Employers Accident and Live Stock Insurance Company, Limited, in which the pursuers prayed the Court to nominate and appoint an arbiter who should, along with the arbitrator named by the pursuers, determine the sum payable by the defenders to the pursuers in respect of claims under a policy of insurance issued by the defenders in the pursuers' favour.

In defence to this action the defender averred that the statement made by the pursuers in answer to the second query contained in the proposal and declaration which formed the basis of the policy founded upon was false and fraudulent.

This proposal and declaration was dated 11th November 1896, and the part of it which was specially material to this case ran as follows:—“2. Have any claims been made upon you during the last twelve months in respect of injury or damage to property of third parties?—[ Ans.] 3 small claims about 9s. or 10s. each. … I, the undersigned, being desirous of effecting an insurance with the above company, against my liability in respect of my drivers causing personal injury or damage to property of third parties in the street or road, do hereby declare that the above particulars are true, and I agree that this proposal and declaration shall be the basis of the contract between myself and the company; and if the risk is accepted, I undertake to pay the premium when called upon to do so. (Signature) Reid & Co., Ltd., per A. Reid JR.”

The proposal also contained a description of “vehicles proposed for insurance,” a statement as to how many horses the vehicles were drawn by, and a statement as to the number of drivers employed.

The defenders alleged that eleven claims had been made upon the pursuers during the period referred to instead of three as stated by them.

The pursuers, in answer to this defence, averred that they had been insured with another company before they contracted with the defenders, and that any claims made upon them were never inquired into by the pursuers but were forwarded to the insurance company to be dealt with by them, that the pursuers were ignorant of how these claims were disposed of, and that this was stated to the defenders' representative, on whose suggestion and direction the proposal was filled up, and that the statement in question was accordingly not false and fraudulent. They maintained that the policy by its terms was only rendered void by a fraudulent statement in the particulars furnished, and that consequently, even if the statement in question was incorrect, the policy was still binding upon the defenders.

Under the policy founded on by the pursuers the defenders agreed, in consideration of a premium of £7 paid to them by the pursuers, to indemnify the insured to the extent of £200 “so far as regards claims made against the insured for personal injury or injury to property” during the period of twelve months from 11th November

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1896, “in respect of accidents caused by horses, or vehicles while drawn by horses, or by the horses attached to such vehicles, while being driven or ridden by the drivers of the insured, and belonging to the insured,” and specified in the schedule subjoined to the policy, “and for which accidents the insured” should “be legally liable to third persons in respect of such personal injury or injury to property,” and to indemnity the pursuers against all law or other costs incurred in defending or resisting such claims, certain exceptions being stated. The policy proceeded upon the narrative that the pursuers had made a proposal applying for an indemnity against such claims as those above mentioned, but the proposal was not incorporated in the policy by reference. The policy contained a provision to the effect that “the conditions of assurance endorsed” thereon were “held to be incorporated in this policy,” and were “conditions precedent to the liability of the company thereunder.” The schedule referred to was as follows:—“Description of vehicle, with particulars as to number of vehicle and owner's name, and how driven. Vans and lorries, drawn by one or two horses ( each) as required. Where to be seen— At insured's stables.”

The conditions endorsed upon the policy so far as material were as follows:—(1) Any fraudulent misdescription in the particulars furnished by the insured shall render this policy void. … 4. If any damage is caused by any vehicle, animal, or plant hereby insured, and whether or not the insured is liable in respect thereof, the insured shall within three days thereafter, if the accident shall happen within twenty miles of the insured's place of business, or in any other case within four days thereafter, give notice in writing to the company at its Head or Glasgow Offices, that is specifying as far as possible the nature of the accident, its time and place, the animals or vehicles or plant by which the same was occasioned, and the names, addresses, and descriptions of the drivers or others of the persons to whom or to whose property the damage was done, and of every witness whose name is known to the insured, and any further particulars he can reasonably obtain, to enable the company to deal with any claim that may arise thereout, and shall at all times further to the utmost all reasonable requirements made by the company for the purpose of defending or dealing with any claim.… (2) If the insured shall be guilty of any breach of any of the foregoing conditions he shall forfeit all benefit under this policy; but the company may at any time in its absolute discretion waive any forfeiture on such terms as it shall think fit, and no endorsement on this policy will he held valid unless countersigned at head office.

The defenders pleaded—“(1) The particulars furnished by the pursuers to the defenders in the proposal and declaration which forms the basis of the indemnity policy founded on by the pursuers having been false and fraudulent, the policy is null and void. (2) The defenders having been induced by the pursuers to enter into the contract founded on by a misrepresentation and concealment of material facts, the contract is void and defenders ought to be assoilzied, with costs.”

The pursuers pleaded—“(5) The particulars furnished by pursuers in said proposal not being false or fraudulent, the prayer of the petition should be granted. (6) The pursuers having disclosed their knowledge, and the proposal being filled up at the direction and suggestion of the defenders' representative, the prayer of the petition should be granted.”

After sundry procedure a proof was allowed and led, the nature of which sufficiently appears from the following interlocutor and note issued by the Sheriff-Substitute ( Spens) on 5th December 1898:—“Finds the policy of assurance in connection with which this action is brought, and under which this Court, under the Arbitration (Scotland) Act 1894, is asked to name an arbiter, was issued by the defenders on a misrepresentation by the pursuers of a material fact, viz., that the amount of claims which had been made against pursuers for the year previous to the proposal was only ‘three small claims amounting to about 9s. or 10s. each,’ whereas the truth was that during said twelve months there had been at least nine claims made to the General Accident Corporation Limited, with which pursuers were insured during said period: Finds as matter of law the policy is null and void; therefore sustains the defences and assoilzies the defenders, and decerns. Finds pursuers liable in expenses,” &c.

Note.—“There is no doubt whatever that the policy of assurance which was issued by the defenders, who are an English Assurance Company, but who have a resident secretary in Glasgow, was issued on the basis of the representations made in the proposal No. 8–1 of process. So far as I am aware there is absolutely no distinction whatever with regard to the law of insurance policies, whether they are issued in connection with life, fire, marine risks, or as to accident, that statements which are material to the risk, and which in the proposal are untrue, render the policy null and void. In the leading case of Carter v. Boehm, 3 Burr 1905, the following passage occurs in Lord Mansfield's judgment:—Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived, and the policy is void, because the risk run is really different from the risk understood and intended to be run at the time of the agreement.’ And further on he also says:—‘The question, therefore, must always be whether there was under all the circumstances at the time that the policy was underwritten a fair representation or a concealment, fraudulent if designed, or though not designed varying materially the object of the policy and changing the risk understood to be run.’ Commenting upon this and other cases the following passage occurs in Bunyon's Law

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on Fire Insurance, 3 ed. 83:—‘If the noncommunication of material fact will avoid the policy, a fortiori a misrepresentation will do so. A misrepresentation is said to be material when it communicates any fact or circumstance the belief in which may be reasonably supposed to influence the judgment of the insurers in undertaking the risk and calculating the premium, and whatever may be the form of expression used by the assured or his agent in making a representation, if it have the effect of imposing upon or misleading the insurers, it will be material and fatal to the contract, and this will be equally true whether the representation was by mistake or not.’

Accepting these statements as a true exposition of the law, I will now inquire into the circumstances under which the policy in question came to be issued. In October 1896 the pursuers were insured against accident with the General Accident Assurance Corporation (Limited). At that time the defenders were called upon by witnesses Kinghorn and Bain, with the object of seeing if the pursuers would take out a policy with defenders. At that interview Mr Reid senr. and Mr Reid junr. were both present. There was some talk of an insurance of the horses, but Mr Reid senr. ultimately declined to have anything to do with that. There was then a talk about ‘third parties’ risk.’ It was mentioned that pursuers were covered by another company, and it appears that the General Accident Assurance Company intimated on 11th November that they were not prepared to reinsure, but, as I have said, this interview took place in October. Mr Reid junr. said that at this interview the pursuers had had no heavy claims, but that he could not state definitely the amount of the claims, because they had no knowledge of that, and that the claims had been settled by the General Accident Assurance Company without their knowledge. The matter had been delegated by Mr Reid senr. to Mr Reid junr., and Mr Bain called back again either once or twice according to Mr Reid junr.'s account, but apparently Mr Bain and Mr Reid junr. were alone when the proposal was signed. Mr Reid junr. alleges, with regard to the special subject of the statement of the number of claims, that he had already told Mr Bain that he could not definitely state the number of claims. Mr Reid junr., p. 30, letters B C, then goes on:—‘The only way I can account for the figure “3” being filled in is that after I told him, Mr Bain, what I had already told him, he said, ‘Well, we will just say three small claims of 9s. or 10s. each.’ I protested against that and remonstrated with him, saying that I could not tell definitely, but he said, ‘I only want to condescend on a figure. It is a mere matter of form, and simply to indicate the kind of thing you have.’ He repeated again, ‘You have no heavy claims,’ and I said ‘No.’ never volunteered any ‘Statement as to the number of claims we had.’ Mr Bain is the inspector in Scotland for the defenders, and, turning to his evidence, it will be found that his account of the interview which has been given by Mr Reid junr. is different. It appears from his evidence that, although the proposal bears date 11th November, it was really signed upon 16th October; and the explanation is made that the policy with the other company only expired upon 11th November, and the theory was that the new policy was to date from the 11th November. All the same the true date of the proposal should have been given in the proposal itself. In the first place, Mr Bain says that he called five or six times. He admits that at the early stages of the negotiation he could not get definite information as the number and amount of the claims. He says he knew the question as to the number of claims would have to be answered if the matter came the length of a proposal. He states, ‘I remember the occasion when I called and he signed the proposal. That was the 16th October’ (he explains how he fixes the date), and then goes on, ‘When the proposal was signed there was just Mr Reid and myself present. That meeting took place in the room of Mr Reid junr., and we were having a cup of tea at the time. I asked Mr Reid again as to his claims, and his answer was, “One or two small claims.” I said, “Are you sure?” and he said, “Yes; well, one or two trifling things where the tramway glass was broken or a lamp was knocked down.” I then said, “Will I say three claims?” and he said, “That is the most.” I then asked how much will they be each, and he said, “It is difficult to tell, but they will not come to more than 8s., 9s., or 10s. each.” I then said, “I will put that down,” and I put it down.’ The question in the proposal is as follows:—‘Have any claims been made upon you during the last twelve months in respect of damage to persons or property of third parties?’ the answer being, ‘Three small claims about 9s. or 10s. each.’ Now, it is to be observed that Mr Reid's account attempts to throw the entire responsibility of the answer upon Mr Bain, while Mr Bain repudiates that he did anything more than take down the information given by Mr Reid. I may say that I do not believe that the question of law would be affected by Mr Reid's statement being accepted in preference to that of Mr Bain, because the proposal is signed for Reid & Company, and the directors of the defenders issued the policy upon the faith of the truth of the answers in the proposal, and I do not think that the pursuers can get quit of the responsibility for the answers by saying, ‘Mr Bain knew the state of matters as well as me.’ Assuming, however, that the acceptance of Mr Reid's version was to affect the law of the case, this at all events is clear, that it rested with pursuers to prove that Reid's version was correct, and I do not think it can be argued that that onus has been discharged.

The proposal then was signed on 16th October. During the preceding twelve months it is alleged that three small claims were made. The resident secretary of the General Accident Assurance Corporation was examined. The pursuers were insured from 12th November 1895 to 12th November

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1896 with this company. He put in a list of claims arising in connection with this policy, which is No. 9 of process. The last and largest in amount of these claims is in connection with a collision which is said to have happened on 9th November 1896. As already mentioned, the proposal was made on 16th October 1896, so that at that date this accident had not occurred, and it may be struck off; but there were other ten accidents of which intimation was made to pursuers, and which they again intimated to the Accident Company. I should say that there were, therefore, ten claims made; but adopting pursuers' argument, that compensation is only due where money has been paid, it appears there were six different accidents in connection with pursuers' vans and horses, and for which the Accident Company disbursed the sum of £6, 3s. 6d., being (1) double the number of claims specified by the pursuers in their proposal; and there was (2) four times the amount disbursed beyond what was mentioned therein. All the witnesses examined with any knowledge of the subject stated that the number of accidents and claims during the twelve months preceding the issue of the policy was a question which had a material bearing upon the undertaking of the risk and the fixing of the premium. Indeed, this is a matter which requires no expert evidence. It stands to common sense that an insurance company would, if they issued an accident policy, take a lower premium for the man who had only had three accidents in the preceding year than for a man who had ten or even only six. Hence I am of opinion that here the representation made in the proposal was material, and that the belief that there had only been three trifling accidents in the course of the year in connection with pursuers' horses and vans, whereas there had been ten, was a statement the belief in which may be reasonably supposed to have influenced the judgment of the insurers in undertaking the risk and calculating the premium.

It is perhaps right that I should add, that while of the opinion that there was a material misstatement of fact, I do not believe there was any fraudulent misrepresentation on the part of Mr Reid junr. It was a misstatement of fact innocently, I believe, made, but which certainly should never have been made without investigation into its accuracy.”

The pursuer appealed to the Sheriff ( Berry), who by interlocutor dated 9th February 1899 adhered to the interlocutor appealed against, adding the following Note—“It is a well-established rule that any misrepresentation material to a contract of insurance made by the assured in effecting it, however innocently he may have made it, is sufficient to avoid the contract. The first of the conditions endorsed on the policy in this case provides that ‘any fraudulent misrepresentations in the particulars furnished by the insurer shall render this policy void.’ That express condition does not, it is true, declare the policy to be void in the event of any innocent misrepresentation by the assured, but the omission to make such a declaration does not in my opinion interfere with the operation of what is a general rule of law. The main question here is, Was there in fact a material representation.

What is relied on as a misrepresentation is contained in the answer given to the question in the proposal No. 8–1 of process, ‘Have any claims been made upon you during the last twelve months in respect of injury or damage to persons or property of third parties?’ The answer was in these terms. ‘Three small claims about 9s. or 10s. each.’ I feel constrained to hold that, however slightly the answer may seem to have departed from what was the true state of facts, it was at variance with it, the number of claims intimated against the defenders having been ten, and if we take the number in which payments were made, six. The number of claims intimated, I gather from the proof, is regarded by insurance officials as material—a claim even where no money is eventually paid involving expenses of investigation. Apart from this view indicated by persons conversant with insurance questions generally, it cannot be contended here by the assured that the number was not material to the insurance. They signed a declaration that the particulars in the proposal were true, and that the proposal and declaration should be the basis of the contract. One of the particulars, the truth of which was thus made to lie at the root of the contract, was that the number of claims made on the pursuers during the twelve months was three. That, as I have said, was not in accordance with fact, the number having been larger. It is not proved that Mr Bain, the company's inspector for Scotland, through whom the proposal was made, knew that more than three claims had been intimated against the pursuers, and the case therefore does not, as was argued, fall within the rule stated to be implied in Cruikshank v. The Northern Accident Insurance Company, 23 R. 147, that the company is bound by the knowledge of an inspector through whom an insurance has been made.

On the question whether there was anything which the law would regard as fraudulent misrepresentation on the part of the pursuers I do not think it necessary to enter. I think Mr Reid junr. was rash in putting his name to the statement that the number of claims made on his company during the preceding twelve months was only three, and that a little inquiry might have satisfied him that the number was in fact larger. The case is a warning to persons intending to insure to be careful of the answers they make to questions put before them by insurance companies in proposals for insurance.

It has not been argued that the present question as to the validity of the insurance ought to have been referred to the arbitrators in accordance with article 12 of the conditions endorsed in the policy. If the contract itself is invalid no conditions contained in it can be of any effect.”

The pursuers appealed.

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The arguments of the parties sufficiently appear from the opinions of Lord Trayner and Lord Moncreiff.

Authorities quoted—For the pursuers and appellants— Fowkes v. Manchester & London Assurance Association (1863), 3. B. & S. 917.

For the defenders and respondents:— Macdonald v. Law Union Insurance Company (1874) L.R. 9 Q.B. 328; Seaton v. Heath [1899], 1 Q.B. 782; Standard Life Assurance Co. v. Weems, Aug. 1, 1884, 11 R. (H.L.) 48; Bunyon's Law of Fire Insurance 83; Reese River Co., 4 E. & I. App. 79.

At advising—