The duty of fair presentation and the disclosure of matters connected to insolvency (again)

In Clarendon Dental Spa LLP & Anor v Aviva Insurance Ltd & Zurich Insurance Ltd [2025] EWHC 267 (Comm), the Court considered whether the insured was in breach of the duty of fair presentation under the Insurance Act 2015 and whether the insurers had waived their right to disclosure of certain facts by asking the questions that they had. It is another judgment concerning the adequacy of disclosure of previous matters connected to insolvency.

The Court found that the insured had answered the insurers' questions on insolvency issues accurately and the questions did not have the wider interpretation that insurers had argued for (which would have meant that additional matters should have been disclosed).  Further, the insurers had waived any right to the disclosure of any additional matters by asking the questions in the terms that they had. 

BACKGROUND

In June 2021, a fire caused substantial damage to a property used by a dental practice (the Practice). The fire led to claims under two separate insurance policies:

• Clarendon Dental Spa LLP (the LLP) owned the property and was insured by Aviva Insurance Limited (Aviva) for property related risks. The insurance claim under this policy was settled but is relevant to certain arguments raised in the case.
• Clarendon Dental Spa (Leeds) Limited (the Company) ran the Practice. The Company was insured by Zurich Insurance PLC (Zurich), which provided cover for loss of contents and business interruption, amongst other risks. It is the Company's claim under this policy to which the present judgment relates.

The case concerns an application by the insured Company to strike out certain parts of Zurich's Defence or for partial summary judgment. The relevant facts are as follows:

• The Practice was founded in 2007 by two individuals (Dr AA and Dr JP) who organised and ran it originally as a "mixed membership" limited liability partnership. The members of the LLP were: two individuals (Dr AA and Dr JP) and two companies of which they were directors – PDS (Leeds) Limited (PDS) and JHP (Leeds) Limited (JHP).
• In 2014, the Company was incorporated and took over the operations of the Practice from the LLP.  Following the reorganisation, the two companies, PDS and JHP, resigned as members of the LLP and both entered creditors' voluntary liquidation. 
• The LLP owned the property since 2012. However, prior to 2006, the property was owned by a company called Back-to-back Investments Ltd (BTB), of which Dr AA was a director. BTB entered into insolvent liquidation in December 2009.

Zurich sought to avoid the insured Company’s claim on the basis that the Company had failed to make a fair presentation of the risk when the policies were renewed by failing to disclose the liquidations of (i) PDS and JHP, as the former corporate partners of the LLP; and (ii) BTB as the former owner of the property (the Liquidations).  In particular, Zurich argued that:

• The Company made a material misrepresentation by answering 'No' to this question posed by Zurich (the Zurich Question) on its Statement of Fact as part of the renewal:

Have you or any partners, directors or family members involved in the business been declared bankrupt or insolvent, or been disqualified from being a company director?

• The Company failed to disclose the fact of the Liquidations to Zurich.
• The Company failed to disclose to Zurich that the LLP had previously made a misrepresentation to Aviva by failing to disclose the Liquidations to Aviva. 

DECISION

Had the Company made a material misrepresentation?

Whether the Company had breached its duty of fair presentation turned on the interpretation of the Zurich Question and in particular what person(s) are the subjects/targets of it. The Zurich Statement of Fact identified the Company as the "Policyholder" and described the "Policyholder's Business" as "Dental Practice". The Company argued that subjects of the Zurich Question were the identified policyholder (the "you"), together with:

• the current partners (i.e. current when the question was answered), if the policyholder is a partnership; 
• the current directors, if the policyholder is a company; and
• family members of the policyholder currently involved in the business, if the policyholder is a sole trader or the business is operated as an informal family relationship. 

On that basis, the Zurich Question would relate only to the Company and its current directors. As none of these persons had been declared bankrupt or insolvent, or disqualified from being a company director, the Company had answered the question correctly.

Zurich argued for a much broader interpretation, which would cover "any partner in any partnership and any director of any company, provided that the partnership or company, or the partner or director, is currently or was previously involved in the business of the policyholder". That interpretation would include PDS and JHP (as former members of the LLP) as the LLP had operated the Practice until at least 2014.

The Court noted that insurance policies should generally be interpreted in accordance with the established principles applicable to other commercial contracts. However, the Court considered the additional rule which applies where there is an ambiguity in a question asked by an insurer as noted in Ristorante Ltd v Zurich Insurance plc [2021] EWHC 2538: where the court is interpreting questions posed by insurers rather than a contract term, any genuine ambiguity is to be resolved in favour of the applicant. 

The Court found that the Company's interpretation of the Zurich Question was correct. The Statement of Fact was a standard document issued to policyholders whatever their legal form and, therefore, the wording covered the various legal forms which a policyholder might take (i.e. a partnership, company or sole trader). "You and any partners, directors…" was naturally read as referring to current (rather than former) partners or directors. The Court found that that reading was reinforced by the phrase "involved in the business", which was naturally read as "[who are]" rather than "[who was or were]". It was also relevant, in the Court's opinion, that another question in Zurich's Statement of Facts referred to "any business in which you or any partners or directors are or have been involved" (emphasis from the judgment) which the Court took to show that if Zurich had intended to ask about a person's former involvement in the business, it would have asked that expressly.

It was also noted that Zurich's interpretation gave rise to practical difficulties, as it would require the policyholder to make investigations about partners and directors of the business' predecessors (as persons "previously involved in the business of the policyholder").

If its decision about the interpretation of the Zurich Question was wrong, the Court also considered that the Zurich Question was at best ambiguous in two respects: whether it was asking about partners or directors of the policyholder (as opposed to other entities such as the LLP), and whether it was asking only about current partners or directors, or former ones as well. The Court said that that ambiguity would have to be resolved in favour of the Company. 

Should the Company have disclosed the liquidations even if Zurich did not ask about it?

Zurich also argued that the Company should have disclosed the fact of the liquidations of PDS, JHP and BTB to comply with its duty of fair presentation, even if Zurich had not asked.  The Company argued that by asking the Zurich Question in the terms that it did, Zurich waived any right to disclosure. 

The relevant test for waiver (which was not in dispute) is whether a reasonable person reading the question would be justified in thinking that the insurer had restricted its right to receive all material information, and consented to the omission of the particular information in issue.

The Court was satisfied that by asking the Zurich Question in the terms that it did, Zurich had waived disclosure concerning the insolvency of any persons other than the subject of the question. As noted above, the Court had found the relevant persons to be the Company and its current directors. 

Alleged failure to disclose previous misrepresentation or non-disclosure

The parties could not agree whether a non-fraudulent misrepresentation or non-disclosure of a material fact to the property insurer Aviva could give rise to a material non-disclosure to Zurich as creating a moral hazard. This was not an issue which the Court could resolve summarily and so proceeded under the assumption that the Company was at least arguably under a duty to disclose to Zurich if it had failed previously to make a fair presentation to Aviva. 

The Aviva statement of fact identified the LLP as the policyholder and included a declaration in these terms: 

Neither You or Your directors or partners involved with The Business or any other company or business have: […] in the last ten years been declared bankrupt or insolvent or been the subject of bankruptcy proceedings or insolvency proceedings or been disqualified from being a company director

The Court noted that the wording of the declaration was "clumsy", particularly the words "The Business or any other company or business". It was not clear how (or whether) this wording was intended to qualify who was within scope of the declaration.  The Court found that the Aviva declaration could not reasonably be read (as Zurich contended) as giving confirmation about the insolvency history of "other companies with which the LLP or its members are involved". The Court found that the declaration was clearly targeted at directors or partners of the policyholder itself. 

Zurich also argued that the Aviva declaration must extend to former directors or partners because it expressly refers to insolvencies "in the last ten years". The Court disagreed, holding that this was referring to former insolvencies – from the last 10 years – of current directors or partners. The Court was therefore satisfied that the Aviva declaration referred only to current directors or partners of the policyholder, for essentially the same reasons as with the Zurich question. 

The Court said that even if it was wrong about the interpretation of the Aviva declaration, then (as with the Zurich Question), the Court found that the wording was at best ambiguous as to whether it covered former directors or partners. Any ambiguity would be resolved in favour of the LLP. As such, Zurich could not establish that the declaration was false by reference to the positions of PDS or JHP as former members of the LLP. 

The Court's analysis of waiver in relation to the Aviva declaration followed that in relation to the Zurich Question (as set out above): by asking only about the insolvency of current members or partners of the LLP, Aviva had waived disclosure of the insolvency history of other persons.

COMMENT

Following on from cases such as Ristorante Limited T/A Bar Massimo v Zurich Insurance Plc [2021],  this case is another reminder that insureds (and their brokers) should take great care in providing information about insolvency matters to insurers prior to inception and, if questions are unclear, seek clarification. Insurers that are concerned to know about insolvency matters concerning companies unrelated to the insured must ask questions clearly stating that is the information they seek. A practical tension often arises where a standard from questionnaire or electronic information gathering portal (which is sensible in theory to drive efficiency) includes questions which are poorly drafted. In that situation the Court will (generally) resolve genuine uncertainty to the question in the policyholder's favour. The insurer should be able to ask for the information if wants clearly. 

This case and the previous authorities considered by the Court highlight an important distinction between whether the insurer's question(s) are directed to the prior insolvency of the insured itself as presently constituted, or to a much border enquiry concerning the insured's involvement in the insolvency of other persons or entities.