Publications
The End of Utmost Good Faith?
London & Bermuda Newsletter
The Privy Council in London is Bermuda’s highest appeal court. As such, decisions of the Privy Council, on appeals from jurisdictions other than Bermuda, can provide guidance as to the likely position under Bermuda law.
The Privy Council’s decision in Zeller v British Caymanian Insurance Co Ltd concerns an appeal from the Cayman Islands Court of Appeal. The decision marks a watershed in commonwealth insurance law and may herald an erosion of the duty of utmost good faith in consumer insurance contracts.
The decision relates to a dispute between David Zeller and his health insurance provider, British Caymanian. Zeller purchased health insurance in November 2001. As part of the application process, he completed a questionnaire that elicited details about the current state of his health. In response to a specific question about whether he had suffered from “heart trouble” he responded, “No”.
In March 2003, during a routine visit to his doctor, a “loud heart murmur” was detected; he underwent major cardiac surgery shortly thereafter.
Zeller submitted a claim to British Caymanian for medical expenses associated with his treatment. An investigation into his medical history ensued. It was revealed that, on a number of visits prior to November 2001, his physician had detected “elevated”, and sometimes even “high”, cholesterol levels. Also, during visits in November 1998 and February 1999, a heart murmur was detected.
British Caymanian denied cover on the basis of, among other things, material non-disclosure. The court of first instance found in favour of the insurer; its decision was upheld by the Cayman Court of Appeal. However, the Privy Council subsequently found that there was no basis for the British Caymanian’s denial.
The court reasoned that, having regard to the manner in which questions in the enrolment form were framed, Zeller disclosed everything about the state of his health that he was required to disclose. He was under no obligation to disclose a complaint that he thought was trivial even if it later transpired that the complaint was symptomatic of a more serious underlying condition.
The decision may evidence a judicial shift towards a more insured-friendly manner of resolving disputes in relation to questions of non-disclosure, at least as regards personal insurance. Interestingly, it coincides with on-going review by two UK Law Commissions of proposals for a legislative change in focus in the duty of utmost good faith, from the “prudent underwriter” to the “reasonable insured”. If the Law Commissions’ proposals are enacted as legislation, this could leave jurisdictions such as Bermuda and the Cayman Islands resorting to common law insurance principles. Although the Zeller decision suggests that the Privy Council is moving in the same direction as the Law Commission, it is possible that Bermuda and the Cayman Islands will also consider passing legislation similar to any new UK insurance statute.
Zeller v. British Caymanian Insurance Co Ltd ((Cayman Islands) [2008] UKPC 4 (16 January 2008))
|