Gillian Cowie as Executrix-Dative of the late Mark Cowie against Vitality Corporate Services LTD t/a as Vitality Life and others (Court of Session)

Factual and Procedural Background

The pursuer, as executrix of the late insured, sought payment of £500,000 plus interest from the first defender, an insurer, under a life assurance policy issued on the life of her late husband. The second and third defenders, a financial planning business and its agent, were initially involved but no remedy was pursued against them and they were unrepresented. The insurer denied liability, asserting that the insured had breached the duty under the Consumer Insurance (Disclosure and Representations) Act 2012 by failing to take reasonable care not to make misrepresentations in his proposal form, which would have led the insurer to decline the policy. The insurer had obtained medical records unlawfully but the court admitted these in evidence. The case proceeded to a proof before answer for final determination of substantive issues.

The life assurance policy was entered into in November 2015, with cover starting in December 2015. The insured died suddenly in October 2016 from causes including intracerebral brain haemorrhage, coagulopathy, and liver cirrhosis. Following death, the insurer requested medical documentation from the insured's general practitioner (GP) and received various medical records. After reviewing these records, the insurer alleged non-disclosure of significant medical history related to digestive disorders and liver function, regarded the non-disclosure as reckless, cancelled the policy, refunded premiums, and refused the claim. The pursuer appealed internally but was unsuccessful, leading to this litigation.

Prior to substantive proof, a preliminary proof addressed the admissibility of the medical records, resulting in an opinion that the records were admissible. The insurer voluntarily undertook not to rely on certain documents identified as irrelevant or outside the requested period. The substantive proof involved extensive witness evidence concerning the insured’s medical history, the proposal form, the insurer’s underwriting and claims handling processes, and the legal framework governing consumer insurance contracts.

Legal Issues Presented

1. Whether the insured made misrepresentations in the proposal form in breach of the duty to take reasonable care under section 2(2) of the Consumer Insurance (Disclosure and Representations) Act 2012.
2. Whether such misrepresentations were qualifying misrepresentations entitling the insurer to avoid the contract under section 4 of the 2012 Act.
3. The proper construction and interpretation of the proposal form questions, including the meaning of terms such as "disorder" and "including".
4. Whether the insurer would have entered into the contract absent the misrepresentations.
5. Whether the insurer breached any duty of utmost good faith in handling the claim and appeal, and the consequences thereof.

Arguments of the Parties

Pursuer's Arguments

• The pursuer contended that the insurer failed to prove that the insured made misrepresentations in breach of the statutory duty.
• The insurer’s decision to avoid the contract was based on unlawfully obtained and irrelevant medical information unrelated to the cause of death.
• The insurer relied on hypothetical and reconstructed defenses not founded on the actual decision-makers or contemporaneous evidence.
• The proposal form’s wording was ambiguous and should be interpreted in the pursuer’s favour under the Consumer Rights Act 2015 and contra proferentem principles.
• The insured was entitled to assume that the insurer was aware of prior disclosed medical conditions and would request further information if needed.
• The insurer breached its duty of utmost good faith by failing to engage properly with the pursuer’s appeal, misleading her about the appeals process, and acting evasively.
• The insurer’s internal procedures and witness evidence were unreliable, influenced by legal agents, and did not justify avoidance of the policy.

Defender's Arguments

• The insurer argued that the insured made qualifying misrepresentations by denying he had suffered from disorders of the digestive system and liver and by providing inaccurate answers about blood tests.
• The questions on the proposal form were clear, specific, and unambiguous, requiring disclosure of any disorder, including Barrett’s Oesophagus and abnormal liver function.
• The insurer relied on the Consumer Insurance (Disclosure and Representations) Act 2012 which replaced prior duties with a statutory duty to take reasonable care not to make misrepresentations.
• Medical and underwriting evidence established that the insurer would not have entered into the contract but for the misrepresentations.
• The insurer had returned premiums as required for careless misrepresentations and was entitled to avoid the policy and refuse the claim.
• The insurer’s conduct in handling the claim and appeal did not amount to a breach of the duty of utmost good faith sufficient to disqualify it from exercising statutory remedies.
• The insurer’s retrospective underwriting evidence, supported by reinsurer guidelines, demonstrated that disclosure of the relevant medical conditions would have led to refusal of cover.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by construing the proposal form questions objectively, applying the Consumer Rights Act 2015 section 69 and statutory principles. It found that the phrase "apart from any condition you have already told us about" was ambiguous, allowing two reasonable interpretations: either referring only to disclosures within the current proposal form or to any prior disclosures made by the insured. Applying the consumer-favouring construction, the court held it referred to any prior disclosures, which benefited the insured.

The court determined that "disorder" would be understood by a reasonable consumer as any dysfunction or abnormality of the specified organs, irrespective of medical diagnosis or cause. The word "including" introduced an open, non-exhaustive list of examples, not a closed list limiting the scope of disclosure. Thus, the insured was obliged to disclose any disorder of the digestive system, liver, or oesophagus, including Barrett's Oesophagus.

On the facts, the court found that the insured had suffered from Barrett's Oesophagus within the relevant five-year period and had abnormal liver function tests within the relevant two-year period. His denials in the proposal form were objectively untrue and constituted misrepresentations. The insured failed to take reasonable care in answering the questions, breaching the statutory duty under the 2012 Act.

The court rejected the pursuer’s argument that the insurer was aware of prior medical history and thus any further disclosure was unnecessary, noting that the insurer had chosen to implement an automated underwriting process which did not cross-check previous information. The insured’s profession as a lawyer was given no weight in assessing reasonable care.

The insurer’s retrospective underwriting evidence, supported by reinsurer guidelines, established on the balance of probabilities that but for the misrepresentations, the insurer would not have entered into the contract at all. The court accepted the evidence that disclosure of Barrett's Oesophagus without regular surveillance or abnormal liver function test results would have led to refusal of cover.

Regarding the nature of the misrepresentations, the court found the misrepresentation about Barrett’s Oesophagus to be careless rather than deliberate or reckless, due to the lapse of time and reasonable possibility of mistake. The misrepresentation about liver function tests was also found to be careless, with no evidence to establish deliberate or reckless conduct.

The court considered whether the insurer breached any duty of utmost good faith in handling the claim and appeal. It found that although the insurer’s conduct was evasive, misleading, and below expected administrative standards, there was no evidence of dishonesty or malicious intent that would disentitle the insurer from exercising its statutory remedies. The court rejected the pursuer’s submission that the insurer’s change of position on grounds for avoidance amounted to bad faith, accepting established legal principles allowing an insurer to rely on any ground justifying termination.

The court held that the statutory remedies under the 2012 Act were not subject to equitable or common law restrictions based on insurer conduct, and that the insurer’s breaches of good faith did not preclude it from avoiding the contract on the basis of qualifying misrepresentations.

Finally, the court emphasized that the insurer’s decision to avoid the contract and refuse the claim was lawful and supported by evidence, and that the pursuer’s claim for payment under the policy must fail.

Holding and Implications

The court's final decision was to GRANT DECREE OF ABSOLVITOR, sustaining the insurer's plea-in-law and repelling the pursuer's pleas.

This ruling means the insurer was entitled to avoid the life assurance contract on the basis of the insured's qualifying misrepresentations made without reasonable care, and to refuse the claim accordingly. The insurer had already refunded premiums in accordance with the statutory scheme for careless misrepresentations. The decision does not establish any new precedent beyond the application of the Consumer Insurance (Disclosure and Representations) Act 2012 and relevant principles of contractual interpretation and insurer duties of good faith. The pursuer’s claim for payment under the policy is dismissed.