Lord Bingham of Cornhill
(delivered the judgment of the Board)
The issue in this appeal is whether the respondent company ("the insurer") was entitled to repudiate liability to the appellant, Mr. Zeller, under a health insurance contract made between Mr. Zeller's employer and the insurer. At trial in the Grand Court, Levers J held that the policy, so far as it related to Mr. Zeller, was voidable for non-disclosure. She accordingly dismissed his claim and gave judgment for the insurer on its counterclaim on 7 March 2005. Her judgment was upheld by a majority of the Court of Appeal of the Cayman Islands (Zacca P and Forte JA, Taylor JA dissenting) on 22 July 2005. Mr. Zeller challenges that decision, and claims to be indemnified under the policy.
Mr. Zeller is a United States citizen born on 30 October 1951. In November 2001 he moved from the United States to Grand Cayman to work for Pool Patrol Limited. He had spent his working life up to then in the swimming pool business in the US and was fully insured under a health insurance contract with no exclusions. He moved to Grand Cayman because his hobbies were scuba diving and sailing, and Grand Cayman seemed to him the ideal place to pursue those activities in addition to holding down a good job. Cayman law, subject to certain exceptions, provides that an employer shall effect and continue a standard health insurance contract on behalf of each of its employees. Mr. Zeller accordingly sought to be covered by his employer's group policy. His evidence was that had health insurance cover not been available to him in Grand Cayman he would probably never have moved there, but he would in any event have maintained his existing cover, which it was open to him to do.
To be included in his employer's contract it was necessary for Mr. Zeller to complete the insurer's "Group Enrollment Information Form with a Health Questionnaire". He filled in the form showing himself to be a tall, single man seeking individual inclusion. He disclosed details of his existing health policy.
The Health Questionnaire was divided into three sections. Section A, drafted in terms appropriate for an individual or a family proposal, was prefaced by a direction:
Check each item Yes or No .... To the best of your knowledge and belief, has any person named in this application had, within the last seven years, or does such person now have, any of the following?
There follows a list of specified medical conditions (a) to (o), mostly described in untechnical language, with beside each a box in which to signify Yes or No. Examples are (a) "Cancer, tumor or other growth" and (f) "Substance abuse (drugs or alcohol dependency, abuse or addiction)". Relevant for present purposes are "(d) Goiter, thyroid trouble, diabetes", against which Mr. Zeller signified Yes and wrote in "Thyroid", and (k) "heart trouble, abnormal blood pressure (hypertension or hypotension), anaemia, rheumatic fever", against which Mr. Zeller signified No.
Section B was prefaced by a direction: "In addition to the conditions listed in Section A, to the best of your knowledge and belief, within the past five years, has any person named in this application ...." Three questions follow, (a) (b) and (c), with in each case a box in which to signify Yes or No.
Question (a) was: "Had a physical examination?" To this question Mr. Zeller signified "Yes".
Question (b) was: "Excluding physical examinations, consulted a physician, health care provider, or other individual or facility for medical or surgical treatment, advice, or screening for any condition not listed in Section A?" Mr. Zeller signified "No".
Question (c) was: "Had any departure from good health not previously mentioned in any of the above questions for which treatment or advice may or may not have been sought?" Mr. Zeller again signified "No".
Section C was prefaced by a direction: "If you have checked "Yes" to any part of Section A or Section B, please provide complete information on this Section and provide medical report (if you need more space please attach a separate sheet of paper)". There followed a box with several columns. In the first Mr. Zeller gave his name. In the second (headed "Diagnosis and Treatment") he entered "Thyroid (hypo)". In the next two columns he gave the dates of treatment as from 1980 to the present. In the last column (headed "Physician's Name and Address or Hospital's Name and Address") he mistakenly entered the prescription for the medication prescribed for his thyroid condition.
Applicants were instructed to read carefully, sign and date the next section, which provided:
IT IS UNDERSTOOD AND AGREED THAT:
IMPORTANT: PLEASE VERIFY THAT ALL THE INFORMATION ON THIS APPLICATION IS PROVIDED. ALL INCOMPLETE APPLICATIONS WILL BE RETURNED TO THE APPLICANT FOR MORE INFORMATION, THIS WILL CAUSE A DELAY IN THE PROCESS OF ENROLLMENT.
The form concluded:
I hereby authorize my employer to deduct from my earnings, at such intervals as agreed upon, such amount needed to cover my contribution toward the premium charges for the coverage applied for. And I certify that all data furnished on the front and back of this form is true to the best of my knowledge [sic]
Mr. Zeller and a representative of his employer signed the form on 21 November 2001. Mr. Zeller was included in the group scheme as from 1 December 2001, with an exclusion of his hypothyroidism and all related conditions.
On 28 December 2001 Mr. Zeller was examined by Dr Madden for immigration purposes. He found him to be in good health, with no evidence of cardiac valve disease and normal blood pressure. Until March 2003 Mr. Zeller lived a full and active life, indulging his hobby of free diving to a depth of 70 feet. In that month Mr. Zeller visited Dr Last, his general practitioner in Grand Cayman, to obtain a repeat of his thyroid medication. Because it was his first visit she examined him and heard a loud heart murmur. She was concerned, examined him again a few days later, and referred him to a local cardiologist. Further referrals to a physician (Dr Coy) and a surgeon (Dr Lamelas) in Miami followed, and culminated in May 2003 in major surgery to replace the aortic valve and effect a complex repair to the mitral valve of Mr. Zeller's heart. This surgery was successful, but very expensive, and Mr. Zeller sought payment of the medical and hospital charges by the insurer.
For reasons which are obscure, both Dr Coy and Dr Lamelas made reports in which they referred to Mr. Zeller as having "a history of aortic and mitral valve regurgitation" and a "long history of known valvular pathology". These statements were not true and were corrected, but it appears that they prompted the insurer to make a detailed investigation of Mr. Zeller's medical history before November 2001. It obtained from Mr. Zeller's US doctor, Dr Pecsok, the notes which he had made at a number of consultations from 1997-2001 but which Mr. Zeller had never seen. It read these notes as identifying five medical conditions: hypothyroidism, elevated cholesterol, heart murmur, elevated blood pressure and a fifth condition which has never been pleaded or relied on even though, as it seems, it featured in the insurer's decision to avoid. Mr. Zeller's disclosure of his thyroid condition was noted, but the insurer's draft internal memorandum of its decision to cancel stated that had he disclosed conditions 2-5 his application would have been rejected. The view was expressed that "Mr. Zeller was disingenuous in statements made on the enrolment form and he did not disclose medical conditions for which he was diagnosed and received treatment". On 24 December 2003 the insurer wrote to Mr. Zeller to repudiate liability to him under his employer's policy, but neither then, nor at any time before its defence in these proceedings, did the insurer identify in writing the grounds upon which it was relying.
Mr. Zeller issued proceedings seeking indemnification under his employer's group policy. The insurer served a defence and counterclaim dated 4 May 2004. In this (para 3) it put Mr. Zeller's good faith in issue. It pleaded (para 4) that it had been induced to include him in the cover by representations
that he did not suffer and had not within the previous 7 years suffered from heart trouble or abnormal blood pressure (including hypertension),
that he had not within the previous 5 years consulted a physician, health care provider, or other individual or facility for medical or surgical treatment, advice or screening for any condition not listed in section A of the application form,
that he had not within the previous 5 years had any departure from good health not previously mentioned in the form, whether or not treatment for such departure had been sought, and
that the statements and answers in the form were complete and correct to the best of his knowledge and belief.
These representations were said to be material because they would have influenced the judgment of a prudent insurer in fixing the premium or deciding whether to accept the risk, and did influence the insurer in deciding to accept the risk. The representations were said (para 6) to be untrue, because Mr. Zeller had in the 7 years before signing the form had a heart murmur, high blood pressure and hypocholesterolemia and had consulted a physician in respect of the latter condition. He had had a departure from good health in respect of hypocholesterolemia and, if heart murmur and hypertension did not fall within the ambit of question A(k) in the form, all three conditions (of which he was aware) were a departure from good health. In the alternative, the insurer pleaded that Mr. Zeller had failed to disclose these matters, which were known to him but not to the insurer and material in the sense already pleaded. Therefore, it was said, the insurer had been entitled to avoid the policy, as it had.
Dr Pecsok's notes, in evidence at the trial, record some 11 consultations between Mr. Zeller and the doctor between June 1997 and November 2001, just before Mr. Zeller's departure for Grand Cayman. These notes suggest that Dr Pecsok was an assiduous and thorough practitioner, but he did not give evidence and Mr. Zeller's evidence was that he did not see the notes and did not know what the doctor wrote down. The only evidence of what the doctor communicated to the patient was given by Mr. Zeller. Some of these consultations were wholly or mainly devoted to complaints which, it is accepted, are of no present relevance: sinusitis, sore throats, congestion of the head and a boil. About six of these consultations concerned Mr. Zeller's thyroid condition, and were made to obtain a fresh supply of medication. On most of these occasions his cholesterol level was checked. It was described sometimes as "elevated" and on occasion as "high", and he was warned of the dangers of high cholesterol, of which there was some family history. He was advised on his diet and to take exercise, but no medication and no treatment were ever advised. According to Mr. Zeller, he only went to see the doctor about his thyroid, and the doctor then took a sample of blood and checked the cholesterol, about which he (Mr. Zeller) was not anxious. He said in his statement that his cholesterol level had never been high enough for the doctor to be particularly concerned, and it never occurred to him to disclose that his cholesterol level was slightly above normal. On two of these consultations (in November 1998 and February 1999) the doctor detected a heart murmur, described in the notes on the latter occasion as "asymptomatic". On all other occasions, including that immediately before his departure, no murmur was heard. Dr Pecsok advised Mr. Zeller to take an antibiotic if he had dental work done, but Mr. Zeller did not understand him to be worried. On two occasions (November 1998 and June 1999) the doctor noted that Mr. Zeller's blood pressure was elevated. No medication was suggested, and according to Mr. Zeller it never caused a problem. In a letter written in October 2003 Dr Pecsok confirmed that no action had been taken since Mr. Zeller had been asymptomatic and the murmur had not sounded significant. He had a physical examination before leaving and was told he was in good health.
The trial judge understood the insurer's case at trial to be
that it had been induced to make the contract by representations made by Mr. Zeller in the application form which were misleading, and
that Mr. Zeller had not been totally honest in the information given to it.
The insurer alleged that the heart murmur and the high cholesterol level were pre-existing conditions, and had it known of these conditions, "one in conjunction with the other", it would not have taken the risk of insuring Mr. Zeller. It was the insurer's case that Mr. Zeller had been dishonest in knowingly giving untrue answers to the questions in the form, and that these were material, although the insurer accepted that an insurer would have taken the risk of his cholesterol level if that had been his only problem.
Having reviewed the law and the parties' competing submissions, the judge defined what she regarded as "the real question in issue": whether Mr. Zeller, if he honestly believed he was answering the questions truthfully, was guilty of misrepresentation and/or non-disclosure. The judge roundly dismissed the relevance of the raised blood pressure, but found that the high cholesterol and the heart murmur, not disclosed to the insurer, were material and had induced the insurer to accept the risk. It was not enough that Mr. Zeller believed that his medical condition did not require any great medical attention; to exonerate him there had to be reasonable grounds for his belief. She found the questions in the form to be unambiguous and Mr. Zeller was guilty of non-disclosure.
The majority judgment in the Court of Appeal was given by Forte JA, with whom Zacca P agreed. He thought it unnecessary to decide whether the heart murmur was "heart trouble" within question A(k) on the form, but differed from Taylor JA on section B. That was directed to ascertaining whether an applicant had any medical history, not covered in section A, relevant to the insurer's acceptance of the risk. In section B Mr. Zeller had disclosed that he had had a physical examination, but had not revealed the heart murmur and the raised level of cholesterol. He could not honestly say that he did not know that these matters had been diagnosed. A reasonable person acting in the utmost good faith would have disclosed this information, and it was irrelevant whether he believed they were diseases or illnesses.
Taylor JA noted that there was no evidence to connect either the heart murmur or the raised cholesterol level with the heart problem for which Mr. Zeller had ultimately had to undergo surgery, and that the insurer's complaint about raised blood pressure had not been pursued on appeal. There was, he observed, no suggestion that Mr. Zeller had had any obligation of disclosure beyond responding to the questionnaire completely and correctly to the best of his knowledge and belief. His evidence was that except for his thyroid condition, which had been effectively controlled by medication, his health had been excellent, as evidenced by his engagement in extreme sports. It must on the evidence be concluded that Mr. Zeller had not believed that what he had been told by his doctor of his heart murmur and cholesterol level was information of the type the questionnaire sought. Taylor JA analysed the form, and in particular section C, with care and reviewed Mr. Zeller's medical history. He noted that the relevant physical examinations appeared to be prompted by Mr. Zeller's need for medication for his thyroid condition. He concluded that Mr. Zeller was not required to answer question B(b) affirmatively, since that was concerned only with consultations not associated with physical examinations, and that the heart murmur and cholesterol level did not represent a departure from good health for purposes of question B(c). The difficult question of whether the insurer's form called for disclosure of these conditions of which Mr. Zeller had been informed turned in the end, Taylor JA held, on whether these would appear to the reasonable reader in his position to be matters to which the questionnaire was addressed. He did not think it likely that elevated cholesterol and a heart murmur would be regarded by an ordinary applicant in Mr. Zeller's position as in itself amounting to a sickness, illness or disease from which he or she had been diagnosed to be suffering. The murmur which the doctor had heard on two occasions did not cause the doctor to regard further investigation as necessary. The suggestion that Mr. Zeller take an antibiotic before dental surgery was precautionary and made on no scientific basis. The doctor had not pursued the issue of Mr. Zeller's cholesterol readings. Taylor JA found that the two material findings were not covered by any of the insurer's questions and it had waived disclosure of them. On a correct reading of the form Mr. Zeller was guilty neither of misrepresentation nor non-disclosure.
The insurer's case has narrowed in the course of the litigation. The fifth condition listed in the insurer's internal memorandum has never been mentioned. Reliance on high blood pressure has been abandoned. Its complaint of misrepresentation has not been upheld. Thus its complaint is that Mr. Zeller did not disclose his heart murmur and his raised level of cholesterol which are said, in conjunction, to have been material and to have induced the insurer to contract. The trial judge resolved these issues of materiality and inducement in favour of the insurer, and there was evidence to support her finding which, although criticised by Mr. Alan Turner for Mr. Zeller, must stand. Thus the appeal turns on non-disclosure.
Ms Sandie Corbett, for the insurer, relied on two very well-settled principles of insurance law: that the duty of disclosure of material facts (the rule of uberrima fides or utmost good faith) applies to all classes of insurance, and that the question in every case is whether the fact not disclosed was material to the risk, and not whether the insured, reasonably or otherwise, believed it to be so. In support of this submission she relied on such classical authorities as Brownlie v Campbell (1880) 5 App Cas 925, 954, Bates v Hewitt (1867) LR 2 QB 595, 607 and Zurich General Accident and Liability Insurance Co Ltd v Morrison  2 KB 53, 64-65.
It is unnecessary to rehearse these authorities in detail, since it is clear in the Board's opinion that the basis of this contract, as it affected Mr. Zeller, was that the statements made by Mr. Zeller in the application form were true to the best of his knowledge and belief. This was expressly stated three times in the form, and the incompleteness of the statement at the very end of the form seems likely, having regard also to the absence of punctuation, to be attributable to a typographical error. It was not stated in the form, as is often done, that the applicant's warranty that his answers were true to the best of his knowledge and belief was to be the basis of the contract, but that was plainly to be understood. Ms Corbett drew attention to the parenthesis in condition (b) at the end of the form (see para 7 above: "if such statements are fraudulent or material to the acceptance of this application"), but this immediately follows a warranty of correctness to the best of the applicant's knowledge and belief. It cannot, consistently with the rest of the form, be read as entitling the insurer to cancel the policy if a material fact is not disclosed despite the applicant answering the insurer's questions fully to the best of his knowledge and belief. Thus the judge was right to regard the real question as being whether Mr. Zeller, if he honestly believed he was answering the questions truthfully, was guilty of non-disclosure, and Ms Corbett was correct to tie her submissions, as she expressly did, to the questions Mr. Zeller answered. This approach is entirely consistent with that of the Court of Appeal of England and Wales in Economides v Commercial Assurance Co Plc  QB 587, 598, 599, where the duty of the applicant was held to be one of honesty.
It is therefore necessary to return to the form. In section A Mr. Zeller disclosed his thyroid condition in answer to question (d). It is not now suggested that he should have given an affirmative answer to question (k), referring to "heart trouble". This concession is rightly made. No one in Mr. Zeller's position would regard himself as suffering or having suffered from heart trouble: his heart had given him no trouble at all. Nor, as is accepted, should he have given an affirmative answer to "abnormal blood pressure (hypertension or hypotension)".
No complaint can therefore be made of Mr. Zeller's response to the questions in section A. That is of some significance, since section B makes clear that it is directed to information "in addition to the questions in section A". The first question asked whether the applicant had had a physical examination. He answered, quite correctly, that he had. No particulars of any physical examination were sought at that point. Question (b) was expressly framed so as to exclude the result of physical examinations. It asked, in effect, whether the applicant had consulted a doctor for any condition not listed in section A. Read literally, this question would have required Mr. Zeller to disclose his consultations of Dr Pecsok about his sinusitis, his sore throats, and his boil, but Ms Corbett did not suggest that the question invited disclosure of minor complaints such as these. This must, in the Board's opinion, be so. As Fletcher Moulton LJ said in Joel v Law Union and Crown Insurance Co  2 KB 863, 884:
But the question always is, was the knowledge you possessed such that you ought to have disclosed it? Let me take an example. I will suppose that a man has, as is the case with most of us, occasionally had a headache. It may be that a particular one of those headaches would have told a brain specialist of hidden mischief. But to the man it was an ordinary headache undistinguishable from the rest. Now no reasonable man would deem it material to tell an insurance company of all the casual headaches he had had in his life, and, if he knew no more as to this particular headache than that it was an ordinary casual headache, there would be no breach of his duty towards the insurance company in not disclosing it. He possessed no knowledge that it was incumbent on him to disclose, because he knew of nothing which a reasonable man would deem material or of a character to influence the insurers in their action.
Thus the applicant is expected to exercise his judgment on what appears to him to be worth disclosing. He does not lose his cover if he fails to disclose a complaint which he thought to be trivial but which turns out later to be a symptom of some much more serious underlying condition. It is, however, clear that question (b) is directed to conditions, not listed in section A, about which the applicant had consulted a doctor. On this point Mr. Zeller's evidence was clear and uncontradicted. Apart from the trivial complaints just mentioned, he had consulted his doctor about his thyroid condition and nothing else. On these attendances by Mr. Zeller, usually made to renew the prescription for his thyroid condition, the doctor had taken blood and taken the opportunity to give him an overall check, but he had not consulted the doctor about anything other than the thyroid condition and had not in any event understood the results to be significant. It appears to the Board that Mr. Zeller's negative answer to question (b) was true; there is no ground for holding that it was not true to the best of his knowledge and belief. Question (c) was framed so as to elicit disclosure of any departure from good health not previously mentioned in section A or in answer to questions B(a) and (b). Thus the thyroid condition was excluded, because disclosed in answer to A(d). The minor ailments were excluded, because properly not disclosed in answer to B(b). Should he, then, have disclosed the heart murmur and the raised cholesterol level as a departure from good health? The answer must be Yes if he so regarded them or should so obviously have so regarded them as to throw doubt on the truthfulness of a negative answer. The answer is No if he genuinely did not know and honestly did not believe that they amounted to a departure from good health. On this point the evidence is clear: thyroidism and minor ailments apart, he honestly believed himself to be and to have been in excellent health. He had never taken any medication for either the heart murmur or the raised cholesterol level, nor been treated in any other way. There is no suggestion he had ever been off work for either condition. His doctor had given him a clean bill of health on his departure to Cayman. He plainly believed himself to be in excellent health, as evidenced by his life-style. Question (c) did not call for an affirmative answer.
Section C calls for elaboration of any affirmative answer given in sections A and B and so, in this case, of Mr. Zeller's thyroid condition and physical examination. His answers here were defective because although he disclosed "thyroid (hypo)" as the diagnosis he gave details of the treatment, namely his medication, in a box where his physician's name and address should have been given. He did, however, indicate that the diagnosis was of long standing, and a reader would infer that there had been physical examinations from time to time over the 20 year period mentioned. Mr. Zeller did not provide a medical report, but he had none to provide, Dr Pecsok's notes, later obtained, not being a report. But plainly the insurer could have asked for a report and for disclosure of Mr. Zeller's physician's name and address had it wanted it. As it was, the insurer was content to exclude cover for Mr. Zeller's thyroid condition without further enquiry. Summary though it was, Mr. Zeller's answer to section C was true to the best of his knowledge and belief, and there is no basis in the evidence for a contrary conclusion.
For these reasons, essentially those of Taylor JA, the Board concludes that Mr. Zeller answered the insurer's questions completely and correctly to the best of his knowledge and belief. He was not in breach of his warranty which was the basis of his inclusion in the employer's policy, and the insurer was not entitled to repudiate liability in respect of him under the policy. The Board will accordingly advise Her Majesty that the appeal should be allowed, the judge's order set aside and a declaration made that the notice of cancellation of his insurance cover sent by the insurer to Mr. Zeller on 24 December 2003 was invalid and of no legal effect. The counterclaim is dismissed. The insurer must pay Mr. Zeller his costs before the Board and in the courts below. The Board gives liberty to apply to the Grand Court should any question arise in giving effect to this order.
Brownlie v Campbell (1880) 5 App Cas 925
Bates v Hewitt (1867) LR 2 QB 595
Zurich General Accident and Liability Insurance Co Ltd v Morrison  2 KB 53
Economides v Commercial Assurance Co Plc  QB 587
Joel v Law Union and Crown Insurance Co  2 KB 863
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