29/10/2013 18:11Non-disclosure and Misrepresentation← Essential reading

Doctrines and Principles, chapter 4 ‘Utmost good faith: the duty of disclosure and misrepresentation’

Cases and Materials, chapter 4, ‘The duty of disclosure and misrepresentation’

The Law Commission Report No 319 and the Scottish Law Commission Report No 219, Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation

The Law Commission Consultation Paper No 204 and the Scottish Law Commission Discussion Paper No 155, Insurance Contract Law: The Business Insured's Duty of Disclosure and the Law of Warranties

←← Selected further reading

Merkin, Colinvaux and Merkin’s Insurance Contract Law (London, Sweet & Maxwell)

Eggers, Picken & Ross, Good Faith and Insurance Contracts (London, LLP)

Clarke, Policies and Perceptions of Insurance Law in the Twenty-First Century (Oxford, OUP)

Forte (ed) Good Faith in Contract and Property Law (Oxford, Hart Publishing, 1999).

Hasson, “The Doctrine of Uberrimae Fides in Insurance Law - A Critical Evaluation” [1969] MLR 615

Brooke QC, "Materiality in insurance contracts" [1985] LMCLQ 437 Diamond QC, "The law of marine insurance--has it a future?" [1986]

LMCLQ 25 Steyn J "The Role of Good Faith and Fair Dealing in Contract Law: A

Hairshirt Philosophy?" [1991] Denning LJ 131, 138 Bennett, "The Duty to Disclose in Insurance Law" [1993] LQR 513 Bennett, ‘Mapping the doctrine of utmost good faith in insurance

contract law’ [1999] LMCLQ 165 Clarke, "Failure to Disclose and Failure to Legislate: is it Material? - II"

[1988] JBL 298 Birds and Hird, “Misrepresentation and non-disclosure in insurance law –

identical twins or separate issues” [1996] MLR 285

Matthews, “Uberrima Fides in Modern Insurance Law” in F.D. Rose (ed), New Foundations For Insurance Law, Current Legal Problems (London, Stevens & Son, 1987)

Yeo, “Of Reciprocity and Remedies: Duty of Disclosure in Insurance Contracts” [1991] LS 131

Law Commission Report No 104, Insurance Law – Non-Disclosure and Breach of Warranty, Cmnd 8064 (London, HMSO, 1980)

The Australian Law Reform Commission Report No 20, Insurance Contracts (1982): Chapter 6 Non-disclosure and Misrepresentation

←← (Australian) Insurance Contracts Act 1984 (as amended), Part IV—Disclosures and misrepresentations

Tarr and Tarr, “The insured’s non-disclosure in the formation of insurance contracts: a comparative perspective” [2001] ICLQ 577

Insurance Law Reform – The consumer case for a review of insurance law (London, NCC, 1997)

Sir Andrew Longmore, “An Insurance Contracts Act for a new century?” [2001] LMCLQ 356

Report of the Sub-Committee of the British Insurance Law Association, Insurance Contract Law Reform (London, Centre for Financial Regulation Studies London Guildhall University, 2002)

Hird, “Pan Atlantic – Yet More To Disclose” [1995] JBL 608 Forte, “The revised Statements of Insurance Practice: cosmetic change or

major surgery” [1986] MLR 754.← ________________________________________________________________←← Introduction← Contracts uberrimae fidei (of utmost good faith): ←← See s 17 of the Marine Insurance Act 1906 (hereafter, MIA 1906) states that: ←← “A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith is not observed by either party, the contract may be avoided by either party.” ←

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← The effect of s 17?←← See Lord Mansfield CJ’s classic formulation (codified by the MIA) in Carter v Boehm (1766) 3 Burr 1905 (Cases and Materials, pp 130-131)←← The fusion of the disclosure duty with the duty not to misrepresent material facts: see ← HIH Casualty and General Insurance Co v Chase Manhattan Bank [2003] Lloyd’s Rep IR 230 ← NB M. Clarke, “Rescission: Inducement sand Good Faith” [2004] CLJ 286).←← NB the distinctions: ←← 1. non-disclosure is concerned with the insured’s duty to volunteer material facts; ← 2. misrepresentation concerns the insured’s duty to accurately answer questions raised by the insurer which are generally contained in proposal forms (if the insured’s answers are made the “basis of the contract” they are converted into warranties in which case the issue of misrepresentation does not arise (see Terms)← 3. finally, traditionally, for non-disclosure the law did not distinguish between innocent, negligent and fraudulent intent whereas, as we shall see, for misrepresentation the categorization can be crucial in terms of the remedies available. ←← NB the limits on the scope of the duty of disclosure see Lord Mansfield’s speech (above) - :←← ‘The underwriter knew the insurance was for the governor. He knew the governor must be acquainted with the state of the place. He knew the governor could not disclose it, consistently with his duty. He knew the governor, by insuring, apprehended, at least, the possibility of an attack. With this knowledge, without asking a question, he underwrote. By so doing, he took knowledge of the state of the place upon himself. It was a matter, as to which he might be informed in various ways: it was not a matter, within the private knowledge of the governor only.’←← See now section 18 of the Marine Insurance Act 1906. The law governing misrepresentation is contained in section 20 of the Act. ←← ‘Section 18 Disclosure by assured

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← (1) Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. If the assured fails to make such disclosure, the insurer may avoid the contract.← (2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk [emphasis added; the “prudent insurer” test was first formulated by Blackburn J in Ionides v Pender (1874) LR 9 QB 531].← (3) In the absence of inquiry the following circumstances need not be disclosed, namely:← (a) Any circumstance which diminishes the risk;← (b) Any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know;← (c) Any circumstance as to which information is waived by the insurer;← (d) Any circumstance which it is superfluous to disclose by reason of any express or implied warranty.← (4) Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question of fact.’←← ‘Section 20 Representations pending negotiation of contract← (1) Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it be untrue the insurer may avoid the contract.← (2) A representation is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk…’←← Insurance intermediaries (agents or brokers) have a separate duty of disclosure to the insurer (see s 19, MIA 1906). The agent’s duty has two limbs. ← s/he must disclose every material circumstance actually known to him/her or which in the ordinary course of business ought to be known by, or to have been communicated to, him/her. ← s/he must disclose every material circumstance which the assured is bound to disclose (unless it comes to the knowledge of the insured too late). ←← But note waiver: s 18(3) and s 19 of the MIA 1906 (considered below).←

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← See HIH Casualty and General Insurance Co v Chase Manhattan Bank [2003] Lloyd’s Rep IR 230; and Hazel v Whitlam [2005] Lloyd’s Rep IR 168.← ___________________________________________________________________________← Activity← Read Lord Hobhouse’s speech in HIH Casualty and General Insurance Co v Chase Manhattan Bank [2003] Lloyd’s Rep IR 230 and the judgment of judgment of Channell J in Re Yager (1912) 108 LT 28.← What is the policy underlying the duty of disclosure?← ___________________________________________________________________← THE DUTY TO DISCLOSE MATERIAL FACTS ← When does the duty of disclosure arise?← For modification or extension or variation of contract see Lishman v Northern Maritime (1875) LR 10 CP 179, Blackburn J stated that if:←← ‘the alteration were such as to make the contract more burdensome to the underwriters, and a fact known at that time to the insured were concealed which was material to the alteration, I should say the policy would be vitiated. But if the fact were quite immaterial to the alteration, and only material to the underwriter as being a fact which shewed that he made a bad bargain originally, and such as might tempt him, if it were possible, to get out of it, I should say there would be no obligation to disclose it.’ ←← With respect to new insurance? Pim v Reid (1843) 6 Man & G 1 ←← Whether or not the duty of disclosure has been discharged will be assessed at what point in time?←← Shaw v Roberts (1837) 6 Ad & E 75). Whether or not there is a post-contractual duty of good faith is considered below. ←← ‘Basis of contract clauses’← Effect of such a term?← The truth and accuracy of the insured’s answers will be conditions precedent to the validity of the contract ← Consequence?←

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← Determining the materiality of facts← As seen above, s 18 of the MIA 1906 states:← ‘that the insured ‘is deemed to know every circumstances which, in the ordinary course of business, ought to be known to him’ and ← ‘every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.’←← The test of the prudent insurer means that the test is objective. ←← It is a question of fact whether or not a fact is one that should be known to the insured in the ordinary course of business (see Economides v Commercial Union Insurance plc [1998] Lloyd’s Rep IR 9, below (Cases & Materials, pp179-182). ←← ‘you cannot disclosure what you do not know’ (Joel v Law Union and Crown Insurance [1908] 2 KB 863, per Fletcher-Moulton LJ (Cases & Materials, p 158); see also, Economides v Commercial Union Insurance plc (above)).←← Container Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1984] 1 Lloyd’s Rep 476 (CA) (Cases & Materials, pp 133-134), Kerr LJ explained that:←← ‘[s 18(2)] is directed to what would have been the impact of the disclosure on the judgment of the risk formed by a hypothetical prudent insurer in the ordinary course of business…He is in a hypothetical position, and evidence to support the materiality of the undisclosed circumstance, from this point of view, is therefore often given by an independent expert witness whose evidence has to be assessed by the Court long after the event…← The weight which the Court would give to such evidence is then a matter for the Court…

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← …It follows that when [the relevant provisions of the 1906 Act] are read together, one way of formulating the test as to the duty of disclosure and representation to cases such as the present…is simply to ask oneself: “Having regard to all the circumstances known or deemed to be known to the insured and to his broker, and ignoring those which are expressly excepted from the duty of disclosure, was the presentation in summary form to the underwriter a fair and substantially accurate presentation of the risk proposed for insurance, so that a prudent insurer could form a proper judgment – either on the presentation alone or by asking questions if he was sufficiently put on enquiry and wanted to know further details – whether or not to accept the proposal, and, if so, on what terms?”. This is not an onerous duty for brokers to discharge in practice. Nor was it at all difficult in the present case.’←← What is the test of materiality? Materiality is to be determined by whether the fact in question was one which might influence the judgment of the prudent insurer in deciding whether or not to accept the risk or in setting the premium. ←← NB no decisive influence test!←← Proving materiality← Yorke v Yorkshire Insurance Co Ltd [1918-19] All ER Rep 877, per McCardie J; and Roselodge Ltd v Castle [1966] 2 Lloyd’s Rep 113← Reynolds v Phoenix Assurance Co [1978] 2 Lloyd’s Rep 440 (Cases & Materials, p 157)).←← Inducement← Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co [1995] 1 AC 501 (Cases & Materials, pp 137-142 - introducing a subjective test whereby the non-disclosed fact must have induced the underwriter to enter into the insurance contract. ←← Activity ← Read Lord Mustill’s speech in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co [1995] 1 AC 501 (Cases & Materials, pp 137-142). ← Write a short essay, no more than 400 words, explaining his reasoning.← ←← The presumption of inducement← The ebb and flow of the presumption:

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← Marc Rich & Co AG v Portman [1996] 1 Lloyd’s Rep 430 (Cases & Materials, p 145) Insurance Corporation of the Channel Islands v Royal Hotel Ltd [1998] Lloyd’s Rep I R 151 (Cases & Materials, pp 145-146)← Assicurazioni Generali SpA v Arab Insurance Group (BSC) [2003] 1 WLR 577 (Cases & Materials, pp 146-148 – note, in particular, Clarke LJ’s summary of the relevant principles)←

←← Proof of inducement← A question of fact. ← Drake Insurance plc v Provident Insurance plc [2004] Lloyd’s Rep IR 277 ←← NB thevarious comments made in relation to the rigours of the duty of good faith, especially by Rix LJ, eg, ←← ‘It may be necessary to give wider effect to the doctrine of good faith and recognize that its impact may demand that ultimately regard must be had to a concept of proportionality implicit in fair dealing.’ ←← See also, Clarke LJJ and Pill LJ.← Non-disclosure in the proposal form ← An important issue that arises is whether an insurer can be taken to have waived (see section 18(3)(C) of the MIA 1906, above) the right to information by virtue of the way in which questions are framed in the proposal form. ←← NB whether or not there is waiver is a question of construction and in cases of ambiguity the particular question asked will be construed contra proferentum (see Hair v Prudential Assurance Co [1983] 2 Lloyd’s Rep 667, (Cases & Materials, p 148); see also, WISE Underwriting Ltd Agency Ltd v Grupo Nacional Provincial SA [2004] Lloyd’s Rep IR 764 (discussed below))← ________________________________________________________________← Activity← Briefly summarise the case law surrounding s 18(1) and (2) of the MIA 1906.←

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← Categorising Material Facts← Colman J, in Strive Shipping Corp v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Grecia Express) [2002] 2 Lloyd’s Rep 88, rexplained ‘the attribute of materiality of a given circumstance has to be tested at the time of the placing of the risk and by reference to the impact which it would then have on the mind of a prudent insurer.’ Summarising the case law, he said:←← ‘In this connection it is for present purposes necessary to distinguish between three types of circumstances: ← allegations of criminality or misconduct going to moral hazard which had been made by the authorities or third persons against the proposer and are known to him to be groundless; ← circumstances involving the proposer or his property or affairs which may to all outward appearances raise a suspicion that he has been involved in criminal activity or misconduct going to moral hazard but which he knows not to be the case; ← circumstances involving him or his business or his property which reasonably suggest that the magnitude of the proposed risk may be greater than what it would have been without such circumstances.←← Physical hazard← Physical hazard can pose problems especially in life or health insurance because an insured may not be aware that a particular condition is symptomatic of a more serious health risk (see Joel v Law Union and Crown Insurance Co (above), Fletcher-Moulton LJ, (Cases & Materials, p 158)). ←← Cook v Financial Insurance Co Ltd [1998] 1 WLR 1765, (Cases & Materials, pp 158-159)← Excessive consumption of alcohol: Mundi v Lincoln Assurance [2005] EWHC 2678 (Ch)← Moral hazard← This category of material facts relates to the character of the insured. ←← O’Kane v Jones [2004] Lloyd’s Rep IR 389← Insurance Corporation of the Channel Islands v Royal Hotel Ltd (above)← James v CGU General Insurance plc [2002] Lloyd’s Rep IR 206←

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← The case law ← (i) convictions← Roselodge Ltd v Castle [1966] 2 Lloyd’s Rep 113 (Cases & Materials, pp 159-161) ← Schoolman v Hall [1951] 1 Lloyd’s Rep 139 (Cases & Materials, pp 149-151) (For the effect of the Rehabilitation of Offenders Act 1974, s 1, see below).←← Cohen LJ: ‘while the insurers have stipulated that the answers to the fifteen questions [in the proposal form] "shall be the basis of the contract," that only has the effect of preventing any argument as to the materiality of those questions should dispute arise, but it does not relieve the proposer of his general obligation at common law to disclose any material which might affect the risk which was being run, or which might affect the mind of the insurer as to whether or not he should issue a policy…’←← March Cabaret Club & Casino Ltd v London Assurance [1975] 1 Lloyd’sRep 169 (Cases & Materials, pp 161-162). ← Lambert v Co-operative Insurance Society [1975] 2 Lloyd’s Rep 465 (Cases & Materials, p162).← North Star Shipping Ltd v Sphere Drake Insurance plc [2006] EWCA Civ 378

preferred May J in March Cabaret to Forbes J in Reynolds – facts that raise doubts as to the risk

←←← Spent convictions← By virtue of section 4(3) of the Rehabilitation of Offenders Act 1974 an insured is under no duty to disclose a “spent” conviction. A conviction which carries a sentence of two and a half years imprisonment or more can never become spent. Convictions that carry custodial sentences of less than six months become spent after seven years and those that carry sentences of between six months and two and a half years become spent after ten years. Where a conviction is “spent”, section 4(2) of the Act provides that any question in a proposal form regarding previous convictions is to be treated as not referring to such a conviction. However, section 7(3) of the Act confers discretion on the court to admit evidence as to spent convictions if the court is satisfied that ‘justice cannot be done in the case except by admitting it.’ ←← See Reynolds v Phoenix Assurance Co [1978] 2 Lloyd’s Rep 440 (Cases & Materials, pp 167-168)

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←← (ii) Rumours and intelligence← The insured must disclose any material information in his possession that relates to the honesty of an employee given that this may increase the risk to be underwritten. However, ‘idle rumours’ need not be disclosed. ← Brotherton v Aseguradoa Colseguros SA [2003] Lloyd’s Rep IR 758 (Cases & Materials, p 165) ←← (iii) Outstanding criminal charges← Criminal charges that remain outstanding at the time of the proposal must be disclosed. In Brotherton (above), Mance LJ explained that: ← If, at the time of the proposal, a criminal charge had been brought against the insured that he knew he had not committed, he was nevertheless bound to disclose the charge but he was also entitled to adduce evidence showing his innocence. ← If, at the time of the proposal, the insured had been charged with but acquitted of a criminal offence, but he was in reality guilty, that guilt nevertheless remained a material fact.← If, at the time of the proposal, the insured had been charged with and convicted of a criminal offence, but he was in actual fact innocent, it nevertheless remained necessary for him to disclose the conviction although he could attempt to prove his innocence to the insurers.←← (iv) Insurance history: prior refusals and claims record← Glicksman v Lancashire and General Assurance Co Ltd [1927] AC 139 (Cases & Material, pp 168-170) ← Locker and Woolf Ltd v Western Australian Insurance Co Ltd [1936] 1 KB 408 (Cases & Materials, pp 170-171)← See also, London Assurance v Mansel (1879) 41 LT 225 (Cases & Materials, pp170-171).←← ________________________________________________________________← Activity← Read Appeal in Brotherton v Aseguradoa Colseguros SA [2003] Lloyd’s Rep IR 758 (Cases & Materials, pp 165-167). Explain Mance LJ’s reasoning.← _______________________________________________________________←← Facts that need not be disclosed

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← Section 18(3) of the MIA 1906 provides that:← In the absence of inquiry the following circumstances need not be disclosed, namely:--← (a) any circumstance which diminishes the risk;← (b) any circumstance which is known or presumed to be known to the insurer.← The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business as such, ought to know;← (c) any circumstance as to which information is waived by the insurer;← (d) any circumstance which it is superfluous to disclose by reason of any express or implied warranty.←←

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← (a) any circumstance which diminishes the risk ← For example, in fire insurance it is not necessary to disclose that an extensive sprinkler system has been installed. Similarly, an insured need not disclose that comprehensive security measures have been installed to protect the subject matter of the insurance. The court will pay no heed to the argument that such measures suggest that the insured thought the insured vessel was at risk: Decorum Investments Ltd v Atkin, The Elena G [2002] Lloyd’s Rep IR 450. ←← (b) facts within the actual or presumed knowledge of the insurers← As commented above, the MIA 1906 is a codifying statute and Lord Mansfield in his original formulation of the duty of disclosure in Carter v Boehm (1766) 3 Burr 1905 had expressed this qualification. ←← ‘The question therefore must always be whether there was, under all the circumstances at the time 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 risqué understood to be run. The underwriter at London, in May 1760, could judge much better at the probability of the contingency, than Governor Carter could at Fort Marlborough, in September 1759. He knew the success of the operations of the war in Europe. He knew what naval force the English and French had sent to the East Indies. He knew, from a comparison of that force, whether the sea was open to any such attempt by the French. He knew, or might know everything which was known at Fort Marlborough in September 1769, of the general state of affairs in the East Indies, or the particular conditions of Fort Marlborough, by the ship which brought the orders for the insurance. He knew that ship must have brought many letters to the East India Company; and, particularly, from the governor. He knew what probability there was of the Dutch committing or having committed hostilities…’←← See Glencore International AG v Alpina Insurance Co Ltd [2004] 1 Lloyd’s Rep 111, Moore-Bick J commented:←

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← ‘when an insurer is asked to write an open cover in favour of a commodity trader he must be taken to be aware of the whole range of circumstances that may arise in the course of carrying on a business of that kind. In the context of worldwide trading the range of circumstances likely to be encountered is inevitably very wide. That does not mean that the insured is under no duty of disclosure, of course, but it does mean that the range of circumstances that the prudent underwriter can be presumed to have in mind is very broad and that the insured’s duty of disclosure, which extends only to matters which are unusual in the sense that they fall outside the contemplation of the reasonable underwriter familiar with the business of oil trading, is correspondingly limited.’←←←← (c) Any circumstance the disclosure of which is waived by the insurers ← Revell v London General Insurance Co Ltd (1934) 50 Ll LR 114 ← NB contra proferentum as a rule of construction. ←← WISE Underwriting Ltd Agency Ltd v Grupo Nacional Provincial SA [2004] Lloyd’s Rep IR 764 ←← With respect to the issue of waiver under s 18(3) of the 1906 Act, Longmore LJ, with whom Peter Gibson LJ agreed, held that there was no waiver of the duty of disclosure. Reviewing the case law, in particular Container Transport International Inc v Oceanus (above), Longmore LJ thought that: ←← ‘The doctrine of waiver…has therefore come to be invoked in cases where it can be said that, if an insurer does not ask an obvious question, he will have waived disclosure of any material fact which would have been revealed by the answer. That in turn lets in the concept of a prudent insurer since, if such a question would have been obvious to such insurer, the actual insurer cannot be heard to say that such question would not have been obvious to him.’←← NB Rix LJ, dissenting on this issue, placed particular emphasis on the mutuality of the duty of utmost good faith, and stated that the only relevant question was whether the presentation was fair. ←

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← ‘If the question is instead the overriding question: Is the ultimate assessment of GNP’s presentation that it is unfair, or would it be unfair to allow the reinsurers a remedy of avoidance in such a case? I would answer that the presentation was fair, and that it would be unfair to allow reinsurers to take advantage of an error of translation in a case where, on the evidence, an exclusion of watches would seem to have been the obvious solution.’←← An important matter that has come before the courts is the extent to which the parties can exclude or vary the duty of utmost good faith by a contract term. (See the ‘Truth of Statement’ clause in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] Lloyd’s Rep 61, discussed below, in the context of remedies/brokers). ←← (d) any circumstance which it is superfluous to disclose by reason of any express or implied warranty.← Any circumstance, whether material or not, that is incorporated into the policy by way of an express or implied warranty need not be disclosed by the insured (see Terms). Haywood v Rodgers (1804) 4 East 590←

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← Excluding the disclosure duty← Can the parties agree to exclude or limit liability in the event of a breach as with the general law of contract?← See Arab Bank Plc v Zurich Insurance Co (above)

← The scope of such clauses is always a question of construction.← HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] Lloyd’s Rep IR 230 (Cases & Materials, pp 153-156). The policies contained exclusion clauses (termed “truth of statement” clauses) which provided, inter alia, that:← ‘[3]…any misstatement…shall not be the responsibility of the insured or constitute a ground for avoidance of the insurers’ obligations under the Policy’ and that ← ‘[6]…[the insured] will not have any duty or obligation to make any representations, warranty of disclosure of any nature express or implied…’← ‘[7]…and shall have no liability of any nature to the insurers for any information provided by any other parties’ and ← ‘[8]…any such information provided by or non-disclosure by other parties…shall not be a ground or grounds for avoidance of the insurers’ obligations under the Policy…’← ________________________________________________________________←← MISREPRESENTATION← Although the general law of contract (and, of course, tort law) recognizes negligent misrepresentation as distinct, it is now doubtful whether this survives in insurance law following the decision of the Court of Appeal in Economides v Commercial Union [1998] QB 587, considered below; see also, Rendall v Combined Insurance Co of America [2005] EWHC 678). ←← Because misrepresentation is generally subsumed under non-disclosure there has been little judicial consideration of section 2(2) of the Misrepresentation Act 1967. This provision holds the potential to prevent insurers avoiding the contract by granting the court the discretion to award damages in lieu of recission or avoidance. Although this power is unlikely to be exercised in commercial insurance (Highlands Insurance Co v Continental Insurance Co [1987] 1 Lloyd’s Rep 109, see below in the context of remedies), it may assume greater significance in consumer insurance in the light of Economides (below). ←

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← NB in his Annual Report for 1990, para 2.3, the Insurance Ombudsman noted that in consumer insurance most so-called non-disclosures arise via inaccurate answers to questions in proposal forms (in reality, misrepresentations) and that in such cases (by analogy with section 2(2) of the 1967 Act) he would not allow insurers to avoid the policy but restrict them to partially or wholly avoiding a claim. ←← Economides v Commercial Union Assurance Co plc [1998] QB 587 (Cases & Materials, pp 179-182)← Rendall v Combined Insurance Co of America [2005] EWHC 678, Cresswell J held, applying Economides, that in insurance contracts a representation of expectation or belief could not, consistently with s 20(5) MIA 1906, carry with it an implicit representation that it was based on reasonable grounds.←← ________________________________________________________________← Activity← Read Economides v Commercial Union Assurance Co plc [1998] QB 587 (Cases & Materials, pp 179-182). Discuss the reasoning of the Court of Appeal.← ________________________________________________________________←← Non-disclosure and misrepresentation in composite insurance ← In construction insurance, it is not uncommon for one policy to cover the separate interests of a head contractor and all the sub-contractors involved in a building project. Similarly, one policy will often cover the separate interests of a mortgagor and mortgagee in the same property. ←← Issue that arises in co-insurance is whether the non-disclosure or misrepresentation on the part of one co-insured will entitle the insurer to avoid the contract as against all parties (ie. including the innocent co-insureds) or merely against the guilty co-insured. ←← Arab Bank plc v Zurich Insurance Co [1999] 1 Lloyd’s Rep 262 (Cases & Materials, pp 183-191): endorsed by the Court of Appeal in FNCB Ltd v Barnet Devanney (Harrow) Ltd [1999] Lloyd’s Rep IR 459.← ________________________________________________________________← THE DURATION OF THE DISCLOSURE DUTY←

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← We have seen that the duty of disclosure continues up until the insurance contract is concluded. Thus, if a change of circumstance occurs which is material to the risk before the insurers accept the proposal, the insured must disclose it (Looker v Law Union and Rock Insurance Co Ltd [1928] 1 KB 554). The duty also applies to interim insurance (see Formation (cover notes)). ←← As noted above, in the absence of an express term to the contrary, there is no corresponding duty during the currency of the policy: Pim v Reid (1843) 6 M & G 1. Kausar v Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep 154 (Cases & Materials, p 176) ← Hearts of Oak Building Society v Law Union & Rock Insurance Co [1936] 2 All ER 619; see also, Lambert v Co-operative Insurance Society (above).←← But see the Claims seminar re the debate surrounding the post-contract duty←

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← REMEDIES FOR BREACH OF DUTY← Avoidance← See s 17 of the MIA 1906, (above). ←← Effect of avoidance?← Any premium paid is returnable to the insured except in cases of fraud (Chapman v Fraser B.R. Trin 33 Geo III; see s. 84 of the MIA 1906:←← ‘84 (3)(a) Where the policy is void, or is avoided by the insurer, as from the commencement of the risk, the premium is returnable, provided that there has been no fraud or illegality on the part of the assured…’←← NB in Brotherton v Aseguradoa Colseguros SA (above), Mance LJ disagreed with Colman J’s analysis in The Grecia Express (above).← Cf Drake Insurance plc v Provident Insurance plc [2003] Lloyd’s Rep IR 277 ←← waiver by representation or conduct← Insurers may lose their right to avoid the policy by reason of their conduct after the loss has occurred. This can occur either by:← affirmation, or by← estoppel, ←← Affirmation arises where the insurers with full knowledge of the non-disclosure or misrepresentation make it clear to the insured by word or conduct that they do not intend to avoid the contract. Estoppel arises where the insurers’ conduct induces the insured to believe that they do not intend to avoid the contract and the insured has acted accordingly. ←← Moore Large & Co Ltd v Hermes Credit & Guarantee plc [2003] Lloyd’s Rep IR 315 ←← Damages← deceit (Derry v Peek (1889) 14 App Cas 337)← the principle in Hedley Byrne & Co v Heller & Partners [1964] AC 465/the Misrepresentation Act 1967. Section 2(2) of the Misrepresentation Act 1967 also adds: ←

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← Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party. ←← It must be doubted that the discretion conferred by this provision has any role to play in commercial insurance in the light of the remarks made by Steyn J inHighlands Insurance Co v Continental Insurance Co [1987] 1 Lloyd’s Rep 109:←← Where a contract of reinsurance has been validly avoided on the grounds of a material misrepresentation, it is difficult to conceive of circumstances in which it would be equitable within the meaning of s. 2(2) to grant relief from such avoidance. Avoidance is the appropriate remedy for material misrepresentation in relation to marine and non-marine contracts of insurance … The rules governing material misrepresentation fulfil an important “policing” function in ensuring that the brokers make a fair representation to underwriters. If s. 2(2) were to be regarded as conferring a discretion to grant relief from avoidance on the grounds of material misrepresentation the efficacy of those rules will be eroded. This policy consideration must militate against granting relief under s. 2(2) from an avoidance on the grounds of material misrepresentation in the case of commercial contracts of insurance.← ________________________________________________________________←← THE INSURER’S DUTY OF GOOD FAITH←← Lord Mansfield formulated the duty of utmost good faith as being borne by both parties: this is codified by s 17 of the MIA 1906. Thus, the insurer owes a duty of good faith to the insured. ←← Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1990] 2 Lloyd’s Rep 377 (Cases & Materials, pp 173-175 and 177-178)←

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← NB WISE Underwriting Ltd Agency Ltd v Grupo Nacional Provincial SA. (above), Rix LJ’s dissenting judgment - observing that the duty of utmost good faith and, more particularly, its content insofar as it applies to insurers, requires them to play a pro-active role in the disclosure process rather than relying solely upon the insured’s presentation.← See also, Moore-Bick J in Glencore International AG v Alpina Insurance Co Ltd [2004] 1 Lloyd’s Rep 111, stated that:←← ‘The duty of disclosure requires the insured to place all material information fairly before the underwriter, but the underwriter must also play his part by listening carefully to what is said to him and cannot hold the insured responsible if by failing to do so he does not grasp the full implications of what he has been told.’←← Drake Insurance plc v Provident Insurance plc (above), Rix LJ

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29/10/2013 18:11

← The stage of contract determines the level of Good Faith required When placing risk it applies in an onerous manner obligation

to disclose facts←← in Carter v Boehm (1766) 3 Burr 1905

French attack on fort in Sumatra Lord Mansfield READ IN FULL (Always read Mansfield

judgements = insurance God) didn’t disclose the high probability of attack by the French –

governor of Sumatra insured the Fort inequality of information if everything isn’t disclosed – insured

knows all, insurer is at risk contract void if all info isn’t disclosed – fraudulent not to disclose

info, even if it is accidental – risk taken is different to risk run remedy is avoidance of the contract risk run is different to the

risk intended to be insured – false premis mutual obligation to act in Good Faith – historically assured is

caught by more than the insurero purpose – share knowledge and prevent fraud

Overall question in non-disclosure: was there a fair presentation of the risk

insurer knew the risk of attack – he knew more about ships being dispatched by England and France than the Governor

Mansfield envisaged the obligation as mutual – underwriter had to be proactive and engange

← Mane and Walter obligation becomes onerous (see Hassen article) and it becomes

more acceptable for insurer to take a back seat←

two ships sailing together, policy holder arranges insurance, doesn’t tell the insurer the other vessel got home safe

Burough Jo document list noting vessels which have returned safe in

Lloyds

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o could be familiar with the knowledgeo what the insured alone know needs to be disclosed, but

what they can find themselves should be on notice←← Bates v Hewitt

Confederate cruiser in 1863 and insured in 1864 – the Georgia – dismantled and sold to insured – known in press and mentioned in House of Commons

Insurer admitted he would have known about the ships past at some point, not a forefront when underwriting the risk, nothing jogged memory

found to have notice of the risk, had means to determine the extent of the risk

←← Lindenau v Desborough

Insurer entitled to avoid for lack of information change in attitude

←← S17

doesn’t express temporal obligations – the obligation continues throughout the contract there is post contractual good faith

introduces overarching obligation – gives specific content to the broader obligaton

←← s18 – disclosure by assured

must disclose everything only have to disclose if you have the info or ought to have the

info (3) is things that don’t need to be disclosed (4) only have to disclose material facts – prudent insurer test

o questions of fact determined by (trial) judge – benefit of hearing evidence very difficult to dispute the facts on appeal – materiality is factual

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←← s19 – disclosure by agent affecting insurance

can’t evade duty of disclosure by getting agent to contract on your behalf – agent must disclose

o every material circumstance known to him which he should know or should have been disclosed to them

Materiality – the relevance of that fact to the body of underwriters

inducement – subjective – what that particular underwriter would have done with that fact

Insurer must prove: not told the fact – it was material – fact induced them to enter the contract

←← It doesn’t matter if the insured didn’t regard the fact as relevant – all that matters is was it material and required disclosure

Lambert v Co-operative Insurance Society [1975] 2 Lloyd’s Rep 465 (Cases & Materials, p162)

o it doesn’t matter if the insured thought it was relevanto All risk policy, don’t have to prove cause of loss – just the

losso H and W – H has previous conviction of receiving stolen

goods – offence of dishonesty – only fined £25o took out policy, renewed it every yearo 8 years later convicted and sent to prisono after 9 years lose jewellery claimo insurer refuses to pay out – not told about dishonesty,

even though they didn’t asko insured didn’t appreciate that conviction was something

the insurer would want to knowo CoA: didn’t overturn finding of facto all three members express state of unease LC should

review and look at ito Authority that yardstick for materiality is the prudent

underwriter or insurer test, in conjunction with 18(2)

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←← When principles first divised insurance was simpler – both sides had more knowledge of what both sides required, consumer insurance – consumer less likely to know what the insurer would have wanted test more unfair←← Insurers group vehicles based on their type (fast vehicle – drive fast more riskier)←← Influence the judgement

judge giving judgement someone considering the matter Container Transport International Inc v Oceanus (above),

Longmore LJo reinsurance of container o judgement in reaching a decision is decisiveo FI: insurer must prove they wouldn’t have contracted on

the same terms had they known decisive influence testo CoA: the formation of an opinion, not making a decision

something a prudent insurer would consider when accepting the premium

better to draw net wider to encourage full disclosure decisive influence difficult to operate in practical

terms – more difficult to determine what is decisive, how do you determine what insurer would find necessary

o Articles have criticised – to much emphasis on disclosure – materiality test gives an insurer too easy an exit from the contract

o allowed insurers to avoid a contract where the information wouldn’t have visciated the contract

Modern development:o document dumping for fear of insurance being voided

←← Inuducement

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Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co [1995] 1 AC 501 – must read (note Lord Musthill)

o HoL: introduced inducement in relation to issues raised by Container Transport International uphold it but imply inducement into the 1906 act

inducement = causation requirement – would it have made a difference to this underwriter – wouldn’t have entered contract on the same terms

if insurer proves a fact is material court is likely to infer it would have had a decisive influence and affected this particular underwriter

St Paul v McDonnelo subsidence claim – misrepresentation on non-disclosure –

three underwriters gave evidence, the fourth didn’t fourth bear burden of proving inducement

o inferred inducement Assicurazioni Generali SpA v Arab Insurance Group (BSC) [2003]

1 WLR 577 (Cases & Materials, pp 146-148 – note, in particular, Clarke LJ’s summary of the relevant principles)

o insurer and reinusurer must prove induced to enter contract based on material non-disclosure or misrepresentation

o no presumption of inducement on the basis of the non-disclosure/ misrepresentation

o facts may infer that insurer/ reinsurer was induced even without evidence from him

o must show non-disclosure/ misrepresentation was important for him to enter the contract

o doesn’t have to be the only reason he entered or on certain terms

In practice: Motor Insurance – specific underwriting guidelineso insurers often seek a certificate not to be liable for the

claim in serious claims, go to the Motor Insurance Board for damages insurer avoid the liability

o Motor insurance usually based on a points system, based on answers not bespoke

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o In practice: with bespoke insurance with seeking a declaration that they are entitled to avoid a policy often lax in adducing evidence as to what is considered in providing the insurance

←← Proof of Inducement

Drake Insurance plc v Provident Insurance plc [2004] Lloyd’s Rep IR 277

o H (Dr Syng) got insurance with Provident – W was insured under it

o P operated points system – 17 less = normal – 17 + enhanced premium – 30 + bespoke

o H disclosed wife had claim against her (fault accident), said it wasn’t her fault – P held that she was guilty until court found otherwise

o 15 points – got normal premiumo On renewal forgot to tell insurer he’d been caught

speeding (10 points) – but in the meantime reinsured and didn’t tell

o She had accident – had own insurance – her insurer, sought to share burden

o Provident disputed cover – didn’t have full disclosure – would have had enhanced premium – hadn’t been told original claim against W resolved, premium would have still been the same

o Had H disclosed conviction, would have charged higher premium, H probably would have challenged it, W’s status would most likely have emerged

o Can’t avoid it for that reason because they wouldn’t have been induced in that case avoidance so strong can’t claim inducement – didn’t prove it

If courts are prepared to be robust and don’t presume inducement then it can be a robust remedy

←← Criminal Convictions – Moral Hazard

insurers concerned about the type of insured question about whether convictions were concurrent or

consecutive as to whether they were spent or not27

o case hole in the floor and freezer pulled apart suspected drug dealer

changes in the assureds behaviour – insured v uninsured aston martin

home insurance – subsidence – may be more careful if you aren’t paying

Bird: three categories o insurance history of insured

Glitzmano Nationality of applicant

Horne v Polando Previous convictions and dishonesty

Lambert – CoA reluctance but it was material – test for materiality is prudent underwriter, not reasonable assured test

March Cabaret Club & Casino Ltd v London Assurance [1975] 1 Lloyd’sRep 169 (Cases & Materials, pp 161-162).

o allegations casino owner received stolen furs knowingly – must prove dishonesty

o before trial renewal of fire insurance on club – trial after renewal owner convicted

o fire after trial – insurers avoided the policy for non-disclosure of offence

o expert evidence in relation to what a prudent underwriter would want to know experienced broker or underwriter that has experience with that class of insurance

sort of risk was unattractive – susceptible to outside influence and wrong doing important to know probity and honesty of the management

o ratio: underlying fact of guilt materialo May obiter: if necessary fact of arrest, charge and

committal for trial was relevant even if he was aquitted guilty of offence and should have disclosed it before

insurance should have disclosed guilt before renewal

Reynolds v Phoenix* Reado person accused of o spent conviction for £250 fine

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o tried and acquitted criminally proved beyond all reasonable doubt, civil more likely than not that’s why they may succeed in a civil insurance case

o Phelps J not impressed with either allegationso underlying fact that a crime had been committed that was

material not relevant in this caseo receiving offence not very serious and a long time ago

North Star Shipping Ltd v Sphere Drake Insurance plc [2006] EWCA Civ 378

o preferred May J in March Cabaret to Forbes J in Reynolds – facts that raise doubts as to the risk

←← The Grecia Express) [2002]

insurer alleged the owner had scuttled the vessel – deliberately sank the vessel to claim money – war all risks policy

difficult to prove at trial – the more serious the allegation the more cogent the evidence must be to satisfy a judge of it

claimed the insured didn’t disclose inherently suspicious circumstances or that vessels owned by him were more likely to be attacked

facts surrounding the Atalia Express – sister ship – sank while owned by the claimants brother – up to three months before owned by claimant and brother – still vaguely associated with it

Star One – vessel sank in circumstances to the Grecia Express when it was Bare Boat chartered – within his control – owner claimed insurance

Koha II – vessel disappeared while it was under the control of claimant as the skipper account in relation to it was ridiculous – vessel was never recovered – cast it away to claim it – previously subject to dispute – insurers put the claimant to account that it had been lost to an insured peril – never got to trial – seeking to rely upon evidence disclosed later and abandoned defence of it

o held onto telephone calls too long Grecia Express was insured for $8m and only worth $2-3m

over insured, should have disclosed this Held:

o dismissed scuttling allegation 29

o criticised May J dicta in March Cabaret – inconsistent acquitted at trial, can go on to prove he was guilty at a civil trial – allows insurers to do that, but where the assured is convicted can’t go on to prove non-guilt

o circumstances – three groups allegations of criminal misconduct made by third

parties or authorities which assured knows to be untrue – material fact proposer knew they were groundless, didn’t alter the fact of materiality – insurer should be able to make up own mind who to believe

circumstances surrounding proposer which would lead a third party to believe he was involved in criminal activity that the insured knows to be untrue doesn’t have to disclose

circumstances involving assured which would suggest on the face that other facts exist, that would increase the magnitude of the risk and those facts didn’t cease to be material, because it can be proven those facts weren’t correct

doesn’t disclose fact A, had A been disclosed, even though insurer would have deduced that fact B is true, even if it isn’t – insurer should be allowed to make up own mind

o agreed with Philips Jo Insurer can’t always void for non-disclosure of factso using mutuality of goodfaith to apply

whilst on the face it may be material – insurer can’t rely on non-disclosure of that fact if the insured can prove that allegation unfounded and there has been no dishonesty or crime

it would be unconscionable for the insurer to rely on it

o Not Materialo Atalia, not involved three months and successful claim, o Star one, attack three months earlier, not evidence

claimant had been a target,

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o Koha II, accepted claimants account of the vessel, casting away not disclosable, insurers of Koha II hadn’t pleaded that the vessel had been cast away, just put it to claimant to prove it had been lost to the perils of the sea an allegation would have been disclosable – had there been an earlier allegation of fraud on his part it would have been material, but insurer wouldn’t have been able to get home on avoidance – breach of obligation of GF of insurer where he had proved he didn’t cast it away

o valuation not material in war risks – only material if it was so inflated that it was immoral – standard in that type of insurance to over insure

Re Ho Lord Nichols – child abuse – standard of proofo not very common – serious allegation – less inherently

evident it took place – must adduce more evidence to prove

o if common court may infer that it occured←← Brotherton v Aseguradoa Colseguros SA [2003] Lloyd’s Rep IR 758 (Cases & Materials, p 165)

Columbian bank – reinsurance 7 news bulletins and 15 news reports against the president of

the bank investigations and 23 charges – imbezelment of public funds

allegations went to the risk itself – losses covered by the fraud of employees – goes directly on the risk itself

reinsured argued allegations unfounded – political – president of bank close to government and only stirred up for elections

acquitted of 22/23 criminal and the final one was to be heard after civil insurance trial wanted delay in civil trial

because criminal standard higher – can rely on it in a civil case Mance J refused to adjorn trial – disagreed with Coleman J’s dicta

and criticism of May J – no inconsistencyo one where convicted insurance might be relying on fact of

convictiono if tried and acquitted and relied on allegation – fact of

allegation is material31

o dispelled criticism raised about March Cabaret – policy holder might be able to disprove conviction

Idea Courts could reduce insurers ability to avoid insurance Coleman got it wrong – crt no right to get involved in insurers right to avoid a policy – can hold whether they were correct or not, but not in the exercise of the right

courts could take a robust view as to what was intelligence, not merely idle rumour

courts could take a robust line in relation to inducement (Pan America introduced)

not relevant to consider if allegations were well founded issue if allegation well founded, not right to postopone

←← Old case

marine vessel captured by a French frigget non-disclosure that French frigget was seen off the coast loose rumours don’t have to be disclosed, but intelegence known

to normal men, must be considered←← North Star Shipping Ltd v Sphere Drake Insurance plc [2006] EWCA Civ 378 – Wallace J

allegation made in Greece – attracted investors by saying they would be investing in low risk were high risk

claimant said he was also victim of fraud – serious fraud office in London agreed

recent allegations of very serious dishonesty were material – old allegations mightn’t be so

confirms that an allegation is material whether it is true or not←← Norwich Union

recent tax assessment suggested he owed £20m involved with 20 companies that were shut down involved with for companies insolvent owed money to inland

revenue one property insured held under alias FI: decision up held – Higgins J held matters not material

o insurers didn’t ask about previous insolvencies on PFo risk caim in 2004 from Clydesdale bank

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o underwriting evidence not cogent and raised late real claim fraud and hadn’t established it – keen to

take line of business from Clydesdale bank and it wouldn’t have put them of

o allegations that are intelligence and are separate from idle rumours

police arrest for fraud – more likely to be intelligence than idle rumour – outstanding allegation, not so much if they dismiss it and say they were wrong

o contemporaneous and very serious allegations more likely to be material than older allegations

←← Relying on it in the wrong cases will create unfacourable comments to you – even allegation resolved in favour of assured, not necessarily final – longer ago it occurred, less likely it is to be material – fact allegation is material is something the assured would have a difficulty with

risk insurance market will be debased can a link be drawn between this and requirement to disclose

rejections? judiciary are expressing unease with lack of insurance for

insured with unfounded allegations if yardstick was what reasonable assured thought was relevant –

wouldn’t necessarily appreciate an allegation was material difficulty due to practicalities of trials and reliance on expert

evidence o called to guide the court as to what would influence the

prudent underwriter – only way of establishing its not material is to is for an underwriter to say it wasn’t or for a robust judge to disagree with the UW – difficult to do

o law capable of creating serious injustice – some insureds may not be able to find insurance or rates increased unfairly – ability to adduce evidence to the contrary, in which case it won’t be material – UW won’t sort through the evidence – Wallace J, North Star Shipping

←Waller J suggested changing test of materiality – from prudent insurer

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reasonable assured test – law commission have investigated this look at law commissions project and analysis of responces – consultation in relation to the analysis of responses

insurance market don’t want to change test – pillar of the current law – inherently uncertain – would be held to policies which would have inadequate evidence

law commission – reasonable insured advised by a broker – in fact – not too diff from reasonable UW

o would that place an obligation on the assured to hire a broker? higher cost?

fairer to insured without broker – consumer, nearly the same for businesses

Longmore J is a fan of reasonable assured test o North Star – brings into focus state of the law in relation to

non-disclosure Forbes J – Reynolds v Phonex

o to objective insurer and reject objective proposer is bound to disclose what no reasonable insurer would find to be material – no reasonable insurer would require disclosure, unless it was something that the reasonable insured would believe to be material

o put it to the UW experts that they wouldn’t have wanted to know it, even if they didn’t ask for it but the experts said they would have wanted it

North Staro council said Brotherton was the only binding case as it was

the only one heard in the HoL – invited CoA to go with the conclusion that it was only relvant if it goes directly to the risk – removes intangible risks

o rejected for uncertainty – materiality is a q of fact s18(4) MIA – can’t have a rule of law that questions every fact

o remains open to argue in every case that a fact is less likely to be material because it doesn’t bear directly on the risk

o Coleman J idea – mutuality of GF could be used to restrict the circumstances under which the insurer could avoid – cold water poured on it in Brotherton – Mance J

Pill LJ based his on this34

Rix and Clarke didn’t

←← Is the reasonable underwriter like a DoDo – extinct?←← s20(4) - Is the represented fact substantially correct← s20(5) – representation to expectation or belief good faith← Economides v Commercial Union [1998] QB 587

student insured contents for £12,000 – insurers concerned about an expensive item (eg. engagement ring) often a standard term that insurers will only insure valuable items up to a certain percentage (1/3 of the value insured – only £4,000 was allowed for jewellery in this case)

proposal form had a BCC – shouldn’t have been in a consumer insurance clause

parents moved from Cyprus – had jewellery worth £30,000 with them, stayed with him

father retired police commander – recommended son should increase it – did to £16,000

£31,000 jewellery and £40,000 in total stolen bottom of proposal form asked insured to sign ‘to the best of his

knowledge or belief’ – s20(5) only had to have been in god faith claimant not deemed to know true value of goods – knowledge was limited and he was allowed to claim (Nelsonian Blindness wilfully didn’t know)

found honest representation – insurer couldn’t recover courts treat a consumer diff to a business – misrepresentation is

more difficult to win on in non-disclosure←← Zella (2008) Privy Council Case – Cayman Islands – no 1906 act

series of routine examinations – 1997-2001 – high cholesterol, 1998 found heart murmour, didn’t turn up subsequently, no diagnosis or medication

proposal form listed conditions in a list, no, answered yes to medical

section c he didn’t fill in correctly insurers not allowed to cancel policy as he wouldn’t have

believed he had a condition35

found insurer waived right in relation to section c thyroid problems noted because they didn’t follow up

←← Waiver← Hair v Prudential Assurance Co [1983] 2 Lloyd’s Rep 667

if insurer asks ‘how many accidents in last three years’ – insurer may be viewed to have waived info about accidents older than three years

if the insurer doesn’t ask the right questions, or not fully asking questions you are waiving the info

if you don’t ask question, then insurer may be able to claim old claims history is material waiver is a tool that can be used to ameliorate the harshness of disclosure

←← WISE Underwriting Ltd Agency Ltd v Grupo Nacional Provincial SA [2004] Lloyd’s Rep IR 764

TRANSLATION ERROR in documetns translated from South America – Rolex watches incorrectly translated to clocks – small, and more susceptible to theft

reinsurer had confirmed the contract in purporting to cancel it was reinsureds avoidance unfair

o insurer put on notice by the notification that they were insuring clocks – what sort of clocks, by not asking Rix J (dissenting) felt they had waived right to info (decided on other grounds)

←← Chase v Manhatan Finance – film finance

fraudulent or negligent non-disclosure by brokers – could they avoid for fraud of insurer

term in policy wide enough to exclude the fraud by agent Rix J – cant exclude own fraud (PP) but can exclude fraud of

agent←← Bennet article – mapping the origins of good faith

Bell v Lever Brothers o obligation of good faith doesn’t arise from contract itself,

but it comes into being before contract as it operates before the contract has crystalised

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The Star Sea – Lord Hobhouseo good faith operates as a rule of law

←← Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1990] 2 Lloyd’s Rep 377

banks lend money to a property developer and take out policy to insure against risks of default

insurer doesn’t know debtor broker deceives banks into thinking they had cover for default –

lead underwriter discovers fraud, but says nothing bank then says it wouldn’t have lent the money if it hadn’t been

deceived – bank tried to make the insurer pay for losses as a result of default

Stian J FI: court could award conventional damages for breach CoA and HoL – overturned – no breach of good faith – didn’t have

to disclose unless it was material to the risko seems counter intuitive

←← Hasson article – really important to read

current English principle doesn’t reflect the reasonable expectations of the insurer or insured – originally paternalistic, but now they know what they want and need, but they can avoid by not asking the relevant questions

←← Law Commission 1980

focused on prudent insurer test – it can be unfair should be reviewed

←← Lambah point←← Kausar v Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep 154

avoidance is a drastic remedy←← 1957 – Law Reform Committee (track down report)

no BCC (double check this….) shouldn’t be allowed to rely on a misrepresentation unless they

knew it was dishonest – prove honesty can’t avoid intermediary should be deemed to be an agent of the insurer

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←Insurance industry negotiated out of the unfair contract terms act – exclusion for insurance policies, statements of practice – said they wouldn’t rely on BCC and rely on a fact where the insured didn’t know to be false

1980 – read suggested modification of duty of disclosure, rather than

abolishing it could lead to sharp practice and a lack of availability of

temporary cover duty should be limited

← 1981 Insurance Ombudsman Buro established consumer could complain against an insurer paid by general levy based on turnover in insurance policies and

based on a complaints fees - £500 fee paid by insurer ombudsman can decide based on reasonable in all the

circumstances – don’t have to apply the law rigorously o decisions can be a bit hit and miss, not very principled

←← 1997 – National Consumer Council – Sir John Bird wrote it←← 2002 – British Insurance Law Council

prepared a report look at BILA report – sir Andrew Longmore – lecture Scoping paper – came back to look at all of law

o some insurers not happy, weren’t applying the law bad for business, too harsh

o Air Mike – insurance placing agents weren’t happy with the law

Issues paper – deosn’t represent view of Law Commissiono HC judge commissioner chairman – accademics, barristers,

solicitors – seen as leading their fieldo commissioners meet together to discuss final report, all

agree together for final reporto Issue paper is only signed off by one team, not full

commissioners panel

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non-disclosure & misrepresentation, warranties and guarantees prepared initially (three papers)

o Issue papers issued to sound out how they think it should go and to see how all parties (insurers, assured, government, brokers etc.)

wanted to keep insurers on side – pay out for natural disasters (Haiti was good PR by paying out even when they had a claim)

o Consumer insurance went through relatively easily as many insurers were already acting at a level below the law

final report and draught bill – Consumer Insurance, Disclosure and Representation Act 2012

o Commercial insurance – controversial, seen as Big Boys should be able to look after themselves

it’s been siphoned off, unlikely now to be addressed 2012 Act

o consumer insurance – duty of disclosure is abolished for consumers – only have to answer the questions asked

o applies from contracts renewed or created from April 6th 2013

o duty to take reasonable care not to make a misrepresentation to an insurer – no longer just one remedy – no longer just avoidance

tier of remedies innocent – not negligent, acted honestly – no

remedy fraudulent or reckless – insurer can avoid negligent – look to what would have happened

would have written anyway on same terms no remedy

would have inserted clause as a result – effectively write clause into premium (mole not checked, not disclosed – cancer wouldn’t have been insured, pay out for heart attack but not cancer)

39

if premium would have been higher then pay out is pro-rata (percentage of loss represented by premium that should have been paid)

BCC abolished no hard and fast rule for intermediaries

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06/11/2013 13:01

← Genesis Housing Association Ltd v Liberty Syndicate Management Ltd [2013] EWCA Civ 1173← Court of Appeal upholds effect of "basis of contract" clause for commercial contracts← In Genesis Housing Association Ltd v Liberty Syndicate Management Ltd [2013] EWCA Civ 1173, the Court of Appeal upheld a decision by Akenhead J that the claimant could not recover under an insurance policy, which covered, among other things, the insolvency of the builder.← Giving the lead judgment, Jackson LJ found that inaccurate statements about the identity of the builder, in the proposal form completed by the claimant's agent, had become warranties forming the basis of the policy. He confirmed that earlier authorities established the principle that, where a proposal form contains a "basis of contract" clause, the proposal form has contractual effect (even if the policy contains no reference to it), and all statements in the form constitute warranties on which the insurance contract is based. Jackson LJ also held that:← Even though the first sentence of the declaration in the proposal form stated that the statements were true to the best of the proposer's knowledge and belief, this did not qualify the "basis of contract" provision in the second sentence. Therefore, the claimant had warranted that the named company would be the builder.← Far from curtailing the insurer's right to avoid for misrepresentation or restricting the warranties or the "basis of contract" clause in the proposal form, condition 7 (which made the policy voidable for misrepresentation with intention to defraud) conferred additional express rights on the insurers.He concluded that the policy was void due to the misstatement concerning the builder, in the proposal form. Further, since the insurers were providing cover against the risks of insolvency or defective work of an identified builder, only that builder's work and insolvency were covered.

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