Insurance Law-Disclosure
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Insurance Law Disclosure Notes...
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4. Non-disclosure (and other vitiating factors) NOTE: There are several vitiating factors for an insurance contract. Fraud, misrepresentation and non-disclosure will be covered, the latter being the most in-depth one. Unlike normal contracts, the insurance contract is viewed as one of utmost good faith (uberrima fides in Latin). This topic of utmost good faith – a hallmark doctrine in insurance law – imposes a reciprocal duty to demonstrate good faith. -
In particular, where the insured or prospective insured is concerned, he has an independent duty to volunteer information material to the risk to be insured Although the duty is meant to be reciprocal, it has not been as well developed vis a vis the insurer. It has been criticized as harsh to the insured.
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There have been many interesting developments in recent years regarding this doctrine as there appears to be some judicial change of heart attempting to ameliorate the worst effects of the doctrine. -
In this regard, the doctrine appears to be in a state of flux.
Fraud and misrepresentation Fraud Deceit: Derry v. Peek (1889) 14 App. Cas. 337 and as in general contract law. See Trietel, The Law of Contract, 2003. Also in the context of breach of uberrima fides, see subsequent discussion and also topic 9 under ‘Fraudulent Claims’.
Misrepresentation Note overlap with non-disclosure. Insurer’s standard practice for to plead both -
Note relationship with statements in proposal form (to be considered later).
Misrepresentation Act (Cap 390). For misrepresentation in insurance contracts, see Marine Insurance Act s.20. Misrepresentation on opinion Marine Insurance Act s20(5) – need only be honest opinion -
“a representation as to a matter of expectation or belief is true if it be made in good faith.” NOTE: This is different from the usual misrep doctrine. In light of the economides case, must some basis for the belief be proved?
But ask, does it make much difference? A baseless belief is highly unlikely to be deemed in good faith The scope probably turns on a duty to find out. Economides v Commercial Union Assurance [1998] QB 587 ECA -
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Household and contents policy Insured (student) completed and signed a proposal form: value of contents stated as ₤12,000 Valuables did not exceed one-third of that. Father came and brought lots of valuables; on renewal, father advised him to increase contents value to ₤16,000. There was a theft. Valuable items to the tune of ₤31,000 were stolen. Insurer wanted to vitiate for misrepresentation. Q: Was student being honest in belief regarding the amount of valuables? He left such insurance matters of valuation to his father. H: Some basis for that belief is required but no need to have reasonable grounds on which to base it. Hence the CA rejected the argument that the statement as to value represented an assertion of reasonable grounds on which to base it. Applied in Rendall v Combined Insurance Company of America. UKPC endorsed the case in Zeller v British Caymanian Cf some of the other cases NOTE: Has been criticised as being out of sync with misrepresentation law.
Howard Bennett, “Statements of fact and statements of opinion in insurance contract law and general contract law” (1998) 61 MLR 886. -
States that it is regrettable that a divergence has emerged in insurance law from general contract law.
Rendall v Combined Insurance Company of America *2005+ EWHC 678 (Comm), *2006+ Lloyd’s Law Report 732 -
One of the first cases in the aftermath of 9/11. Claim was made on business travel reinsurance. For this insurance, a rough estimate of travelled hours was asked for and given. This was not based on historical data, and was not accurate thus. Just a rough ballpark figure. Reinsurers alleged that the information presented to the underwriter suggested (and was reasonably understood as representing) an estimate that had been made on reasonable grounds. Alternatively, reinsurers argued, there had been a failure to disclose that the number of travel days had been estimated on the basis of assumptions. The underwriter's evidence was that he had believed the figure was based on AON's historical travel data. Had he known the figure was based on assumptions, he would have asked for details of the method and the underlying information used and then applied his own assessment.
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The question was whether the representation relied on by reinsurers was to be treated as only a representation of expectation or belief (under section 20(5)) or whether, as reinsurers alleged, it involved an implicit representation of fact that there were reasonable grounds for that expectation or belief, in which case the representation must be true (under section 20(1)). Economides was upheld. In the present case, it was not suggested by reinsurers that there was no basis for the representation.
cf: Eagle Star Insurance Co Ltd v Games video C. SA *2004+ EWHC 15 (Comm) *2004+ Lloyd’s Rep IR 867 ECA -
Deliberate overvaluation based on fraudulent documents Held: No genuine belief that the valuation was accurate.
cf: Context of fine art insurance — Kamidian v Holt [2008] EWHC 1483 (Comm) -
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Work of art or valuable artifact. Insured described egg clock as Fabergé – damaged whilst in transit for loan for art exhibition. 10 years ago sold by Sothebys to claimant. It was never described as Fabergé Held: When an artefact is over 100 years old and there is no documentary evidence available, its authenticity can only ever be a matter of opinion and belief. Opinion that it is authentic – implied representation of fact that people in art world would generally accept is as authentic When you make such an assertion in the art world, you imply a general acceptance in the Art world that the piece is indeed authentic. It is FACT not opinion. But to discharge the burden of proof, need only to prove a general opinion. At para 92: “In my judgment in the context of fine art insurance the representation properly to be spelled out of a presentation of the sort which I have described is that there is general acceptance in the art world that the piece is an authentic Fabergé egg clock. That is a simple and straightforward statement of fact proveable simply by establishing that a clear preponderance of informed opinion is to that effect…..That in turn involves proof only that an opinion is held” Different from household contents insurance Economides
Argo System Fze v Liberty Insurance (Pte) and Anor *2011+ 1 Lloyd’s Rep 427 -
Election to waive?
Synergy Health (UK) Ltd v CGU Insurance Plc and Ors *2011+ 1 Lloyd’s Rep 500 - Business interruption policy. This means that you claim for loss of profit. - Representation in letter that work on an intruder alarm would be completed by end December. This was a representation made on renewal of the policy. However work had not commenced and the alarm had not been installed by the date of the fire. The statement was not withdtawn before renewal. - Held: The representation to install the fire alarms was a statement of fact and not future intention.
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Not a matter of expectation or belief. Future intention would have meant that he was at liberty to change his mind.
Highlands Continental -
Per Steyn J: Obiter suggests that in commercial insurance cases, s 2(2) of the Misrepresentation Act should not be allowed to be pleaded WRT damages. Note that s 2(1) might be different from the insurance law context. Read.
Utmost good faith (Uberrimae fides) introduction Carter v. Boehm (1766) 3 Burr 1905 Now codified in Marine Insurance Act: -
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S 17: “A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party.” 18(1): Subject to this section, the assured must disclose to the insurer before the contract is concluded, (see s21:when proposal accepted regardless of policy issue) 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; and if the assured fails to make such disclosure, the insurer may avoid the contract. s.18(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.” NOTE: Codification of common law S 21: A contract of marine insurance is deemed to be concluded when the proposal of the assured is accepted by the insurer, whether the policy be then issued or not; and, for the purpose of showing when the proposal was accepted, reference may be made to the slip or covering note or other customary memorandum of the contract. NOTE: The relevant parallel provisions in ss17-20 of Marine Insurance Act (Cap 387) or UK Marine Insurance Act 1905 are generally taken to be applicable to all insurance contracts; see http://www.jus.uio.no/lm/england.marine.insurance.act.1906/doc.html NB: Historical impetus (in 18th and 19th centuries) for the doctrine’s development may not be as relevant in today’s modern context.
Lambert v CIS *1975+ 2 Lloyd’s Rep 465 -
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Mrs Lambert signed a proposal form for ‘All Risks’ insurance over her husband’s jewelry, without mentioning her husband was convicted previously of receiving stolen cigarettes and was fined. The Co-op issued the policy. Mr Lambert was convicted of two more dishonesty offences in 1971. Mrs Lambert did not reveal this either when the policy was renewed in 1972. In April 1972 some items worth were lost or stolen and the Co-op refused on the basis of a failure to disclose.
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Mackenna J held ‘the assured is under a duty of disclosure… *but the+ extent of the duty is the matter in controversy.’ You could have a duty to disclose everything you think is material, everything a reasonable person thinks is, everything the particular insurer thinks is, or everything a reasonable or prudent insurer thinks is, like in s 18 Marine Insurance Act 1906. Because there is no difference between this insurance and marine insurance in principle, it should be the latter. He did however say the law was unsatisfactory and the Co-op were doing ‘a heartless thing… but that is their business, not mine.’
Scope of the duty Timing The duration of the duty of disclosure. -
Rule in Niger endorsed in Singapore by Lee Bee Soon
S 18(1) MIA: -
See this. Subject to this section, the assured must disclose to the insurer before the contract is concluded.
Niger v Guardian Assurance Co. (1922) 13 Lloyd’s LR 75 UKHL -
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Concerned a continuing policy terminable by three months notice Held: no duty lay on the assured to disclose to the insurers post-contract facts which, if known, might have induced the insurer to exercise its right to terminate the contract. Viscount Sumner said this: The object of disclosure being to inform the underwriter's mind on matters immediately under his consideration, with reference to the taking or refusing of a risk then offered to him, I think it would be going beyond the principle to say that each and every change in an insurance contract creates an occasion on which a general disclosure becomes obligatory, merely because the altered contract is not the unaltered contract, and therefore the alteration is a transaction as the result of which a new contract of insurance comes into existence. This would turn what is an indispensable shield for the underwriter into an engine of oppression against the assured." Rationale is to help you determine the premium. It was not regarded as a breach of the section 17 duty for the assured to fail to disclose facts within his knowledge which, if disclosed, might have induced the insurer to terminate the policy
Lee Bee Soon v Malaysian National Insurance Sdn Bhd [1980] 2 MLJ 252
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The plaintiffs in this case claimed for a sum of money due under Hull Insurance policy. Vessel was carrying sand and stones. On 7th December 1971, the plaintiffs signed a proposal from seeking insurance for his vessel for period of one year. The plaintiffs had represented that the vessel was a "Cargo-passenger carrying vessel" and that it carried "Sundry goods". On 9 December 1971 a policy was issued by the defendants. On 14 December 1971 the defendants amended the policy by reducing the period covered to six months expiring on 10 June 1972. On 29 May 1972 before the policy expired the plaintiffs sought another insurance from another source. The agent, however, gave them coverage from the same insurers, the defendants, for the period of 11 June to 10 December 1972 insuring the Hull and equipment for $50,000 and machinery and boilers for $30,000. The defendants repudiated liability under this policy and contended that it was not effective because of misrepresentation and non-disclosure of material facts in the proposal form which rendered the policy void Held: Claim allowed In alleging misrepresentation as a defence, the burden of proof lies on the insurers and the misrepresentation relied on must be established clearly In order to ensure compliance with any representation made by the assured, the insurer should take care that the representation is inserted into the policy and thus be converted into a warranty The proposal form was not part of the second policy and could not form the basis of the contract; the representation in the proposal form relating to the carriage of cargo could not be admissible to the defendants as a basis of warranty The law is, where underwriters allege non-disclosure, they must adduce evidence in support of their plea. Such course was not followed in this case The duty of the assured to disclose all material facts to the insurers must be done before the contract is concluded. The object of disclosure being to inform the underwriter of matters immediately under his consideration, with reference to the taking or refusing of a risk then offered to him, it would be going beyond the principle to say that each and every change in an insurance contract created an occasion on which a general disclosure becomes obligatory
Canning v Farquhar (1886) 16 QBD 727 -
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The proposal was accepted at a specified premium but upon the terms that no insurance should take effect until the premium was paid. Before tender of the premium, there was a material alteration in the state of the health of the proposer and the company refused to accept the premium or to issue a policy. It was held that the nature of the risk having been altered at the time of the tender of the premium, there was no contract binding the company to issue a policy. The question was, however, left open as to whether if there had been no alteration in the risk, the company would have been legally entitled to refuse to accept the premium and to issue a policy
Looker v Law Union [1928] 1 KB 554
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P made a proposal to an insurance company for 50 000 pounds life insurance. He trustworthily answered all questions on the proposal form. A few days later, before the proposal was accepted, P fell ill with pneumonia. Two days later he died, with the insurers knowing of his illness for the first time Held: The company was not liable to pay The notice of risk amounted to a material alteration of the risk between the date of the proposal and its acceptance. Before the offer is accepted, such circumstances must be disclosed.
Brotherton v Aseguradora [2003] 2 All ER (Comm) 298 ECA -
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The reinsured, Aseguros, failed to disclose serious allegations of criminality that had been made against the insured bank's president. The reinsurers, Brotherton, sought to avoid the policy for breach of duty of good faith. It was held that the materiality of a particular circumstance had to be judged when the risk was accepted and by reference to the impact it would have on the mind of a prudent insurer. The time for consideration of all the circumstances was when the risk was accepted. The materiality of a particular circumstance has to be judged when the risk is accepted and by reference to the impact it would have on the mind of a prudent insurer; certainty is always an important requirement in any insurance contract. Allegations of dishonesty must be disclosed whether or not they are proven.
Drake Insurance v Provident Insurance [2003] All ER (D) 307 (Dec) -
See below
Material fact There are essentially two factors: prudent-insurer test of materiality, and requirement of inducement. -
Do note that the latter is a very significant recent development.
Prudent insurer test of materiality Whose perspective? -
S 18(2): “A circumstance that would influence the judgment of a prudent insurer” Has been criticised. A duty on the insured through the eyes of the insurer! They are expected to second guess an expert. Insured is also unaware of the existence of the duty. But note s 25(5) of the Insurance Act states that the proposal form is to display warning that proposer is to give facts as he knows them, otherwise he may receive nothing. But my position is that this warning is insufficient as it still focuses on the perspective of the insured. The test is the perspective of the insurer! Plenty of guesswork. Overall it turns on the over-arching theme on the balance between the insurer’s need for information and the insured’s need for security.
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Law Reform Commission Report No. 104 had suggested reform 4.47 – fact to be disclosed if material to the risk … and is one which a reasonable man in the position of the applicant would disclose to his insurer, having regard to … the circumstances See also Law Commission Consultation Paper No 182 : Inquiry-based for consumer Financial ombudsman services See the US Position in Marine Insurance: whether a reasonable person in the insured’s position would know that the fact was material. The US position in non-marine insurance is even more lax. You are only liable if there is wilful concealment; Insurer to ask questions Likewise see the Australian position: S21 of the Insurance Contracts Act 1984 (Aus): … an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that: a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or b) a reasonable person in the circumstances could be expected to know to be a matter so relevant. S 21(2): The insurer is taken to have waived compliance with the duty of disclosure in relation to the contract unless the insurer complies with either sub-section (3) or (4). S 21 (3) Before the contract is entered into, the insurer requests the insured to answer one or more specific questions that are relevant to the decision of the insurer whether to accept the risk and, if so, on what terms. There is also a counter-point to the criticisms. How is the insurer supposed to know every question to ask? Note Singapore position still remains though.
Lambert v Co-operative Insurance Society *1975+ 2 Lloyd’s Rep 485 -
See above
Joel v Law Union [1908] 2 KB 863 -
The duty to disclose can only exist when someone is in possession of a material fact – “you cannot disclose what you do not know”.
Container Transport International Inc v Oceanus Mutual Underwriting Association Ltd [1984] 1 Lloyd’s Rep 476 -
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Incomplete claims record – older record not disclosed Insured argued: had there been disclosure, insurer would have gone ahead to insure As to the meaning of “would influence the judgment”: Difference in decision Decisive influence [change mind?] versus “take into consideration” or “impact on decision- making process” or “would want to know” test. In the HC, Lloyd J stated that you needed a decisive influence. But in the CA, they upheld the latter Then, must consider the mind of prudent insurer (and disregard the mind of the particular insurer).
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This is criticised as a very low threshold. Very onerous on the insured. READ
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 -
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Failure to disclose additional claims history – long-tail business (losses) Insurer: I would have been worried if I had known so many claims Insured: would not have caused any change in decision Attempted challenge of CTI. Must it have made a decision? C.A.: tendency to increase risk. Rejected by HL – impact approach endorsed by bare majority HL: besides materiality, particular insurer induced by non-disclosure (reversal of pt. 2 of CTI) The test of materiality of disclosure for the purposes of both marine insurance under s 18(2) of the 1906 Act and non-marine insurance was, on the natural and ordinary meaning of s 18(2), whether the relevant circumstance would have had an effect on the mind of a prudent insurer in weighing up the risk, not whether had it been fully and accurately disclosed it would have had a decisive effect on the prudent underwriter's decision whether to accept the risk and if so, at what premium. That test accorded with the duty of the assured to disclose all matters which would be taken into account by the underwriter when assessing the risk However, for an insurer to be entitled to avoid a policy for misrepresentation or nondisclosure, not only did the misrepresentation or non-disclosure have to be material but in addition it had to have induced the making of the policy on the relevant terms. It was argued that “material” in s 18 meant a circumstance which would, if disclosed, have a decisive effect on the hypothetical prudent underwriter, in causing him to decline the risk or increase the premium. Lord Mustil disagreed. Lord Mustil held that there should be implied into section 18(1) a requirement that material misrepresentation or wrongful non-disclosure could only entitle the underwriter to avoid the policy if it had induced the making of the contract. To the extent it held otherwise, the CTI case should no longer be followed. Misrepresentation needs inducement at contract law Need consistency in law READ
Barclay Holdings (Australia) Pty Ltd v British National Insurance Co (1987) 8 NSWLR 515. Different test in Australia: Common law materiality -
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Fire policy – previous refusal not disclosed investigative stage versus ultimate decision-making stage (where only facts material to risk would have affected the mind) Views it in terms of timing: previous claims – previous refusals on administrative grounds fire loss – no mala fides revealed
Requirement of inducement Procedural implication
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Bias of presumptive inducement – Lord Mustill
St. Paul Fire & Marine Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd *1995+ 2 Lloyd’s Rep 116 -
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Bop of presumption – theoretically on insurer CA – accepted – wish to know test Seemed to suggest a presumption of inducement not necessarily the inducement. Inducement cannot be inferred in law from proved materiality, although there may be cases where the materiality is so obvious as to justify an inference of fact that the representee was actually induced, but, even in such exceptional cases, the inference is only a prima facie one and may be rebutted by counter-evidence Link between materiality and inducement? Does this presumption operate to mean that if the fact is material, inducement is presumed?
Assicurazioni Generali Spa v Arab Insurance Group *2003+ Lloyd’s Rep IR 131, [2002] EWCA Civ 1642 -
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Misrepresentation of named co-insurer in the reinsurance business (whose role is limited to one part of cover) – not induced, would have entered into contract regardless. Clarke L.J.: no presumption of inducement from materiality; factual and not legal presumption. However, facts may be such that one can infer that particular insurer was so induced even in absence of evidence from him. Non-disclosure to be effective cause of his entering into contract on terms which he did. Must show but for the relevant non-disclosure or misrepresentation, he would not have entered into the contract on those terms – no need to be sole effective cause. Must call the underwriter in question. contra Ward L.J.: some causative effect – mind disturbed – play upon his mind.
Drake v Provident *2003+ EWCA Civ 1834; *2004+ 1 Lloyd’s Rep 268 -
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Non-disclosure of driving conviction (though she was rear-ended. Not her fault) Insurer submitted in combination with an earlier accident (fault), that would have attracted higher premiums But upon revelation would probably have found out that another demerit matter would have been neutralised because it was not her fault Premium based on a mechanical point system. With the matter neutralised the point system would not have been fulfilled. Majority: have to consider what would exactly be likely to have happened had disclosure been made (charged same premium – no inducement) Minority: cannot speculate on what would have happened There is actually an element of speculation The question for the court was not what actually happened but what would have happened if the insured, Mr Singh had mentioned that he had a speeding conviction Lord Justice Rix said that in his judgment it was for Provident to provide that the nondisclosure of the speeding conviction induced the contract.
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They had not done so and that was enough to invalidate Provident’s avoidance of the policy. Applied Brotherton: The element of hindsight does not apply. YHY says the tide seems to have turned in this case.
Bonner v Cox Dedicated Corporate Ltd. [2004] EWHC 2963; [2006+ 2 Lloyd’s L Rep 152 -
Direct loss information emerged half-way through broking process Oil well blew up halfway – material fact Not likely that reinsurer would have withdrawn They see how insurer would have reacted.
Lewis v Norwich Union Healthcare [2010] Lloyds Rep IR 198 -
Health insurance policy: failure to disclose previous visit to GP about knee pain H: material but they failed to call actual particular underwriter, only produced evidence to insurers’ general practice from another underwriter Ct: not proved that underwriter would have acted differently. So no inducement
Synergy Health (UK) Ltd v CGU Insurance PLC [2010] EWHC 2583 (Comm) -
Renewal case: letter : "Intruder alarm. This will be completed by end of December" past history of the parties - although the insured was often slow in implementing risk improvements, there was no question of its refusing to do so. Insurers thought the client was pretty decent: well-run business, not keen to lose his business. The judge did not think that had they known the alarm had not been installed, insurers would have responded differently than on other occasions. No inducement proved
UMCI Ltd v Tokio Marine & Fire Insurance Co (Singapore) Pte Ltd [2008] SGHC 188 -
Misrepresentation of material facts Lee Sieu Kin J embraced Pan Atlantic, St Paul, etc , applied reliance principle
Garnat Trading & Shipping (Singapore) Pte Ltd and Anor v Baominh Insurance Corporation [2011] 1 Lloyd’s Rep 336 ECA -
The claimants insured a floating dock for a voyage. On 23 June 2006 the dock commenced the voyage. On 9 July 2006 the dock encountered a force 6 typhoon which caused a swell of up to 6 metres, but was able to continue after repairs to the lashings which tied the pontoon to the deck. On 13 July 2006, the dock encountered a tropical storm, Bilas, which the dock had tried to avoid but which had – contrary to weather forecasts – changed course. The dock was caught by a near direct hit. The swell was initially 6 metres but by the following day the swell had reached 10 metres. The lashings were unable to withstand the weather, and the dock was seriously damaged when the pontoon broke loose.
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The assured served a notice of abandonment on the insurers. The insurers purported to avoid the insurance for alleged material non-disclosure The Court of Appeal, upholding Christopher Clarke J, rejected the insurers' allegations of fraud, forgery, non-disclosure and unseaworthiness. The insurers’ allegation that the assured had failed to disclose a material document forming part of the towage plan which showed the maximum wave height that the dock could withstand was rejected on the facts. However, even if it had not been disclosed, the insurers could not avoid the policy because: (a) they had waived disclosure by agreeing to insure without seeing the towage plan as long as it was approved by a Classification Society; (b) earlier drafts of the policy had contained a towage plan warranty, and although it was by oversight omitted from the final version of the policy, it could not be said that disclosure was rendered unnecessary by section 18(3)(d) of the Marine Insurance Act 1906, the fact that there had been a draft warranty rendered disclosure superfluous, given the very short time between the deletion of the warranty and the issue of the policy; and (c) the insurers were not induced by any failure to disclose because the evidence was that they would have insured on the terms which were actually agreed. The Court also rejected various allegations by the insurers to the effect that the claimants had dishonestly fabricated documents in order to support their insurance claim.
Garnat Trading & Shipping (Singapore) Pte Ltd and Anor v Baominh Insurance Corporation [2011] 1 Lloyd’s Rep 667 Persimmon Homes Ltd and Anor v Great Lakes Reinsurance (UK) Plc *2011+ 1 Lloyd’s Rep 101 -
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Persimmon had been the defendant in proceedings brought against it by another company in relation to a property transaction. Persimmon denied the claim in relation to the property transaction and issued proceedings against the Company. The claim was dismissed The Company was ordered to pay Persimmon’s costs. The Company was insolvent and Persimmon claimed against Great Lakes (“the Insurer”) with whom the Company held an ATE insurance policy seeking the Company’s rights under the insurance contract be transferred and vested in them. Having established the dishonesty of the insured, Persimmon were in the unusual position of seeking to adopt the rights of the insured under Section 1 Held: the Insurer had been induced into entering the policy by misrepresentations and nondisclosure The court found that there had been systemic dishonesty on the part of the father, who did not give oral evidence but who encouraged a false letter in respect of the sale agreement and the introduction fee, who was acting as a shadow director but who was bankrupt, who had lied on several occasions about the availability of funding and the company’s ability to pay its professional fees and the purchase price. Persimmon contended that the Insurer had communicated their unequivocal representation that the policy would not be avoided by failing to respond to Persimmon’s submission in court that they had insurers “behind them for the recovery of costs”, and by
communicating in correspondence “that the case continued to enjoy good prospects of success”. The court held however that these actions did not amount to an election to waive the right to avoid. Synergy Health (UK) Ltd v CGU Insurance Plc and Ors *2011+ 1 Lloyd’s Rep 500 -
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Following a fire at its Dunstable premises, Synergy made a claim for both material damage and business interruption losses. However, the insurers declined the claim and sought to avoid the contract for an alleged misrepresentation that was made and never withdrawn or corrected prior to renewal, or alternatively, for material non-disclosure. The alleged misrepresentation arose from the fact that, on 28 December 2005, the brokers forwarded to Fusion a letter from Synergy, which dealt with various outstanding risk improvements to various premises, and stated, in respect of premises at Dunstable, “Intruder Alarm. This will be completed by end December.” In fact, the relevant work had not even commenced, and due to a breakdown in communication, the alarm was never installed prior to the fire. Synergy accordingly commenced proceedings against both the insurers, seeking an indemnity under the policy, and against the broker for damages for breach of duty if (contrary to Synergy’s primary case) the insurers were entitled to avoid the contract of insurance. Flaux J found that a misrepresentation of fact had been made to insurers on 28 December 2005, four months prior to renewal, about a matter that was material to the risk and to its renewal, and that by not subsequently correcting it at renewal, Synergy had implicitly repeated that misrepresentation at renewal. Flaux J found that while, by requiring the Declaration to be completed, the insurers waived any further disclosure of other matters not the subject of express declaration, which related to the issue of moral hazard, there was nothing in the wording of the Declaration to suggest that the insurers only required disclosure of matters concerned with moral hazard and declinature and were waiving disclosure of other facts material to the risk generally. However, Flaux J found that the insurers’ case fell down on the question of inducement It emerged during cross-examination that the chief underwriter, Mr Garbutt’s, evidence in chief did not address what his reaction would have been if the true factual position, of a series of errors rather than anything deliberate, as to why the alarm had not been installed prior to renewal, had been disclosed to him. While Mr Garbutt maintained that even if the explanation had been an innocent one (as indeed it was), he would have agreed cover subject to the alarm being installed in a tight timescale, Flaux J found that, though genuinely held, there was a distinct lack of independent evidence to support Mr Garbutt’s position.
Established examples of material fact Physical and moral hazard of the subject matter of the risk are clear examples of categories of facts accepted to be material. -
Examples include claims history, previous convictions¸ health history, etc. REMEMBER: If the cases came up before CTI, did not consider inducement
You must always still consider inducement! Previous refusals Previous insurers’ refusal to insure you is a material fact. -
Rationale: Moral hazard. See also Barclays case. Has been criticised
Locker & Woolf Ltd v Western Australian Insurance Co [1936] 1 KB 408 ECA -
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Previous refusal of motor car cover material for fire policy application Rationale: moral hazard In answering a question on the proposal form "Have you ever sustained loss by fire?" the answer was " Yes”. To " Has this or any other insurance of yours been declined by any company?" the answer was " No." It was held that the fact that one of the partners of the firm had sustained a considerable fire loss in 1919, when trading on his own account before the limited company was formed, and also that the firm when trading in partnership had applied for a motor policy and had been declined by a company amounted to non-disclosure of material facts which justified repudiation of the loss which was the subject of the action. Per Slesser LJ One of the matters to be considered by an insurance company in entering into contractual relations with a proposed insurer is the question of the moral integrity of the proposer--what has been called the moral hazard. In the present case it is quite impossible to say that the non-disclosure by those proposing to take out a policy against fire risks that they have had an insurance on motor cars declined on the ground of untrue answers in the proposal form is not the non-disclosure of a fact very material for the insurance company to know--a fact which if known to the company might lead them to take the view that the proposers were undesirable persons with whom to have contractual relations. (REMEMBER HERE THERE WAS NOT CONSIDERATION OF INDUCEMENT) In these circumstances there can, in my opinion, be no doubt that on the general law of insurance the company was perfectly entitled to repudiate the contract on the ground of non-disclosure of a material fact. Criticism: Abit harsh.
Ewer v National Employers Mutual General Insurance [1937] 2 All ER 139 -
Mackinnon J.’s view on previous refusal concerning other risks in other forms of policy Here previous refusal was 18 yrs ago. How to reconcile between Locker and Ewer?
Glicksman v Lancashire & General Assurance Co [1927] AC 139 -
Illiterate insured – burglary policy on partnership asset Q: “have you ever been refused insurance before?” Previously, he had personally been refused a burglary policy – none in respect of partnership.
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The answer was "Yorkshire accepted but proposers refused ". The proposal form was signed by the appellant, one Glicksman, when he was doing business in partnership with another but prior to the partnership an application for insurance by Glicksman, when he was sole owner of the business, had been refused. The insurance company sought to avoid liability on two grounds, which are the same as those, pleaded in this case, namely: (1) that the answer was incorrect, and (2) that a material fact affecting the risk had been concealed and withheld. Held: Should have disclosed.
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There was a condition that the answers to the questions in the proposal form shall be the basis of the contract coupled with an undertaking given by the insured not to withhold any information which may tend to increase the risk.
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On the first ground their Lordships of the House of Lords took the view that the question was ambiguous. The word "You" in the question was answered by the proponent on the basis that it was used in the plural. In such an event the answer would have been correct; but if it had been used in the singular also, the answer would have been incorrect. The Judges of the Court of Appeal differed on this question but Viscount Dunedin who delivered the judgment of the House of Lords stated that it was un- necessary to come to a conclusion as to which of these views was right, and refused to express an opinion upon it.
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He, however, held "with unfeigned regret" that on the ground of materiality and concealment the policy was avoided as this was a matter of great importance to insurance company which affected its risk and which should have disclosed by the proponent.
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Some of the learned Judges in that expressed in no uncertain terms their disapproval of the defence taken by the insurance company to avoid the policy. Has been criticised for being harsh as it was ambiguous. Contra position in Marine Insurance (no need) Note that the Courts specifically said that expert evidence of materiality is NOT required. Can infer from facts.
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Barclay Holdings (Australia) Pty Ltd v British National Insurance Co (1987) 8 NSWLR 515. -
Refusal on administrative grounds? Held to be irrelevant. Test applied was different. But ask, can a similar result hold with our test?
Previous loss/claims history Roberts v Avon Insurance Co. *1956+ 2 Lloyd’s Rep 240 -
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“I have never sustained a loss in respect of any of the contingencies specified in this proposal except ....”. It was held that the insurer 's failure to seek clarification for an unanswered question on the proposal form by the assured and the insurers ' failure to seek further details did not amount to a waiver of the duty of disclosure Q: inference to be drawn from such an answer? Possibility of estoppel? Test seems to be what a reasonable man would make of it. If it suggests a negative answer then yes.
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But if it suggests that the company should make further enquiries, and they do not, they have waived. Criticism of case
Becker v Marshall (1922) 12 Ll L Rep 413 -
Furrier-burglary policy – suffered three previous burglary losses Material but Question of date, amount and circumstances of loss must arise NB: comments of Mackinnon J. in Ewer Rejected proposition that insured was to disclose every claim he had ever made – no authority for such a bald proposition
Lyons v JW Bentley Ltd (1944) 77 Ll -
Previous claims history vital
Previous convictions Again remember materiality in terms of CTI -
What is relevant and what is not??
Covers cases where you show yourself to be unsavory and generally dishonest even vis a vis a third party like yr banker -
Eg: Preparing fraudulent documents/invoices to defraud bankers (to give more favorable impression etc
Regina Fur Co v Bossom *1958+ 2 Lloyd’s Rep 425 -
Company insured fur against burglary Director convicted of having received stolen goods more than 20 years ago It is of course incumbent on the respondent as the plaintiff to establish that the loss it suffered arose out of an accident to an object covered by the policy.
Roselodge Ltd v Castle *1966+ 2 Lloyd’s Rep 113 -
diamond merchant – all risks diamond policy principal director bribed police officer more than 20 years ago sales manager convicted of smuggling diamonds 10 years ago and employed by company 1 year later (after his release).
Reynolds v Phoenix Assurance Co *1978+ 2 Lloyd’s Rep 440 -
fire policy on property fined 11 years ago for receiving stolen property – not material Spent offence England: Rehabilitation of Offenders Act Singapore Registration of Criminals Act ss 7A , 7 E: Idea of forgiveness, rehabilitation , second chance (not very major offence can t be in prison exceeding 3 months and any
fine not to exceed $2000, and have to remain crime free for 5 yrs – theoretically no need to make a disclosure about it Insurance Corporation of Channel Islands v Royal Hotel [1998] Lloyds Rep IR 161 -
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It was held that a company which had prepared false invoices in order to persuade its bank that it was in better financial health than it was, ought to have disclosed the fact to fire insurers, even although no use had been made of the false invoices when the insurance was placed Mr Justice Mance (as he then was) found that the creation of false invoices was a matter which any prudent underwriter would have taken into account when deciding to provide insurance. Prior acts of dishonesty by the insured were, he held, capable of being material even if they went undetected. It was a question of fact and degree whether a prudent underwriter would take any particular act of dishonesty into account.
Sharon’s Bakery v Axa Insurance UK PLC [2011] EWHC 210 (Comm) -
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The insured brought a claim against its insurers seeking an indemnity for damage to bakery equipment caused by a fire at the insured's premises. Mr Justice Blair held that insurers were entitled to avoid the policy because the insured had failed to disclose to insurers that it had produced and used a false document in the course of a loan application, and this constituted a "moral hazard". The Judge also found that, by submitting a false document in support of its claim, the insured had used "fraudulent means or devices", and so, by the terms of the Policy forfeited all benefit under it. Blair J noted that the claimant accepted that material facts, for the purposes of the duty of utmost good faith, included facts affecting the "moral hazard". Blair J then turned to the phrase "moral hazard", which he said was "used to describe circumstances, invariably involving dishonesty on the part of the assured, which give rise to a concern that there will be dishonesty in the reporting and presentation of claims". Royal Hotel was authority for the proposition that dishonesty in relation to the insured's bankers was clearly material to be known to a prudent underwriter. The test of materiality (i.e. what would influence the judgment of the prudent underwriter) was an objective test. There was room for a test of proportionality, having regard to the nature of the risk and moral hazard under consideration. In Europe's case, a false invoice had been produced which was used for the dishonest purpose of inducing Lombard to provide a loan. The mere creation of the false invoice by Mr Levy would not, of itself, have been sufficient. But if the insured asked Mr Levy to produce the false invoice, this constituted a moral hazard which should be disclosed to insurers (even if, as in Royal Hotel, the invoice was not in fact used). As for inducement, Blair J accepted the evidence of the junior underwriter involved that, had he known of any dishonesty in Europe's dealings with Lombard, he would not have offered any insurance to Europe.
Criminal charges Brotherton v Aseguradoa Colseguros SA *2003+ EWCA Civ 705; *2003+ Lloyd’s Rep I.R746. -
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Bankers blanket bond insurance : covers loss due to employee’s fraud Senior banker facing criminal charge (though innocent) must disclose but can adduce evidence of innocence It was not a defence to show that the allegations were subsequently proved to be unfounded and those paragraphs of Aseguros's statement of case dealing with such issues were struck out. It was held that an underwriter complaining of non-disclosure should not have to await the outcome of a trial to determine the extent of risk. Such a determination would represent a complete departure from the important requirement of certainty in insurance dealings. The time for consideration of all the circumstances was when the risk was accepted. Per Buxton LJ, it is not the case that the underwriter has lost nothing because he has written the risk that he thought he was writing, He has lost the opportunity to take an informed decision at the time of placement Rumour versus credible intelligence here media reports that senior banker accused of misappropriation – not revealed by Colombian insurer to U.K. re-insurer To be judged at placement time charged but acquitted and in fact guilty – guilt is a material fact conviction must reveal Under s.18(5) of the Marine Insurance Act 1906, “circumstance” includes “any communication made to, or information received by, the assured”. Thus material circumstances may include mere intelligence, even where that intelligence later turns out to be wrong NOTE: This Court of Appeal decision has now effectively overruled the decision made last year in The Grecia Express (2002). The Brotherton Court of Appeal decision was also in accordance with another case that was heard just before, in February 2003, Drake Insurance v. Provident Insurance (2003). This case also successfully challenged The Grecia Express doctrine.
Allegations of wrongdoing and suspicious circumstances North Star Shipping v Sphere Drake Insurance [2006] 2 Lloyd’s Rep.183, *2006+ EWCA Civ 378, distinguished in Norwich Union Insurance Ltd v Meisels *2006+ EWHC 2811, *2007+ Lloyd’s Rep. I.R. 69 -
Information about insured company controllers’criminal proceedings/investigations (fraud) in Greek jurisdiction were material. Eventually cleared of it
The Grecia Express *2002+ Lloyd’s Rep IR 669 -
Previous loss in suspicious circumstances – maybe scuttled - 4 other vessels lost in such circumstances
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Held that the fact of an unresolved allegation of criminal or dishonest conduct, if material at the time of placement, would not be divested of materiality by the further fact that the allegation was untrue. Since this was the case even when the insured knew at the time of placement that the allegation was untrue, it must also be the case where it became apparent only after placement that the allegation was untrue. But at point of avoidance, if comes to light that nothing sinister/ suspicion disproved , Colman J “ unconscionable and impermissible to avoid” see approach in Brotherton and Drake Colman J confirmed that allegations were capable of being material circumstances, even if it could later be shown that they were untrue. Unusually, however, he also held that if evidence at trial proved the allegations were untrue, the court should regard maintaining an avoidance as a breach of the underwriter's reciprocal duty of good faith to the assured and therefore debar underwriters from enforcing their avoidance. Seems to have been overturned in Brotherton
Yong Sheng Goldsmith Pte Ltd v Liberty Insurance Pte Ltd [2011] SGHC 156 -
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The claimant was insured by Liberty under a jeweller’s block policy in respect of various risks, including armed robbery, to a policy limit of S$3 million. There was an armed robbery, but Liberty sought to avoid the policy on the ground that the claimant had failed to disclose that the premises had been the subject of loan shark harassment on a number of occasions prior to the inception of the policy. The claimant asserted that the information had been disclosed to Liberty’s agent, J, who had negotiated the policy and handled renewals. The court found that J was indeed the agent of Liberty, even though he had acted for other insurers and was not identified in the policy as the broker. J was a registered Liberty agent and had been issued with a name card by Liberty. Given that finding, J’s knowledge was to be imputed to Liberty, following Ayrey v British Legal and United Provident Assurance Co Ltd [1918] 1 KB 137. However, the court refused summary judgment to the claimant given that there were issues to be tried on discrepancies in the various proposal forms.
Joseph Fielding Properties v Aviva [2010] EWHC 2192 (QBD) -
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The claimant, JFP, owned property at Hoo Hill Industrial Estate. Its principal shareholder and director was Mr Peter Leonard. There was a fire. sought an indemnity from its insurer, Aviva, for an amount in excess of £2 million under an insurance policy. Aviva denied liability on three grounds, namely that: During the currency of the Policy JFP had made a fraudulent claim in respect of damage to a drain at Hoo Hill for which Aviva had paid JFP failed to disclose to Aviva prior to inception of the Policy that Mr and Mrs Leonard had made a fraudulent claim against a prior insurer for a different property
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JFP had failed to disclose to Aviva prior to inception of the Policy that on numerous occasions previously Mr Leonard or his businesses had made false statements to other insurers. Also, that for one of the claims prior damage to the property was not disclosed. Held: Policy avoided Court found in favour of Aviva on the fraudulent claims. Also found that they were sufficient to avoid the policy. But went on in dicta to consider the non-disclosure claim On the facts the court concluded that JFP had failed to disclose to Aviva that Mr Leonard had made a series of false statements to insurers in previous years. It was found that the combination of false statements, taken in the round, would have resulted in Aviva not writing the risk. In other cases some of the non-disclosures taken individually would have had this result (particularly those that went to moral hazard). Aviva was entitled to avoid the Policy in its entirety because JFP had not disclosed to it that it had made false statements to previous insurers. One point of interest was that the court determined that for the purposes of the Policy (taken out in 2008) it was material that JF had not disclosed to Aviva that Mr Leonard had made false statements on insurance proposals in 2001 relating to a conviction he had received for criminal damage. This was despite the fact that the conviction became spent on 5 November 2001 and since that date Mr Leonard had not been under any obligation to inform insurers of it (even when asked about prior criminal convictions on proposal forms) pursuant to the Rehabilitation of Offenders Act 1974.
Health of insured Has relevance especially in life and motor vehicle policies Goh Chooi Leong v Public Life Assurance Co Ltd [1964] MLJ 5 -
Failure to disclose suffering from TB Q: “have you had any advice on your heart or lung or for cough?” Ans : No Was previously warded in hospital for months for TB Insurer pleaded; non disclosure and misrep
Godfrey v Britannic Assurance Co *1963+ 2 Lloyd’s Rep 515 -
losing weight and underwent 2 hospital examinations, told minor kidney problem; later told some chest infection but kidney condition unchanged Q in PF: “Have you suffered from any illness … or received medical advice?” Gave negative answer. Test – reasonable man without specialist knowledge would appreciate that he possessed knowledge of his health which would be material to the insurers. Must reveal had medical treatment though not told of specific illness
David R Zeller v British Caymanian Insurance Co [2008] UKPC 4; [2008] Lloyds Rep IR 545 UKPC -
Health ins cover. Contract concluded Answered:
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“yes” in respect of ‘Goitre, thyroid trouble, diabetes’ “no” in respect of ‘heart trouble, abnormal blood pressure (hypertension or hypotension), anaemia, rheumatic fever’. “To the best of your knowledge and belief” He signified “no” where asked if he had any departure from good health other than those listed. Previously seen doctor who noted a minor heart murmur although no medication was ever prescribed Q: Should he, then, have disclosed the heart murmur and the raised cholesterol level as a departure from good health? Subsequent Visit to GP - detected a heart murmur. He underwent major cardiac surgery and Z sought payment of his medical and hospital expenses Insurer argued: insured had failed to disclose medical conditions for which he was diagnosed and had received treatment (namely elevated cholesterol and blood pressure, and a minor heart murmur which had been previously noted, although no medication was ever prescribed). Z may not have acted in good faith, and that it had been induced to cover Z by the representations he made. Cayman CA held: He should have disclosed Maj : reasonable person acting with ugf would have disclosed regardless whether he believed these were illnesses and diseases Minority: an ordinary person in Z’s position would not regard those as disease or sickness for which he has to disclose. Held by PC: Answers were actually true! He is to exercise his judgment on what appears to him to be worth disclosing - he thought it was trivial. 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 Remember Economides – only an honest opinion was needed Can’t repudiate since it was answered “To the best of your knowledge and belief”
Mundi v Lincoln Assurance Co *2005+ EWHC 2678 (Ch), *2006+ Lloyd’s Rep IR 353 -
Insured died. He was only 42. He died of a heart condition. His consumption of alcohol, the relevance of which will become apparent, had nothing to do with his death. Polciy had been lapsed and re-stated. In the restatement, he answered “no” to a question of whether or not he had consulted a medical adviser. This was untrue. His widow claimed under the Policy as his personal representative but Lincoln, asserting that both the original issue of the Policy and its re-instatement had been procured by material false- or non-disclosure, declined to pay, claiming to avoid the Policy.
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Upheld St Paul. Whilst the law in some circumstances will presume inducement from materiality, the presumption is neither universal nor irrebuttable. It would be too much to expect a lay applicant to remember every detail of a medical consultation of almost 15 months before but a layman's candid disclosure would, in my view, have had to include that he had then told his doctor that he had been drinking heavily, that he had had counselling at work, that he had had a discussion with his Doctor as to attendance at EACH and had had a liver function test. It is a commonplace amongst life insurers that they are interested in their applicants' drinking habits and Lincoln's own form of application is illustrative of that interest Thus held that binge drinking is a fact insurers would like to know Counselling at work suggests drinking at a level and persistency that has drawn attention to itself during working hours, possibly such as has impaired performance at work and such as was likely to have been of a frequency or duration beyond the occasional binge. Thus, held that was also material Held also that there was inducement
Lee v British Law Insurance Co *1972+ 2 Lloyd’s Rep 49 Pacific & Orient Insurance Co Sdn Bhd v Kathirvelu [1992] 2 MLJ 249 KLSC -
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The respondent, a superscale technical assistant in the Public Works Department in Johore, had taken out a personal accident policy with the appellant. The respondent met with two accidents as a result of which he claimed to be permanently disabled. The respondent made a claim under the policy and when the claim was rejected, he brought an action in the High Court. It appeared from the evidence that the accidents in this case had the effect of inducing the rare condition known as Sudeck`s osteodystrophy and at the same time made the haemorrhoids, cervical spondylosis and labile hypertension which was suffered by the respondent worse Among the issues was whether appellant was entitled to repudiate the said policy on the ground of non-disclosure of material facts at the time of executing the proposal form in that the plaintiff failed to disclose that he was then allegedly suffering from various diseases Held: Appeal dismissed Applying a fair and reasonable construction on the question in the proposal form, the court did not consider as a matter of fact that it was material for the respondent to have disclosed in the proposal form that he had early cervical spondylosis, haemorrhoids, labile hypertension or peptic ulcer as they are not serious diseases or illnesses of the same genus as those mentioned earlier in the said question. `It is a well-known canon of construction that where particular enumeration is followed by such words as `or other` the latter expression ought, if not enlarged by the context, to be limited to matters ejusdem generis with those specially enumerated. The canon is attended with no difficulty except in its application. Whether it applies at all, and if so, what effect should be given to it, must in every case depend upon the precise terms, subject-matter and context of the clause under construction.`
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The respondent was therefore not entitled to repudiate the policy on the ground of nondisclosure of material facts.
Insurance Corp. of Channel Islands v Royal Hotel *1998+ Lloyd’s Rep IR 151. -
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Hotel was insured against fire, among other perils, by two annual policies. There was a fire. Mr McHugh on behalf of Royal Hotel had on a number of occasions used fraudulent means or devices to promote Royal Hotel 's position and to obtain benefits under the business interruption policy, and that condition 5 of that policy provided for forfeiture of all such benefit in such circumstances. Question of whether this amounted to non-disclosure Held: The issue is whether the matters were material to be known to a prudent insurer in ICCI's position upon the renewal of insurance. The onus of establishing this is on ICCI and Royal Insurance. Held it was material. Good faith between the parties is at the heart of such an insurance A propensity to dishonesty towards bankers, involving the careful preparation of false invoices to distort the hotel’s trading figures, would be "plainly material" to any prudent insurer. It would suggest both a risk of distortion of any figures which might be presented in the context of a material damage claim as well as the possibility of other still more serious types of dishonesty m relation to the property and claims On the issue of inducement Witness gave evidence. Judge was satisfied.
Poh Siew Cheng v AIA [2006] 6 MLJ 57 KLHC -
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Plaintiff took out a personal accident policy The plaintiff disclosed the fact that he was suffering from diabetes and that he had life and personal accident policies in Singapore. Broker in filling up the proposal form did not write down all these facts and told the plaintiff that he (broker) did not require the details of the insurance policies in Singapore. When the plaintiff received his personal accident insurance policy, he realized that the details of his diabetic condition were not disclosed. Held: Judgment for plaintiff An agent employed by an insurance company to solicit business is, without a shadow of a doubt, an agent of the company and no one else The plaintiff had disclosed the fact of him suffering from diabetes and also the fact that there were in existence several insurance policies in Singapore in his favour to the agent and such knowledge shall be deemed to be within the knowledge of the defendant pursuant to s 44A of the Insurance Act 1963 The defendant is a company incorporated in Hong Kong with branches in Singapore and Malaysia.
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The fact that the plaintiff had disclosed his diabetic condition to the AIA branch in Singapore would be sufficient to constitute constructive notice to its branch in Malaysia, after all, the defendant is the same — namely, American International Assurance Co Ltd. The defendant’s branches practice of not communicating with one another given the current practice of an online computers stretching all over the globe is certainly difficult to believe and accept Diabetes need not be disclosed in personal accident policies because it is not a serious illness or disease which would prevent the insured from leading a normal working life
Leong Kum Whay v QBE insurance [2006] 1 MLJ 710 -
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The appellant was seeking a reversal of the High Court’s judgment refusing to set aside an arbitrator’s award. The award relates to claims made by the appellant against four different insurance companies on personal accident policies he had taken out with each of them, including QBE and Nippon There had been certain non-disclosures Held: The appellant said to QBE in the renewed policy that he did not have any life insurance. That was a material fact because of the basis clause. But it was untrue. Hence QBE was clearly within its contractual rights to refuse payment The appellant was duty bound to disclose the other personal accident policies to Nippon before it issued the second policy. Nippon considered the existence of other personal accident policies to be of significant importance to it. That is why it had put the question about it in its original proposal form. The appellant had answered that question in the negative. His answer was true at the time he gave it. But it was no longer true when the second policy was issued. The appellant must, as a reasonable man be taken to have known the importance that Nippon attached to the existence of other personal accident policies. Accordingly, the materiality of the fact not disclosed by the appellant was inferentially established before the learned arbitrator. The learned arbitrator was therefore entirely correct as a matter law in rejecting the appellant’s claim against Nippon
Waiver See also in light of s 18(3) of the MIA in the next section. Impact of proposal form Just because it is not asked does not mean it is not relevant. Unless waiver Schoolman v Hall *1951+ 1 Lloyd’s Rep 139 -
“Any losses during last 5 years” Questions in proposal form may either enlarge or limit duty of disclosure; generally does not relieve proposer of his obligation to disclose material fact Per Asquith LJ: "It is unquestionably plain that questions in a proposal form may be so framed as necessarily to imply that the underwriter only wants information on certain subject matters, or that within a particular subject matter their desire for information is
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restricted within the narrow limits indicated by the terms of the questions, and, in such a case, they may pro tanto dispense the proposer from what otherwise at common law would have been a duty to disclose anything material." The fact that the answers to express questions are made the basis of the contract merely prevents argument as to the materiality of the answers, and does not per se relieve the proposer of the general obligation to disclose anything material
March Cabaret v London Assurance *1975+ 1 Lloyd’s Rep 169 -
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Was a criminal offence that a director of the club had been charged with before renewal, but had not been convicted of at the time of renewal something that needed to be disclosed? No presumption that matters not dealt with in proposal form not material The duty to disclose is not based upon an implied term in the contract of insurance at all; it arises outside the contract. As Scott L. J. said, “…if it did, it would not arise until the contract had been made…” Cannot justify any concealment of a material matter on the ground that he, personally, is privileged from disclosingi
Arterial Caravans Ltd v Yorkshire Insurance Co Ltd *1973+ 1 Lloyd’s Rep 169 -
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The plaintiff (“Arterial”) sought indemnity under a fire insurance policy with the defendants in respect of a fire at its premises. The defendant repudiated the policy on the ground that Arterial had not disclosed that there had been a serious fire in other premises belonging to another company owned by the proprietor of Arterial some five years earlier. That company carried on a business not dissimilar to that of Arterial. It was held that the previous fire was a material fact that ought to have been disclosed. The fact that did not pose question in proposal form is not waiver unless put on enquiry and took no action
Roberts v Plaisted *1989+ 2 Lloyd’s Rep 341 -
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The Court of Appeal found that the non-disclosure by the proposer of a discotheque, in the answer to a proposal form question asking whether the premises were occupied for "any other purposes," was not in breach of the duty of disclosure. The Court reasoned that because the next question in the form asked whether there was a casino in any part of the building, the discotheque did not rate an an exceptional risk at the time of drafting the proposal form and the underwriter had waived entitlement to that information. The experts' evidence that the discotheque was material to the risk was clearly not taken in isolation When a question in a proposal form is framed in such a manner as to give an insurer all the information which it requires, it may have the effect of limiting an insured's duty of disclosure
Hair v Prudential Assurance *1983+ 2 Lloyd’s Rep 667 -
Per woolf LJ: test is how an objective reasonable man would construe it
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It is more likely, however, that questions asked will limit the duty of disclosure, in that, if questions are asked on particular subjects and the answers to them are warranted, it may be inferred that the insurer has waived his right to information either on the same matters but outside the scope of the questions or on kindred matters to the subject matter of the questions. ... Whether or not such waiver is present depends on a true construction of the proposal form, the test being : Would a reasonable man reading a proposal form be justified in thinking that the insurer had restricted his right to receive all material information and consented to the omission of the particular information in issue? I am bound to say, that, if it was intended that an assured should answer matters even though he was not being questioned about them, ... I would have expected something to be said which clearly indicated to a proposer that, although they had not been asked any specific questions about the matter, if there was something which was relevant to the risk which they knew of, but which was not covered by the questions, they should still deal with it, and leave a space for them to do so. Affirmed in Doheny v New India
Doheny v New India Assurance Co [2004] EWCA Civ 1705 -
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The insured (a husband and wife carrying on business) were asked to sign a declaration in a proposal form seeking property insurance which stated: "No director/partner in the business, or any Company in which any director/partner have had an interest, has been declared bankrupt, been the subject of bankruptcy proceedings or made any arrangement with creditors." [emphasis our own] The insured's business premises were damaged by fire and they submitted a claim. Insurers declined liability when it was discovered that the insured had been directors of companies that had gone into liquidation. The insured argued that the declaration could only apply to individuals as it referred to being "declared bankrupt" and "bankruptcy proceedings" ("liquidation" being the proper legal term for the same state of affairs in relation to a company). Insurers, on the other hand, submitted that the clause should be interpreted to mean: "No director in the proposing business has been declared bankrupt (etc) and no Company in which a director in the proposing business has had an interest has been wound up [or otherwise become] insolvent." [emphasis our own] The lower court preferred the insured's interpretation (although it ultimately found against them on the basis that the insolvencies of companies with which the insured had been connected were still material matters which should have been disclosed). Held: The Court of Appeal reversed that decision. In its view the wording was not ambiguous if the ordinary meaning of "bankrupt" and "bankruptcy proceedings" was applied Considered that the ordinary dictionary meaning of the term favours the insurer Also noted the use of the term liquidation was only when Bankruptcy Court moved to Chancery Court Taking all of these factors into account, the court concluded that the wording was not so ambiguous as to warrant application of the contra proferentum rule
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There can be no doubt that, when a proposal form is submitted to the insured who answers the relevant questions, authority has laid down that an insurer as a result of asking certain questions may show that he is not interested in certain other matters and can, therefore, be said to have waived disclosure of them. (Upholding Hair)
Other forms of waiver (conduct etc) Wise v Grupo [2004] EWCA (Civ) 962; *2004+ Lloyd’s Rep IR 764 -
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Theft of goods shipped from Miami to Cancun. Contained several boxes of Rolex watches Insurance – on “relojes” which is Spanish for watch as well as clock (prepared in Spanish and sent to Mexican insurer) Translation to English by broker to reinsurer – listed as clocks only (translation mistake) Reinsurer alleged non-disclosure of Rolex watches in consignment Insured said must should have asked. Why so many clocks Fought on waiver at CA: difficulty in inferring waiver from passivity Since it was no longer in dispute that the carriage of high-value, brand name watches was a material fact and that fact was not disclosed, this was a potentially unfair presentation of the risk. But would the facts that were disclosed naturally prompt a reasonably careful insurer to ask if watches were included in the shipments? All judges agreed that there was inducement Majority (Longmore and Gibson LJJ): (a) whether fair presentation of risk had been made and (b) from there, if insurer is put on enquiry: raise in his mind a suspicion that there were other circumstances that might vitiate the presentation, then must inquire further (objective standard) Two-stage process. Can assume that can take at face value what has been said Hence majority held that an insurer or reinsurer is entitled to assume that the presentation of the risk to him is a fair presentation and to take at face value what is said on the slip. The cargo cover was in very wide terms ("property of any kind"). Further details were given in the information section but no mention was made of watches. That information was more likely to put a (re)insurer off inquiry rather than on inquiry. Upheld CTI in stating that the insured must show a clear case to rely on waiver. Minority (Rix L.J.): implies overarching theme of mutual fairness into waiver (“matter to be considered in the round”) No benefit of face value advantage – should have suspected; More active role expected of insurer GNP made a detailed presentation, which, but for an error in translation of a single word, gave rise to no issue of non-disclosure. A reasonably careful insurer would have been fairly put on inquiry, given what he knew from the presentation and from his general knowledge.
Persimmon Homes Ltd v Great Lakes Reinsurance (UK) PLC *2011+ 1 Lloyd’s Rep 101 Synergy Health (UK) Ltd v CGU Insurance PLC *2011+ 1 Lloyd’s Rep 500
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Synergy 's primary submission in relation to waiver is that, by only requiring the insured to complete the Declaration of Material Facts which related to moral hazard and previous declinature, the insurers waived disclosure of any other material facts, specifically anything relating to the installation (or not) of the intruder alarm at Dunstable. Held: No The question is whether on a true construction of the Declaration of Material Facts, a reasonable man reading that document would be justified in thinking that the insurers had restricted their right to receive all other material information and consented to the omission of information about the non-installation of the intruder alarm at Dunstable. Held no It may well be that by requiring the Declaration to be completed, the insurers waived any further disclosure of other matters not the subject of express declaration, which related to the issue of moral hazard, but there is nothing in the wording of the Declaration to suggest that the insurers only wanted disclosure of matters concerned with moral hazard and declinature and were waiving disclosure of other facts material to the risk generally.
Garnat Trading & Shipping (Singapore) Pte Ltd v Baominh Insurance Cor *2011+ 1 Lloyd’s Rep 336; [2011] EWCA Civ 773 -
“The judge then adds (para 78) that Mr Sashkin also reminded Mr Dang of the Assessment, the Explanatory Note and the towage Instructions and again suggested providing Mr Dang with a translation but Mr Dang said that that documentation was not necessary or relevant for insurance purposes. That response would, of course, be relevant to any waiver argument (on which we have not felt it necessary to hear the parties) but the fact that the offer was made is also relevant to the question whether the risk was fairly presented.”
Facts not required to be disclosed without inquiry s.18 (3) MIA In the absence of inquiry, the following circumstances need not be disclosed: -
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(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.
Carter v Boehm (1766) 3 Burr 1905 -
Facts tending to diminish risk common notoriety or known to Insurer The insured need not mention what the under-writer ought to know; what he takes upon himself the knowledge of; or what he waives being informed of.
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The under-writer needs not be told what lessens the risque agreed and understood to be run by the express terms of the policy. He needs not to be told general topics of speculation Lord Mansfield found in favour of the policyholder on the grounds that the insurer knew or ought to have known that the risk existed as the political situation was public knowledge and there was not a word said to him, of the affairs of India, or the state of the war there, or the condition of Fort Marlborough. If he thought that omission an objection at the time, he ought not to have signed the policy with a secret reserve in his own mind to make it void
de Maurier v Bastion Insurance Co *1967+ 2 Lloyd’s Rep 550 -
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The insurers had agreed to insure the plaintiff's jewellery in respect of all risks. The policy included a clause in the following terms:-"[Warranted] road vehicles (whether owned by assured or otherwise) fitted with locks and alarms system (approved by underwriters) and in operation." Mr Justice Donaldson held that the warranty founded upon by the insurers merely delimited and was part of the description of the risk. It was not of a promissory character.
Cohen v Standard Marine Insurance Co [1925] 21 Ll L Rep 30 -
common notoriety or known to Insurer
Effect of breach Note: at present, the sole remedy for breach is retrospective avoidance of the contract. This is an extremely harsh remedy and one of the chief defects in the doctrine. -
Any possibility of damages? Return of premiums
Brit Syndicates v Italaudit Spa [2008] UKHL 18 – note only para 23 -
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This does not however fully resolve the question, with which these proceedings started, whether the phrase "insured by the terms and conditions of this policy" indicates that the member firm must have valid insurance. Pursuing the theme that the phrase was descriptive, Mr Guy Phillipps QC for GTI went so far as to submit that, even if the policy had been validly avoided as against GT Italy prior to any claim made against GTI, GTI could still have claimed indemnity under extension 3 in respect of any claim made against it arising from its association with GT Italy in Grant Thornton International. That goes further than I would. The concepts of an "Assured Firm" or a "member firm insured by the terms and conditions of this policy" would have I think to reflect the reality that such an avoidance would in effect strike GT Italy from the policy. The description of GT Italy as an Assured Firm or an insured would no longer apply.
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But retrospective avoidance ab initio is a different matter. There is no obligation on insurers to avoid. Unless and until insurers avoid, the firm remains an Assured Firm or a "member firm insured by the terms and conditions of this policy".
Banque Financiere v Skandia (UK) Ins Co Ltd *1990+ 2 Lloyd’s Rep 377 -
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Remedy: Avoidance - not helpful remedy for insured although helpful for insurer. No damages no breach of contract – not a tort, no breach of statute, no breach of fiduciary duty. Refused to create a novel tort. ASK: supposed equitable origin of relief? (remember Lord Mansfield)
REFORM cf also s84(1) MIA For the position in UK (wef 14 January 2005), see Financial Services and Markets Act 2000; see, in particular, Insurance Conduct of Business Rules (ICOB) under Claims Handling : Rule 7.3.6. -
Reforms: for UK, see, eg, doctrine of proportionality (Law Commission Report No 104, Non Disclosure and Breach of Warranty, pp30-35). LAW COMMISSION Consultation Paper No 182: “INSURANCE CONTRACT LAW: Misrepresentation, Non disclosure and Breach of Warranty by the Insured”
In Australia, see also s31 of Insurance Contracts Act 1984 where the court has discretionary power to disentitle avoidance. -
See http://www.austlii.edu.au/au/legis/cth/consol_act/ica1984220/s31.html
2007 UK Law Commission Report (Recommendations only) -
Abolishing consumers duty to volunteer info when no question is asked A duty to answer questions honestly and reasonably and to take all reasonable care to answer questions accurately and completely Remedy: depends on consumer's degree of fault deliberate or reckless - policy can be avoided negligent- compensatory remedy innocent - consumer is protected
Reciprocity of duty Distinguish PRE and POST contract.
Pre-contract See s17 of Marine Insurance Act -
Note the term is EITHER party. So does there seem to be a duty?
Banque Financiere v Skandia (UK) Insurance Co Ltd *1990+ 2 Lloyd’s Rep 377 UKHL
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Banks require credit insurance policies before giving out loans Broker’s fraud in not revealing gaps (not complete coverage. Was argued that Banks might not have lent if they knew) – underwriter discovered later but failed to disclose to banks (co-assured) Policy: contained fraud exclusion clause, so insurers refused to pay. Insured alleged Insurer’s nondisclosure of broker’s deceit High Ct.: breach of duty – could get damages. C.A.: breach but no damages Held by HL.: no breach of duty; exclusion clause applied due to fraud of borrower (instead of broker) Broker’s fraud in gaps was not a matter material to the risk that insurer would take into account nor was it a matter material to recoverability of claim Content of pre-contractual duty: pre-contractual duty to disclose matters material to risk or recoverability of claim under the policy which a prudent insured would take into account in deciding whether to place risk with insurer. Broker’s fault not causative of loss so fell outside exclusion clause, hence non disclosure 1)not material to recoverability of claim 2)did not increase or decrease the loss of the subject matter to the insured – hence no duty to disclose. Remedy: Avoidance - not helpful remedy for insured although helpful for insurer. No damages no breach of contract – not a tort, no breach of statute, no breach of fiduciary duty. Refused to create a novel tort. ASK: supposed equitable origin of relief? (remember Lord Mansfield) But approved C.A.’s approach regarding duty and remedy CRITIQUE Effect on actual insurer is irrelevant because of CTI but now? See Pan Atlantic? Marine Insurance Act did not refer to damages; Parliament “should have said so” if intended to include damages. YHY says it is nonsense Because it is reciprocal – hence, insured may be ordered to pay damages – if so, may cause him hardship.
Aldrich v Norwich Union Life Insurance Co Ltd *2000+ Lloyd’s Rep IR 1 -
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Court conceded the remedy is effectively is a lame duck. But see the POST-contractual context. It is contended by the Names that it is reasonably arguable that section 47 created a private civil law action for damages for breach of statutory duty actionable at the suit of an investor. Court rejected this argument. The section does not expressly create a statutory duty enforceable in civil proceedings for damages by individual investors nor does it expressly confer on individuals civil law remedies for breach of the section. It does not spell out any civil law consequences flowing from the contravention of the section It is not possible to gather from the language of the section itself or from the context a legislative intention to create such private law rights, remedies and consequences.
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Where that was intended the Act specifically provided for it. For example, section 62 provides for a remedy in damages in specified cases but they do not include section 47. Section 61 provides a collective civil remedy for contravention of certain provisions, including section 47, but it can only be enforced by the designated authority, not by individual private investors. Section 61(9), which expressly preserves an individual's rights to bring proceedings other than under section 62, does not assist the Names as it is clearly referable to the preservation of common law rights and remedies. The true position is as stated in Gower's Principles of Modern Company Law (5th Edition by Professor Gower) at p. 350: section 47 says nothing about civil liability. A victim cannot sue under section 47(1) for breach of statutory duty. The Act specifically provides for a civil remedy where one is intended. No such provision is made in the case of section 47(1).
Consider whether an insurer in exercising its right to avoid a contract on the ground of nondisclosure is subject to the duty of good faith. See: Brotherton v Aseguradora [2003] 2 All ER (Comm) 298 -
B reinsured insurers of Colombian bank – losses caused by fraud or dishonest acts of employees Prior Media reports – serious impropriety of bank’s president – irregular loans Not told to insurers Time of placement – insurers no way of knowing whether allegation true or not?
Drake Insurance v Provident Insurance [2003] All ER (D) 307 (Dec) -
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A bit of lingering controversy in Drake – whether avoidance subjected to duty of good faith especially when rumour proved to be untrue. READ H: yes, avoidance subject to good faith – if you know that untrue and what was material earlier was, in fact, not material, then can’t avoid (blind eye knowledge – shut your eyes and avoid, then breach of continuing good faith) NOTE ALL THIS IS OBITER. Was found earlier that Provident could not avoid because they had failed to prove inducement. There was mutual obligation of good faith between Provident and its insured. However that obligation did not limit its rights of avoidance. Lord Justice Rix looked at situation where a party avoids a contract on good grounds but later at trial, these are found to be insufficient grounds. Lord Justice Rix referred to another case Brotherton v Aseguadora Colseguros SA [2003] EWCA Civ 705 in which the court had said the only proper questions for decision at trial were whether there had been non-disclosure which was material and which had induced the insurance. There was repeated rejection of any element of hindsight in the analysis of materiality or inducement. Lord Justice Rix said that he was not deciding this issue and he would not go behind the trial judge’s finding that Provident acted in good faith. Provident had argued that they had renewed the policy in good faith. They did not know that the previous “fault” accident had become “no fault”.
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However there was case law to show that the doctrine of good faith should be capable of limiting the insurers’ right to avoid in circumstances where that remedy would operate unfairly. Lord Justice Rix hazarded the opinion that knowledge or shut eye knowledge of the fact that the accident was a “no fault” accident would have made it a matter of bad faith to avoid the policy. Therefore even if Provident had a right to avoid the policy, it could not do so in good faith where it knew or was shutting its eyes to the existence of the “no fault” accident. It would not be in good to avoid a policy without first giving the insured an opportunity to address the reason for which the insurer is minded to avoid the policy. In this case Provident could not avoid the policy in good faith where it knew or was shutting its eyes to the fact that the previous accident was a no fault accident. The description of the previous accident on the proposal form could be said to put Provident on notice that it had been settled in Dr Singh’s favour. Pill L.J. went further to suggest that had to make enquiry before avoiding. He considered in detail what information had been available to Provident and concluded that this knowledge created more than a speculative suspicion that the “fault” accident (which was at the time of renewal of the policy 2 ½ years old) had no relevance to the level of premium chargeable. It did not go quite far enough to establish “blind-eye knowledge” of the true state of affairs, but a failure to make any enquiry of the insured before taking the drastic step of avoid the policy was a breach by the insurer of the duty of good faith. On that ground, in Lord Justice Pill’s judgment, Provident were not entitled to avoid the policy. Ask: Does this extend to situations of non-disclosure?
Tay Eng Chuan [2008] 4 SLR 95 (Singapore) -
Chan CJ “just as the insured is under a legal obligation to disclose fully to the insurer, on an uberrimae fidei basis, all material facts relating to his personal conditions and circumstances, the insurer must also inform the insured of any unusual clauses in an insurance policy that may deprive the latter of his right to make a claim”.
UMCI Ltd v Tokio Marine & Fire Insurance Co (Singapore) Pte Ltd [2008] SGHC 188: cf. Warranties Reading List – (IV) Conditions, Collateral Terms and Contractual Techniques of Discharge
Post-contract (Read textbook first) Is the duty equally wide as pre-contractual? -
To attract remedy of retrospective avoidance? Good faith duty terminates at commencement of litigation
Manifest Shipping v Uni-Polaris (The Star Sea) [2001] 2 WLR 170 -
Only abstention from fraud – no question of innocent breach
K/S Merc – Scandia XXXXII v Lloyd’s Underwriters (The Mercandian Continent) *2001+ 2 Lloyd’s Rep 563 -
Only refers to express contractual obligation to provide information; even then, remedy will not be retrospective avoidance unless fraud caused significant prejudice
Agnew v Agapitos (The Aegeon) *2002+ 2 Lloyd’s Rep 42 -
Fraudulent claims fall outside scope of s.17 (should be governed by contract)
Black King Shipping Corp v Massie (The Litsion Pride) *1985+ 1 Lloyd’s Rep 437 Direct Line Insurance v Khan *2002+ Lloyd’s Rep IR 364 AXA General Insurance v Gottlieb *2005+ EWCA Civ 112; *2005+ Lloyd’s Rep IR 369. Agapitos v Konstantinopos [2002] 3 WLR 616; [2002] EWCA Civ 247; [2002] 2 Lloyd's Rep 42; [2003] Q.B. 556. (CA) Danepoint Ltd v Underwriting Insurance Ltd *2005+ EWHC 2318 (TCC), *2005+ Lloyd’s Rep IR 429
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