A claim was made under a marine insurance policy for damage caused to a vessel by an explosion. Underwriters alleged that they were entitled to avoid the policies for (inter alia) non-disclosure of the existence of criminal proceedings in Greece against the brothers who owned the company which owned the vessel in question. The insured said there was no basis to the charges. Reliance was sought to be placed on a letter written by the Serious Fraud Office, stating that it regarded the allegations as fraudulent.
Held: Waller Lj: ‘The law in this area is, as others have recognised, capable of producing serious injustice. If every false allegation of dishonesty must be disclosed in all types of insurance that may place some insureds in the position of finding it difficult to obtain cover at all, and will certainly expose them to having the rates of premium increased unfairly. I do not myself see it as a practical answer to say that exculpatory material can be produced, because unless the material is such as to prove beyond peradventure that the allegation is false, in which event the allegation seems to me no longer material, an underwriter is not likely to be prepared to take time sorting out the strength or otherwise of the allegation. In many instances he would be likely to take the view there is no smoke without fire and turn the placement down or at the very least rate the policy to take account of the allegation. Furthermore the decision in Drake may provide an answer in some but very few cases, and in any event does not seem to provide a remedy for the increased premium that an insured may have had to pay on the basis of a false allegation.
All that said, it does not seem to me that what must be disclosed can be defined as a matter of law in the way that Mr Goldstone would have us do and in a way which I might have been tempted to follow. It is a matter of evidence what is a material circumstance and, as the headnote in Pan Atlantic v Pinetop accurately records, a ‘material circumstance’ is one that would have an effect on the mind of a prudent insurer in estimating the risk and it is not necessary that it should have a decisive effect on his acceptance of the risk or the amount of premium to be paid.
Expert evidence is called to guide the court as to what would influence the judgment of an underwriter. The only way that, under the present state of the law, the obligation of disclosure in this area of moral hazard can be confined is either by underwriters giving evidence that they would not be influenced and would not take into account an allegation of dishonesty, or by a robust judge rejecting an underwriter’s evidence that he would take it into account. Spent convictions no longer have to be disclosed, and old allegations of dishonesty or allegations of not very serious dishonesty, one would hope, expert underwriters would not suggest would influence the judgment of prudent underwriters. But it is unreal to contemplate as a general proposition that underwriters as expert witnesses would ever give evidence that a prudent underwriter would not take into account in assessing the risk or the terms of the insurance a recent allegation of serious dishonesty the truth or falsity of which has yet to be determined, even if it is quite unconnected with insurance or the risk being insured. Furthermore it is difficult to see a judge not accepting that evidence.’
The Hon Mr Justice Lloyd Lord Justice Lloyd Lord Justice Walker
[2006] EWCA Civ 378, [2006] 1 Lloyds Rep IR 519
Bailii
England and Wales
Cited by:
Cited – Norwich Union Insurance Ltd v Meisels and Another QBD 9-Nov-2006
The claimants sought payment for water damage under their policies. The insurer alleged non-disclosure. The judge had found the claimants to be honest, and criticised the defendants witnesses. The claimants had been involved in companies which had . .
These lists may be incomplete.
Updated: 11 July 2021; Ref: scu.240137
