The plaintiff had written long term (tail) insurance. The defendant came to re-insure it. On a dispute there were shown greater losses than had been disclosed, and that this had been known to the Plaintiff.
Held: ‘material circumstance’ which would require disclosure under the Act are such circumstances as would affect an insurer’s mind. Did it operate as an inducement to the insurer to enter into the policy? In order to be entitled to avoid a contract of insurance or reinsurance on the ground of non-disclosure the insurer must show both that the fact not disclosed was material, and that its non-disclosure induced the contract. To be material a fact did not have to have a decisive influence on the mind of the prudent underwriter. The test is as stated in subsections 18(2) and 20(2) which relate to non-disclosure and misrepresentation respectively and which set out the common law principles relevant to non-marine (as well as marine) insurance. The material non-disclosure or misrepresentation must induce the contract. It is not sufficient that the non-disclosure or misrepresentation is material: ‘there is to be implied in the Act of 1906 a qualification that a material representation will not entitle the underwriter to avoid the policy unless the misrepresentation induced the making of the contract, using ‘induced’ in the sense in which it is used in the general law of contract’ and ‘in practice the line between misrepresentation and non-disclosure is often imperceptible.’
A ‘material circumstance’ which might justify an insurer’s avoidance of a policy was one that would have an effect on the mind of the prudent insurer in estimating the risk; but, for a circumstance to be material, it was not necessary that it should have a decisive influence (such that but for the misrepresentation or non-disclosure the insurer would have declined the risk or accepted it only on different terms). But before an underwriter could avoid for non disclosure he had to show that he had actually been induced by the non-disclosure to enter into the policy on the relevant terms (i.e. that if the full facts had been disclosed he would not have entered into it or would have done so only on different terms). Even where there is non-disclosure of a material fact, if this does not in fact influence the judgment of the actual underwriter, avoidance is not justified. Lord Mustill said that ‘in practice the line between misrepresentation and non-disclosure is often imperceptible’.
‘In the general law it is beyond doubt that even a fraudulent misrepresentation must be shown to have induced the contract before the promisor has a right to avoid, although the task of proof may be made more easy by a presumption of inducement.’
Judges:
Lord Mustill
Citations:
Times 27-Jul-1994, Independent 04-Aug-1994, Gazette 07-Oct-1994, [1995] 1 AC 501, [1994] 3 All ER 581, [1994] 2 Lloyds Rep 427, [1994] 3 WLR 677
Statutes:
Marine Insurance Act 1906 18 20(2)
Jurisdiction:
England and Wales
Citing:
Applied – Berger and Light Diffusers Pty v Pollock 1974
. .
Applied – Container Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) CA 1984
The plaintiffs operated a scheme relying upon insurance. The insurers refused to renew, and they then approached and obtained insurance from the defendants, but it was alleged without disclosing the full history.
Held: The plaintiffs had made . .
Appeal from – Pan Atlantic Insurance Co Ltd and Another v Pine Top Insurance Co Ltd CA 1993
Steyn LJ said that ‘avoidance for non-disclosure is the remedy provided by law because the risk presented is different from the true risk. But for the non-disclosure the prudent underwriter would have appreciated that it was a different . . risk’ . .
Cited by:
Cited – Drake Insurance Plc v Provident Insurance Plc ComC 3-Feb-2003
A driver caused an accident, and the claimant insurance company paid out. It now sought a contribution from the defendant, who had also insured the driver, but had denied liability. The driver was a named additional driver under the second policy, . .
Cited – Assicurazioni Generali Spa v Arab Insurance Group (BSC) CA 13-Nov-2002
Rehearing/Review – Little Difference on Appeal
The appellant asked the Court to reverse a decision on the facts reached in the lower court.
Held: The appeal failed (Majority decision). The court’s approach should be the same whether the case was dealt with as a rehearing or as a review. . .
Cited – HIH Casualty and General Insurance Limited and others v Chase Manhattan Bank and others HL 20-Feb-2003
The insurance company had paid claims on policies used to underwrite the production of TV films. The re-insurers resisted the claims against them by the insurers on the grounds of non-disclosure by the insured, or in the alternative damages for . .
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 . .
Cited – Simms v Conlon and Another CA 20-Dec-2006
Solicitors within a practice sued each other, and one wished to plead the fact of a finding of professional misconduct.
Held: The defendant’s appeal succeeded. It was not an abuse for the appellant to continue to assert his innocence, and the . .
Cited – Sharon’s Bakery (Europe) Ltd v Axa Insurance UK Plc and Another ComC 9-Feb-2011
The insurers refused a claim for fire damage alleging that the insured had created a false invoice for use as evidence of title in a separate transaction when seeking finance. . .
Cited – Insurance Corporation of Channel Islands Limited and Another v Royal Hotel Limited and others (No 2) 1998
The court was asked whether insurers could avoid a policy by reason of the creation by one of the insured hotel’s directors of false invoices intended to create a more favourable picture of the hotel’s trading performance if it became desirable to . .
Cited – Hayward v Zurich Insurance Company Plc SC 27-Jul-2016
The claimant had won a personal injury case and the matter had been settled with a substantial payout by the appellant insurance company. The company now said that the claimant had grossly exaggerated his injury, and indeed wasfiully recovered at . .
Cited – Versloot Dredging Bv and Another v Hdi Gerling Industrie Versicherung Ag and Others SC 20-Jul-2016
The ‘DC MERWESTONE’ suffered a water ingress of water flooding the engine room. This resulted from (i) the negligence of the crew in failing to close the sea inlet valve of the emergency fire pump and drain down the system, after they had used the . .
Lists of cited by and citing cases may be incomplete.
Insurance
Updated: 28 April 2022; Ref: scu.84547