Insurance Contracts CP - Law Reform Commission

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CHAPTER 3
DUTY OF DISCLOSURE
A
Introduction
3.01 The duty of a proposer to volunteer information to an insurer when that information would
appear to a prudent insurer to be material to a decision whether to accept the risk, and on what terms, is
long-established. In this Chapter, the Commission notes that the duty of disclosure is mandated by both
the common law and the Marine Insurance Act 1906 as being applicable to all insurance contracts. The
duty is rooted in ―special knowledge‖ of a risk as being likely to be solely in the possession of the
proposer. Whether this remains the case is open to some doubt in the light of telecommunications and
other advances. The duty has always been balanced by reference to the insurer‘s duty to disclose and
investigate circumstances within the insurer‘s competence and expertise. In some jurisdictions the duty
of disclosure has been offset or indeed removed altogether by an insurer‘s obligation to ask specific
questions.
B
The Duty of Disclosure in Insurance Contracts
3.02 Under section 18(1) of the Marine Insurance Act 1906 (generally regarded as applicable to all
forms of insurance, except in respect of the constructive knowledge issue, discussed below) a person
who is seeking to obtain insurance:
―must disclose to the insurer, before the contract is concluded, every material circumstance
which is known to the assured, and the assured is deemed to know every circumstance, in the
ordinary course of business, ought to be known by him. If the assured fails to make such
disclosure, the insurer may avoid the contract.‖
3.03 The basis upon which the duty of disclosure rests is disparity of information and bargaining
power. Insofar as the proposer may, in the many situations, possess superior knowledge of the facts and
circumstances that attend the risk, particularly those personal to the proposer, it is entirely appropriate
that the proposer should reveal those facts and circumstances to the insurer. In Carter v Boehm 1 Lord
Mansfield contrasted situations where ―special facts‖ are held by one party to a negotiation from instances
where ―either party may be innocently silent, as to grounds open to both, to exercise their judgment
upon‖. Because Lord Mansfield observed that ―insurance is a contract or speculation‖, the law requires
that such ―special facts‖ as either party has access to must not be suppressed. Even if the suppression
were to happen through a mistake, even without fraudulent intent, Lord Mansfield observed that the policy
would be void ―because the risque run is really different from the risque understood and intended to be
run, at the time of the agreement.‖ So, the suppression of factual information, whether fraudulent or
otherwise would allow the insurer to treat the contract as void. Lord Mansfield reasoned that:
―The special facts, upon which the contingent chance is to be computed, lie most commonly in
the knowledge of the insured only; the under-writer trusts to his representation and proceeds
upon confidence, that he does not keep back any circumstance in his knowledge, to mislead
the under-writer into a belief that the circumstance did not exist, and to induce him to estimate
the risque, as if it did not exist.‖ 2
1
2
(1766) Burr 1905; of this case see Watterson, Carter v Boehm in Mitchell and Mitchell, Landmark Cases in the
Law of Contract (Hart, 2008). Hasson, in ―The Doctrine of Uberrima Fides in Insurance Law – A Critical
Evaluation stresses that Lord Mansfield was concerned with ‗fraudulent concealment‘: (1969) 32 MLR 615 at
618. Later judges have lost sight of this.
(1766) Burr 1905, at 1909-10
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