Insurance Contracts CP - Law Reform Commission

the Ohio case of Hartford Protection Insurance Co v Harmes 6 it was said that there is no need to impute a
need for reliance on information from the proposer:
―in fire insurance no such necessity for reliance exists, and, if the underwriter assumes the risk
without taking the trouble to either examine, or inquire, he cannot very well, in the absence of
all fraud, complain that it turns out to be greater than he anticipated.‖ 7
3.08 These remarks were made as long ago as 1853. As such, the decision of McMahon J in
Manor Park Homebuilders Ltd v AIG Europe (Ireland) Ltd, also a fire insurance case, in which the insurer
failed to inspect the property or follow up on information provided, resonates across the centuries.
McMahon J wrote that ―uberrimae fidei is not a charter for indolent insurers.‖ 8
3.09 In contrast, in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co 9 regarded as the leading
modern English case, Lord Mustill, speaking of the importance of Carter v Boehm, stated:
―Whilst it is true that this decision has been criticised on the facts, and that the wide general
contractual duty of good faith which Lord Mansfield propounded has long since ceased to hold
sway, the courts have never been deflected from the high standard of duty prescribed in this
judgment. The assured is not to keep anything back which goes to the computation of the
‗contingent chance‘, for otherwise there is no ‗fair representation‘, and the underwriter is led to
approach the ‗risk understood to be run‘ on a false basis. Such is the principle on which
insurance law has been developed and insurance contracts made for more than 200 years and
I would do nothing to dilute it now.‖
3.10 Lord Mansfield was seeking to establish a general contractual duty of good faith, not simply a
specific rule that would operate in insurance law, but this general duty of good faith has not taken root in
the common law world. 10 As such, the duty of disclosure in contracts of insurance has been classified as
a contract uberrimae fidei, a contract of ‗utmost good faith‘, and, along with a diverse but expanding range
of sui generis contracts, 11 is regarded as an exception to the caveat emptor or caveat venditor
approaches to contractual liability.
3.11 The stricter view is that the duty of disclosure does not depend on the proposer‘s awareness of
the existence of the duty. The proposer is under a duty to disclose material facts, even if the insurer or a
broker fails to ask questions or the insurance is negotiated without the use of a proposal form. 12 Even if
questions are asked the proposer must still disclose material facts that the questions might not have
alluded to (subject to the possibility of a waiver or a similar argument). The question, what is a material
circumstance, requires the proposer to have an awareness of the factors that would be relevant to an
insurer, even if the insurer has not explained the insurer‘s business or prompted the proposer in any way.
The Marine Insurance Act 1906 directs in section 18(2) that ―every circumstance is material which would
influence the judgment of a prudent insurer on fixing the premium, or determining whether he will take the
risk‖. This test was endorsed by Kenny J on behalf of a unanimous Supreme Court, in a case of property
insurance, 13 thus indicating that the test has a horizontal effect across all insurance contracts, with the
possible exception of life policies and the like other policies (eg income protection cover).
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2 Ohio St. 452 (1853).
Cited with approval by the ALRC in Report No 20 Insurance Contracts para 176 (1982). The commercial
benefits undertaking surveys in property insureance cases from a broker‘s perspective, is underlined by Cole
in ― A Practitioner‘s Perspective on Placement duties of Insurance Brokers and Reflections on the Proposal of
the Law Commissions‖, in Soyer, Reforming Marine and Comercial Insurance Law, (Informa Law 2008) Ch 5.
[2009] 1 ILRM 190 at 213.
[1994] 3 All ER 581 at 605; Bennett, ―Utmost Good Faith in the House of Lords‖ (1995) 111 LQR 181.
See generally Zimmermann and Whittaker (eds), Good Faith in European Contract Law (CUP, 2000).
See Chapter 2 of Eggers et al.
See generally MacGillivray, paras 17-017 to 17-021.
Chariot Inns Ltd v Assicurazioni Generali Spa [1981] IR 199, at 226. See below para 3.19.
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