Insurance Contracts CP - Law Reform Commission

insurance contracts on vague grounds of non-disclosure supported by vague evidence even though
disclosure would not have made any difference.‖
―If an expert says, ‗If I had known I would not have accepted the risk or I would have
demanded a higher premium‟, his evidence can be evaluated against other insurances
accepted by him and against other insurances accepted by other insurers. But if the expert
says, „I would have wanted to know but the knowledge would not have made any difference‟
then there are no objective or rational grounds upon which this statement of belief can be
tested.‖
3.35 The central criticism of ―the wish to know‖ test is that it is difficult to challenge on rational and
objective grounds: as the law seeks to make the test one which is independent of the actual views or
conduct of the insurer, a ―wish to know‖ test seems to inject an unpredictable element into the law. The
other dissenting judge, Lord Lloyd, commented that the purpose behind the prudent insurer test was
―to establish an objective test of materiality, not dependent on the actual insurer‘s own
subjective views. The test should therefore be clear and simple. A test which depends on
what a prudent insurer would have done satisfies this requirement. But a test which depends,
not on what a prudent insurer would have done, but on what he would have wanted to know, or
taken into account, in deciding what to do, involves an unnecessary step. It introduces a
complication which is not only undesirable in itself but is also, in the case of inadvertent nondisclosure,
capable of producing great injustice.‖ 43
3.36 In response to this controversy the Law Commission recommended a two stage test of
materiality that one critic has lambasted as an ―untested and unserviceable model‖ 44 that tends to ignore
the context in which Pine Top was decided, that is, a large commercial insurance dispute in which the role
(and possible downstream liability) of experienced brokers was a central concern. These circumstances
should not, in our view, deflect our attention from trying to establish a test of disclosure that takes account
of the commercial context – kind of insurance, method of sale or negotiation, role of an intermediary, etc –
and yet has a degree of ease of application.
3.37 The Commission invites submissions as to which of the following two definitions of “material
facts” should be provided for in legislation: either (a) facts which, in the circumstances, a reasonable
insured would know to be highly relevant and should be disclosed; or (b) facts which, in the
circumstances, a reasonable insured would know to have a decisive influence on the insurer‟s decision in
accepting the risk or in setting the level of the premium (the price).
(2) Examples of the Duty of Disclosure in Operation
3.38 The duty of disclosure requires the proposer to reveal any matters that would influence the rate
of the premium which the underwriter might require the proposer to pay, even if that matter would not
strike the proposer as having that effect: Dalgish v Jarvie 45 is often cited as an early authority for this
proposition, but Hasson 46 makes the point that this case has nothing to do with insurance and that until
Jessel M.R. laid out a broad duty of disclosure in London Assurance v Mansel 47 the weight of opinion was
in favour of a fairly narrow duty of disclosure insofar as the duty did not extend to matters that the insurer
could discover by an act of fair inquiry and the exercise of due diligence. London Assurance v Mansel
concerned a life assurance policy in respect of which the proposer had failed to disclose the fact that an
earlier proposal had been declined by another company. Believing that his proposal had been turned
down for reasons other than considerations of health, the proposer felt that the matter was not material.
This was held not to be a justifiable basis for non-disclosure. There is a significant difference between
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[1994] 3 All ER 581 at 625.
Wier, ―Materiality: The Search for Practicality‖, in Soyer, Reforming Marine and Commercial Law (Informa Law
2008)
(1850) 2 M&G 231.
Hasson, ―Uberrima Fides in Insurance Law‖ (1932) 32 MLR 613 at 620.
(1879) 11 Ch 363.
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