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CHANAKYA NATIONAL LAW

UNIVERSITY

SUBJECT- INSURANCE
PROJECT WORK ON
DUTY OF DISCLOSURE

SUBMITTED TO
DR. Shaiwal Satyarthi
(FACULTY OF INSURANCE)
SUBMITTED BY
ROHIT SINHA
ROLL NO. 601
8th semester

ACKNOWLEDGEMENT
Making a project is one of the most significant academic challenges I have ever faced. Any
attempt at any level can't be satisfactorily completed without the support and guidance of
learned people. I am overwhelmed with my gratitude to acknowledge all those who have
helped me put these ideas, well above the level of simplicity and into something concrete
effectively and moreover on time.
I am very thankful to my subject teacher Dr. Shaiwal Satyarthi for his valuable help. He was
always there to show me the right track whenever I needed his help. He lent his valuable
suggestions, guidance and encouragement, on different matters pertaining to the topic. He has
been very kind and patient while suggesting me the outlines of this project and clearing my
doubts. I thank him for his overall support without which I would not have been able to
complete this project. I would also like to thank my colleagues, who often helped and gave
me support at critical junctures, during the making of this project. Last but not the least, I
would like to thank my family members for their emotional support.

Contents
RESEARCH METHODOLOGY...........................................................................................4
SCOPE AND OBJECT OF THE PROJECT..........................................................................4
SOURCES..............................................................................................................................4
INTRODUCTION......................................................................................................................5
Evaluation of Doctrine Under Common Law............................................................................6
General Principles of Utmost Good Faith..................................................................................9
Good Faith Expected From Both the Parties............................................................................10
What is a material fact?............................................................................................................12
Facts which need to be disclosed and need not to be disclosed...............................................13
Facts required to be disclosed..............................................................................................13
Facts which need not be disclosed.......................................................................................14
Principle of utmost good faith under the Marine Insurance Act, 1963....................................15
Active and Passive Duty of Disclosure....................................................................................15
Effect Of Non-Disclosure/Misrepersentation...........................................................................16
Misrepresentation:................................................................................................................16
Non-Disclosure....................................................................................................................16
How to Deal With Breaches.................................................................................................17
Representations........................................................................................................................18
Conclusion................................................................................................................................18
BIBLIOGRAPHY....................................................................................................................20

RESEARCH METHODOLOGY
The researcher has adopted doctrinal method of research. The researcher has made extensive
use of the available resources at library of the Chanakya National Law University and also
the internet sources.
SCOPE AND OBJECT OF THE PROJECT
The project revolves around the concept of duty of disclosure. It is aimed at getting an insight
into intricacies of utmost good faith, emphasis being laid on the new policy framed by our
legislature and various case laws..
SOURCES
The following secondary sources of data have been used in the project1. Case-laws
2. Books
3. Journals

INTRODUCTION
Insurance contracts are a special class of contracts which are guided by certain basic
principles like those of utmost good faith, insurable interest, proximate cause, indemnity,
subrogation and contribution. As such, an insurance contract is generally a combination of
more than one of these principles and no single principle can be used at one time. The rest is
dependent on the contract between the parties. These principles are mostly guided by
common law principles from which they have developed. They have also been modified by
principles of contract and by statutes as in the case of the Marine Insurance Act, 1963 which
has to a certain extent relaxed the basic principles of insurance law.
The principle of Uberrimae fidei applies to all types of insurance contracts and is a very basic
and primary principle of insurance. According to this principle, the insurance contract must
be signed by both parties (i.e insurer and insured) in absolute good faith or belief or trust. The
person getting insured must willingly disclose and surrender to the insurer all relevant
complete true information regarding the subject matter of insurance. The insurer's liability is
voidable (i.e legally revoked or cancelled) if any facts, about the subject matter of insurance
are either omitted, hidden, falsified or presented in a wrong manner by the insured.
The principle forbids either party to an insurance contract, by non-disclosure or misrepresentation of a material fact, which he knows or ought to know, to draw the other into the
bargain, from his ignorance of that fact and his believing the contrary. The duty of the utmost
good faith is implied in insurance contracts because they are entered into by parties who have
not the same access to relevant information. In this, they differ from contracts of sale to
which the maxim caveat emptor (let the buyer beware) applies. Although the duty rests upon
both parties, it is the duty of the proposer which needs to be discussed in some detail for he
usually has the advantage of knowing most of the particulars relating to the subject-matter.
Until a definite offer to enter into an insurance contract has been unconditionally accepted the
duty of the utmost good faith must be strictly observed. The obligation arises again prior to
each renewal and, to a limited extent, when the insured desires an alteration in the policy. In
the latter case, he must inform the insurer of any facts material to the alteration.
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Evaluation of Doctrine Under Common Law

The contract of insurance is thus one of uber rima fides or of utmost good faith where the
duty of disclosure lies on both the parties. A greater duty is cast on the assured to make
known to the insurer till the date of validity of the policy about all such material facts
connected with the subject matter of the insurance which the insurer doesnt know or is not
deemed to know. A failure to disclose such fact, even if done innocently, will entitle the
insurer to avoid the contract within a reasonable time period.

The basis of this rule can be found in the famous case of Carter v. Boehm1, where L.
Mansfield stated that Insurance is a contract of speculation. The special facts upon which the
contingent chance is to be computed lie most commonly in the knowledge of the assured
only; the underwriter trusts to his representation and proceeds upon confidence that he does
not keep back any circumstance in his knowledge to mislead the underwriter into a belief that
the circumstances do not exist. The keeping back of such circumstances is fraud, and
therefore the policy is void. Although the suppression should happen through mistake,
without any fraudulent intention, yet still the underwriter is deceived and the policy is void;
because the risk run is really different from the risk understood and intended to be run at the
time of agreement. . . . The policy would be equally void against the underwriter if he
concealed. ... Good faith forbids either party, by concealing what he privately knows to draw
the other into a bargain from his ignorance of the fact, and his believing the contrary. Clearly
so, L. Mansfield here talks only about the obligation of the insured towards the insurer at the
time of making of the contract. This statement fails to cover such disclosures as are ought to
be made by the assured after the completion of the contract and during the validity of the
policy. The facts of this case were that a policy was created against the loss of Fort
Marlborough on its being captured by a foreign enemy. The policy was for the benefit of
George Carter, the Governor of the Fort. It was alleged by the insurer that weaknesses in the
fort and possibility of attack by the French must have been disclosed. The jury decided in
favour of the plaintiff and held that as it may be presumed that the underwriter knows nothing
1 (1766) 3 Burr 1905,

about the subject matter in question, it is the duty of the insured to disclose all material
circumstances which may greater the risk involved.
The Marine Insurance Act, 1906 in England also incorporates within it the principle of utmost
good faith. Sections 18-20 of the Act address the pre-contractual duty of good faith at more
length. Section 18 deals with disclosure by the assured, Section 19 with disclosure by agents
to insure, and Section 20 deals with misrepresentation.
Another important question which arises is does the duty of utmost good faith continue even
after the contract is made? Here came the landmark case of Black King Shipping Corp. v.
Massie (The "Litsion Pride"). In this case, the assured ship owners failed to disclose to the
underwriters that the vessel was about to enter a dangerous part of the Persian Gulf so as to
avoid having to pay a higher war risks premium. The vessel was struck by an Iraqi missile,
and the owners then presented a fraudulent claim by lying to the underwriters about the
vessel's position at the time of the casualty. The court held that the underwriters were entitled
either to avoid the policy for fraud or deny the particular claim.
In Manifest Shipping Co. Ltd. v. Uni Polaris Insurance Co. Ltd. (The "Star Sea"), 10 Greek
ship owners sued underwriters under a marine policy following the constructive total loss of
their vessel as a result of a fire. The underwriters raised two defences. First, they relied on
Section 39(5) of the Marine Insurance Act, which provides a defence to liability where, "with
the privity of the assured, the ship is sent to sea in an unseaworthy state." The underwriters
alleged that the owners had "blind-eye knowledge" of the unseaworthy condition of the
vessel namely, defective funnel dampers-which meant that the engine room could not be
sealed, and the fact that the fire extinguishing system had been poorly maintained and was
not working properly. Second, they relied on Section 17 of the Act, alleging that the owners
were in breach of the duty of utmost good faith by failing to disclose the facts relating to an
earlier fire aboard another vessel, Kastora, at the time the underwriters' solicitors were
investigating the Star Sea claim. It was held that utmost good faith is a principle of fair
dealing which does not come to an end when the contract has been made. Lord Hobhouse
proceeded to distinguish between a contractual obligation of good faith in the performance of
a contract, the primary remedy for breach of which was damages, and the legal duty imposed
by Section 17. He said that the right to avoid under S.17 operates retrospectively and allows a
party to rescind the contract ab initio. Thus, where a fully enforceable contract has been
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entered into insuring the assured, but later, towards the end of the period the assured fails in
some respectfully to discharge his duty of complete good faith, the insurer is able not only to
treat himself as discharged from further liability but can also undo all that has perfectly
properly gone before. Thus, there is a duty to disclose on the insured even after the contract is
completed.
In K'S Merc-Scandia XXXXII v Lloyd's Underwriters (The "Mercandian Continent"),20 the
claimants were the owners of a vessel which had been repaired in a Trinidadian shipyard in
1988. Repairs to the engine were negligently performed so that the engine exploded, causing
damage to the vessel and loss of use. The claimants made a claim against the shipyard. The
underwriters relied on two defences: avoidance for breach of the duty of utmost good faith;
alternatively, breach of one of the general conditions of the policy, which required the assured
to keep the insurers "fully advised" in the event of any occurrence which might result in a
claim. It was held that it is only appropriate to invoke the remedy of avoidance in a post
contractual context in situations analogous to situations where the insurer has a right to
terminate for breach. For this purpose the fraud must be material in the sense that the fraud
would have an effect on underwriters' ultimate liability. The insurer will not, therefore, be
able to avoid the contract of insurance with retrospective effect unless he can show that the
fraud was relevant to his ultimate liability under the policy and was such as would entitle him
to terminate the insurance contract.
Thus, the law relating to utmost good faith stands as follows now1. The common law imposes a reciprocal duty of good faith on the parties to insurance and
reinsurance contracts (i) at the time the contract is made (pre-contractual duty) and (ii)
following the making the contract (post-contractual duty). The nature and extent of the precontractual duty and the post-contractual duties are, however different.
2. At the pre-contractual stage, there is a positive obligation on the parties" to disclose all
facts material to the risk and to refrain from material misrepresentation. The only remedy the
common law allows for breach of the duty of good faith is avoidance of the contract of
insurance or reinsurance. Damages for breach of the duty of good faith are not available.

3. There does not appear to be a general duty that the parties perform the contract of
insurance or reinsurance in good faith. Thus there is no basis under English law for awarding
damages against an insurer or a reinsurer for "bad faith" in relation to the handling of claims.
4. However, there does appear to be a continuing duty on the parties not to be materially
fraudulent in relation to the performance of the contract. After the contract has been made,
the duty of good faith includes but is not confined to (i) cases analogous to the precontractual context, such as variation of the risk, and (ii) a requirement that the assured
refrain from making fraudulent claims.
5. In a post-contractual case, the underwriter is entitled only to avoid the contract with
retrospective effect if he can show (i) that the fraudulent conduct of the assured was relevant
to the underwriter's ultimate liability under the contract and (ii) was such that it would entitle
him to terminate the contract for breach.
6. When a claim is made, the assured is, as a matter of principle, under an obligation to
disclose all material facts to the underwriter's agents investigating the claim. However the
failure to make full disclosure, unless it was materially fraudulent, does not entitle the
underwriter to deny an otherwise valid claim. Once a writ is issued, the obligation of
disclosure is governed by the relevant procedural rules and the consequences of a failure to
disclose relevant documents are also determined by reference to those rules.
Never the less, S.20(1) of Marine Insurance Act,1963 says that the duty to disclose continues
till the time the contract is concluded.

General Principles of Utmost Good Faith

Out of all the above mentioned principles, the principle of utmost good faith remains one of
the most important doctrines underlying the law of insurance. In Banque Finaciere de la
Cite v. Westgate Insurance Co. Ltd.2, it was held that-The duty of disclosure is neither
contractual, nor tortuous, fiduciary or statutory in character but is founded on the jurisdiction
originally exercised by the courts of equity to prevent impositions.
2 (1989) 2 All ER 982

The term good faith has been mentioned in the Indian Penal Code and it signifies good
intention and due care and caution. However, this principle under insurance law needs to be
examined in the contractual context. In every contract in general, both parties owe no positive
duty toward each other beyond showing ordinary good faith. This emanates from the right of
every person to know about every material fact associated with the subject matter of the
contract and there is no escape to this. This follows from the maxim Caveat Emptor or buyer
beware as under the Sale of Goods Act. It means that each party must be given a reasonable
opportunity to make independent enquiries about the subject matter in question so that they
may take a decision. Thus, all material facts must be disclosed or made available to the party
so that he or she may reasonably enquire about the same. This further puts a duty on the party
making the subject matter accessible to the person enquiring, not to play fraud or
misrepresent the same, else it would be hit by S.19 of the
Indian Contract Act, making the contract voidable at the option of the innocent party. But,
S.19 also clarifies that misrepresentation or even silence amounting to fraud will not entitle a
party to avoid the contract if he had the means of discovering the truth with ordinary
diligence and did not do so. Hence, there must thus be free consent and the parties must
understand the same things in the same sense.
The burden of proof to show non-disclosure or misrepresentation is on the insurance
company and the onus is a heavy one. The duty of good faith is of a continuing nature in as
much no material alteration can be made to the terms of the contract without the mutual
consent of the parties.

CASES1. Brownlie v. Campbell3,


If one knows any circumstance at all which may influence the underwriters opinion as to the
risk he is incurring, there is an obligation to disclose that which one knows and the
concealment of any material circumstance whether you thought of it as being material or not,
avoids the policy.
3 (1880), 5 App Cas 925

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2. Rozanes v. Bowen4,
The principle of utmost good faith was laid down here. It was said that since it is to be
presumed that the underwriter knows nothing and the assured knows all, the latter must
disclose the same. Thus, an insurance contract is a contract uberrima fides.

Good Faith Expected From Both the Parties

Good faith is expected from the insured or assured as well as the insurer. It is the buyer's duty
to disclose all facts related to the risk to be covered. Similarly, it is the insurer's duty to
inform the insured of all the terms of the contract. However, it is generally the assured person
on whom there is a bigger duty to disclose. This is primarily because very often the insurer
has to depend upon what details the insured mentions in his form. If the insured gives wrong
details or details of goods which are actually not in existence, the insurer may end up paying
for the wrong claims in the future. The insurer faces a lot of problems trying to verify all such
details, even though the advent of technology has made the task comparatively easier now a
day. Wrong information given not only affects the insurer but also the other people involved
in the insurance pool whose premiums may be wrongly utilized to satisfy the claims. It is
therefore an implied condition or principle of insurance that the Assured be required to make
a full disclosure of all material particulars within his knowledge about the risk. Further,
considering the increase in new businesses in which insurance is being taken, it becomes
mandatory for the assured to inform the insurer if there are any alterations or changes to the
business which increases the risk during the validity of the policy and get his permission. If
no disclosure is made, the insurer has every right to avoid the contract.
CASES:
1. United India Insurance Co. Ltd. v. MKJ Corpn.5,
4 (1928), 32 L.I.L.R. 98
5 (1998) 92 Comp Cases 331 (333)

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Just as the insured has a duty to disclose, it is the duty of the insurers and their agents, to
disclose, all material facts within their knowledge, since obligation of good faith applies to
them equally with the assured.

2. Banque Finaciere de la Cite v. Westgate Insurance Co. Ltd.,6


In this case, the plaintiff bank had agreed to lend some 30 million pounds securities in the
form of some gemstones and some credit insurance policies. The gemstones when valued did
not prove to be worth much. So, the bank sought to rely on the insurance policies. The
policies had been brokered by a major firm of brokers who resorted to a series of false covers
due to inability to obtain full cover. On making claims under the policies, the bank discovered
severe shortage in cover. It was held that the insurers were under an obligation to disclose the
same. It was also held that the only remedy available to the insured is to rescind the policy
and claim the premium. No other damages may be awarded.

3. Joel v. Law Union,7


The duty to show good faith falls on the insured as well as the insurer to an equal degree in
all types of insurance contracts.
4. Anstey v. British Natural
The insurer must inform the insured about the terms and conditions of the policy that is going
to be issued to him and must strictly conform to the statements in the prospectus if any.

What is a material fact?

6 (1989) 2 All ER 982


7 77 LJKB 1108

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Another problem arises as to the definition of the term material fact. What may be material
for one may be immaterial for the other and vice-versa. But, generally speaking, a material
fact is one which affects the judgmental capacity of a person. It must be such that a different
consequence would have occurred had it not been disclosed. The following cases illustrate
the different theories evolved by the judiciary regards this.

CASES:
1.Marine Life Insurance Co. v. Ontario Metal Products,8
The test of materiality is the judgment of the prudent insurer and it is not what is material in
the opinion of a reasonable assured.
2. Reynolds v. Phoenix Assurance Co.9
The test is whether the circumstance in question would influence the prudent insurer and not
whether it might influence him.
3.Lindenau v. Desborough,10 The question is whether any particular circumstance is in fact
material and not whether the proposer believed it to be so.
4.St. Paul Fire and Marine Insurance Co. (UK) Ltd. v. Mc Connell Dowell Constructors
Ltd,11
Two major questions were decided in this case. The first was the test of materiality according
to which the fact in question must have been of interest to a prudent insurer. Secondly, as
regards the presumption of inducement, it was held that the test would be satisfied if the

8 94 LJPC 60
9 (1978) 2 Lloyds Rep 440
10 (1828) 8 B & C 586
11 45 Con LR 89

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insurer could show that he was influenced in whole or in part by the assureds misleading
presentation of the risk.

The Prudent insurer test has been adopted in S.149(6) of Indian MV Act,1988 and S. 149(5)
of English Road Traffic Act, 1972.

Facts which need to be disclosed and need not to be


disclosed

Facts required to be disclosed

1. A fact which is earlier immaterial but becomes material later on must be disclosed if it has
been expressly mentioned in the terms and conditions of the policy. Eg. Fire insurance of
ones house. Earlier, vacant plot located nearby. Later on a petrol pump is constructed on such
plot.
2. A fact which increases the risk must be disclosed in all circumstances. E.g. incase of theft
insurance, if a person lives alone in an isolated place, the same needs to be compulsorily
disclosed as it increases the risk.
3. Previous losses incurred and claims under previous policies needs to be disclosed. This is
mainly in case of double insurance where it needs to be ascertained as to whether the
subsequent insurance company is willing to insure and to what extent.
4. Special terms and conditions under previous policies if any.
5. Fact of existence of non-indemnity is to be disclosed. This relates to any charge or
encumbrance on the policy in the form of a loan security or otherwise.

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6. The description of the subject matter must be stated properly. This is mainly to locate the
property if it is immovable and to recognize it if it is movable.
7. Facts which suggest any special motive to take the insurance.
8. Facts which suggest the existence of any moral hazards which relate to the moral integrity
of the proposer, etc.

CASES:
1. Economides v. Commercial Union Assurance Co. plc,12
It was held that the duty of the assured to disclose all material facts required an assured only
to disclose facts known to him. There is no obligation on the assured to make enquiries as to
the factual basis of his belief.

Facts which need not be disclosed

1. Fact lessening the risk need not be disclosed.


2. Public knowledge. E.g. facts regarding govt. policies, taxes, subsidies, etc. which are
expected to be known to all.
3. Fact of law like rules, regulations, etc. which have already been made available to all by
way of the notification in the official gazette.
4. Superfluous facts or such information which is not logical.
5. Facts which are inferred information.
6. Fact waived by the insurer himself.
12 (1997) 3 All ER 636

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7. Facts governed by the policy itself.


CASES:
1. LIC v. Shakunthalabai,13
In this case, the insured had failed to disclose that he suffered from indigestion for a few days
and took chooram from an ayurvedic doctor. He died within that year due to jaundice. The
insurer repudiated the claim on this account. The court did not approve of the repudiation as
the insurer did not establish by clear and cogent evidence that the question was properly
explained to the insured and that he was told that illness included such casual disturbances to
health and medicines included tablets that could be purchased at the nearest coffee store.
2. Bhagwani Bai v. LIC of India,14
The insurer cannot avoid or repudiate an insurance policy on the ground of non-disclosure of
lapsed policies by the assured which had no bearing on the risk taken by the insurer.

Principle of utmost good faith under the Marine


Insurance Act, 1963
The Marine Insurance Act, 1963 is somewhat relaxed in application when it comes to the
principle of utmost good faith. This is mainly because of the problems of access to the vessel,
cargo, etc. as well as the jurisdictional problems associated with international waters. If at any
point of time, the vessel or cargo is destroyed on high seas, the time when the same came to
the knowledge of the parties needs to be considered rather than the general principles of
insurance contract. Ss. 19-23 of the act talks about the principle of utmost good faith by using
the terms disclosure and representation. S.19 lays down the general principle and says that in
absence of utmost good faith, the contract may be avoided by the parties. S.20(1) says that
13 AIR 1975 AP 68
14AIR 1984 MP 126(130)

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the assured must disclose every material circumstance he knows. Thus, the knowledge of the
insured is more important than the actual happening of the event. S.22(1) says that the
representation made by the insured must be true, which is again dependent on the capacity of
the insured to know the truth and is hence subjective. Finally, S.22 also says that whether the
assured failed to disclose intentionally or innocently or inadvertently is immaterial.

Active and Passive Duty of Disclosure


The question here is what method is used to acquire the material information. Two different
approaches are used in this respect. The first - an active duty of disclosure and the second
approach is characterized as a passive duty of disclosure. The former argues that the duty to
assess what information is material for the insurer rests with the person affecting the
insurance. On the other hand, a passive duty of disclosure implies that the insurer will have to
define what information is material through a questionnaire. A passive duty of disclosure
implies that information not asked for is not material. The common law systems seem mainly
to apply an active duty of disclosure, but elements of a passive duty of disclosure is found in
some countries in the form of proposals.

Effect Of Non-Disclosure/Misrepersentation
Misrepresentation, which again may be either innocent or intentional. If intentional
then they are fraudulent.
Where there has been non-disclosure, whether innocent or fraudulent, sometimes called
concealment the contract is voidable at the option of the insurer. This is the position where
the matter is not dealt with by a policy condition. The ground is usually covered by a policy
condition which may do no more than state the common law rule.
Misrepresentation:
Innocent: This occurs when a person states a fact in the belief or expectation that it is right
but it turns out to be wrong. While taking out a Marine Insurance Policy the owner states that
the ship will leave on a specific date but in fact the ship leaves on a different date.
Intentional: Deliberate misrepresentation arises when the proposer intentionally distorts the
known information to defraud the insurer. The selfish objective is somehow to enter the
contract or to get a reduction in the premium e.g., If an applicant for motor Insurance stated
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that no one under 18 would drive the vehicle when in fact his 17 years old son
drives frequently. Such a misrepresentation would be material as it would affect the decision
of the insurer.
Non-Disclosure
Innocent: This arises when a person is not aware of the facts or when even though being
aware of fact does not appreciate its significance e.g. A proposer at the time of effecting the
contract has undetected cancer therefore does not disclose it or A proposer had
suffered from Rheumatic fever in his childhood but he does not disclose this not knowing
that people who have this are susceptible to heart diseases at a later age.
Deliberate: This is done with a deliberate intention to defraud the insurer entering into a
contract, which he would not have done had he been aware of that fact. A proposer for fire
Insurance hides the fact knowingly by not disclosing that he has an outhouse next to
his building, which is used as a store for highly inflammable material.
How to Deal With Breaches

How breaches are dealt with depends upon whether the breaches are
1) Innocent
2) Deliberate
3) Material to the risk
4) Immaterial to the risk
When Breach of Utmost Good Faith occurs the aggrieved party gets the right to avoid the
contract. The contract does not become automatically void and it must decide on the course
to be taken. The options available are on case-to-case basis like: 1) The contract becomes void from the very beginning if deliberate misrepresentation or
non-disclosure is resorted to with the intention of misleading the insurer to enter into a
contract.
2) To consider the contract void, the bereaved party, must notify the offending party
that breach has been noticed and as per the conditions of the contract he is no longer
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governed with the terms of the contract agreed upon in covering the risk. In case the breach
is discovered at the time of claim he will refuse to honour his promise and will not pay the
claim. This again occurs when there has been a deliberate breach.
3) When the breach is innocent but it is material to the fact then the insurer may impose a
penalty in the form of additional Premium.
4) Where the breach is found to be innocent and is not material the insurer can choose to
ignore the breach or waive off the breach.

Representations
Representations are statements made during the negotiations with the object of inducing the
other party to enter into the contract: they must be distinguished from statements which are
introduced into the contract, and upon the truth of which the validity of the contract is made
to depend. Representations may be as to a matter of fact, and, if material must be
substantially correct. Where there has been misrepresentation it is necessary to decide
whether it was fraudulent or innocent. A fraudulent misrepresentation is one which was
known to be false ; or which was made without belief in its truth, or recklessly, careless
whether it was true or false. Fraudulent misrepresentation of a material fact entitles the
insurer to avoid the policy. Every material fact which the insured ought to know in the
ordinary course of business must be stated; an innocent misrepresentation of such a fact
would entitle the insurer to avoid the policy. This must be so, otherwise the duty to disclose
material facts and to state them accurately would not be correlative.

Conclusion

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Thus, this principle forms an integral part of insurance law. It gives a fair chance of risk
assessment to the insurer and also ensures that the assured fully understands all the terms and
conditions of the contract. But, this principle is more favourable to the insurer as it is the
assured who has to generally make all the disclosures. This is primarily because when this
doctrine was evolved in the 18th century, the insurance market was in its infancy and thus
required protection. However, the enactment of the English Unfair Contract Terms Act, 1977
has considerably alleviated the position of the assured who is now protected against unfair
contractual terms. Further, the Insurance Act lays down that an insurance policy cannot be
called in question two years after it has been in force. This was done to obviate the hardships
of the insured when the insurance company tried to avoid a policy, which has been in force
for a long time, on the ground of misrepresentation. However, this provision is not applicable
when the statement was made
fraudulently. Never the less, technological advancements have further made it possible for
both parties to see to it that their interest is taken care of. But, there are several other grey
areas to this doctrine as well. There is still no clear cut distinction between as to what is
material or immaterial and the same is largely dependent on the whims of the insurers and the
terms of the contract. It is still very easy for an insurer to repudiate the contract on the
slightest point of non-disclosure by treating them as warranties, thereby putting the assured in
an even more difficult position. Another problem is with regards to as to what duration does
the disclosure(s) need to be made. Common law cases may somewhat seem to have settled
this point but the Indian Marine Insurance Act still shows a confusion regards the same as it
says that duty of disclosure shall end with the conclusion of the contract. Thus, all these
problems need to be taken care of and an effective solution must be provided considering the
principle of utmost good faith is one of the most fundamental principles associated with
insurance law.
Important cases
1. Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd.15
It was held that an assignee of the assured is not the assured as such and hence owes no duty
to disclose to the insurer.
15 (1989) 3 All ER 628

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2. Drake Insurance plc. v. Provident Insurance plc.16 ,


It was held that the remedy of avoidance of a contract is a self help remedy and could not be
overturned by the court by the exercise of its equitable jurisdiction.

BIBLIOGRAPHY
Books
1. Murthy & K V S Sarma, Modern Law of Insurance, 4th Edn., ( Butterworths Wadhwa
Publications, 2009, Nagpur).
2. SV Joga Rao, MN Srinivasans Principles of Insurance Law, Ninth Edition, Lexis Nexis
Butterworths Wadhwa, Nagpur, 2009
3. M. N. Sreenivasan, Law and the Life Insurance Contract, 9th Edn, (Butterworths Wadhwa
Nagpur, 2004)
4. Mishra, M.N., Law of Insurance Principles and Practice, 2008, Radhakrishan Prakashan
5. B.C. Mitra, Law Relating to Marine Insurance. Asia Law House, Hyderabad.
Statutes
1. The Insurance Act, 1938;
2. The Marine Insurance Act, 1963
REFERENCES
16 (2003) EWHC 109 (Comm)

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http://www.iaisweb.org
http://www.out-law.com/
http://www.imf.org/
http://www.naic.org/
http://www.albertalawreview.com/
http://iaisweb.org/

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