Course: Insurance Law

USI:1012621

Name: Ashmina Jagoo

Question 1 (Problem Question)

Richard completed a proposal for householder’s insurance with Pro Insurers Ltd. The

question on the proposal form read as follows:

(a) Have you ever been convicted of any offense?

(b) Have you had any operations, accidents, or injuries within the past five years?

Richard who answers “No” to both questions mistakenly put his age as 23 instead of 28.

Richard has also been convicted of driving under the influence when he was 16 years old

but he does not think this is important. Further, Richard fails to disclose that he had heart

surgery about 7 years ago and was critical in hospital for 2 months recovering.

The proposal is accepted by Pro Insurers Ltd and a policy is issued. When a claim is

made under the policy, Pro Insurers denies liability on the grounds of non-disclosure.

Advise Richard.
Answer:

The Duty of disclosure is specifically for insurance contracts. The insured must disclose
material information to the insurer. This duty is important because it helps the insurance
company’s decision to agree to the contract of insurance. The insurance company has a
right to avoid the contract if the customer does not abide by the duty or makes a false
statement which leads to misrepresentation. The duty originated from the case Carter v
Bowen where Lord Mansfield stated that the duty is imposed because the insurance
company knows nothing while the assured knows everything. This duty is today codified
in the Marine Insurance Act 1906 and applies to all types of insurance. The duty must be
abided by the insurer and the insured. Taking the aforementioned into consideration the
issues of this case are whether there has been a breach of utmost good faith through the
concealment of facts from the insured to the insurer and whether the questions on the
proposal form had limited Richard’s duty of disclosure.
As such to advise Richard it is crucial to examine the statute in Sections 17 and 18 (1)
and (2) Marine Insurance Act 1906. It is also important to examine the exceptions to the
duty mentioned in section 18 (3) of this Act along with common law cases.
First, it is to be seen that in this particular case, there is concealment of important
information some of which does not revolve around the insurance policy. In this scenario,
important information includes the truthful input of Richard’s age, 28 years, and the past
incident where he was convicted of driving under the influence when he was 16 years
old. Richard, the insured mistakenly input 23 years old for his age. Section 17 of the
Marine Insurance Act states that a contract of Marine insurance is a contract based upon
utmost good faith and if the utmost good faith is not observed by either party the contract
may be avoided by the other party. Section 18 states that the assured must disclose all
known material circumstances to the insurer before contracting, and failure to do so may
result in the insurer avoiding the contract. Following these statutes and Lord Manfield's
expected duty on the insured to disclose all that is material, Richard must take reasonable
care to fulfill his duty of disclosure to the insurer. This duty was also elaborated and
refined in the case Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co [1994] where
the test of materiality and inducement was established. Given that a person’s age is a
personal and instinctive characteristic it is safe to say that his mistake amounted to non-
disclosure.
Additionally, Richard fails to disclose the incident of his conviction when he was 16
years old because he did not feel it was relevant. In this instance, section 18 (2) of the Act
states that every circumstance is material that would influence the judgment of a prudent
insurer in fixing the premium, or determining whether he will take the risk. The issue that
arises is whether Richard’s conviction for driving under the influence at 16 years old is
material for his proposed householder's insurance policy. While Locker & Woolfe Ltd v
Western Australian Insurance Association established that past convictions, criminal
charges, and dropped charges are material, in the case Schoolman v Hall it was
established that when the insured is asked a particular question, there is a presumption
that the subject matter addressed by the insurer is material and would affect the judgment
of the insurer in some way. In addition, in Schoolman v Hall the insured proposed for a
burglary policy and did not disclose that he had a criminal record some years before the
insurance had been effected. It was held that the criminal record of the proposer was a
material fact which ought to have been disclosed. In this scenario, following the principle
in Locker, and Hall Richard’s past conviction is a material subject matter, however, the
nature or reason for Richard’s conviction is immaterial. In the case of Hall the court held
that the proposers criminal record was a material fact because was a non disclosure which
was related to the proposer's policy and would affect the judgement of the insurer. It is
unlikely that the nature of Richard’s conviction would affect the judgment of the insurer
for a proposal of householder’s insurance. Richard’s proposal for householder’s
insurance is not relevant to the incident of his being convicted for driving under the
influence when he was 16 years old and therefore Richard’s non-disclosure seems not to
be material to the insurer. Moreover, this incident would in no way influence the insurer
to fix a premium or cause him to decide as to whether he would take the risk. As a result,
even if Richard unconsciously withheld this information it is not material for the type of
insurance proposal Richard is requesting. Furthermore, Richard's conviction was about
12 - 13 years earlier and the fact scenario did not state whether his conviction resulted in
him being fined or imprisoned. In this regard the case Reynolds v Phoenix Assurance co
[1978] held that non -disclosure by a policy holder of a conviction 11 years earlier for
receiving two stolen batteries, for which he had been fined was not a material fact. Using
the principles from this case it can be concluded that Richard's conviction was not
material for his proposed policy.
Additionally, the second question Richard was asked was whether he had any operations,
accidents, or injuries within the past 5 years. Richard also responded,’ No’. The
important aspect of the question was 5 years. Richard’s surgery was done over 7 years.
Technically, Richard’s answer was an accurate response to the question. Furthermore,
even if Richard’s accident had taken place over 5 years his non-disclosure was covered
by section 18 (3) of the Marine Insurance Act. This section outlines a list of exceptions to
the duty of disclosure, specifically (a.) which is relevant to this scenario, which states that
a person is exempted from disclosing any circumstances that diminish the risk. According
to the statute, Richard is exempted from disclosure since it would amount to a
circumstance that would diminish the risk.
Additionally, at common law, by asking Richard about his accidents and injuries
specifically for 5 years the insurer has limited Richard’s duty of disclosure. Woolf J.
provided an example of a question that might limit the duty of disclosure in Hair v.
Prudential Assurance Co [1983]. The inquiry asked, “How many accidents have you had
in the last three years?” In this case, it may be inferred that although prior incidents are of
interest to the insurer, those facts are not necessarily relevant. According to Woolf J, the
objective test is whether it would be fair for a person reading a proposal form to conclude
that the insurer approved of the removal of a certain piece of information. If Richard was
asked about any accidents or injuries without the insurer's specifying a period he would
have been liable for non-disclosure.
In advising Richard it is important to let him know that the remedy for non-disclosure is
usually for a party to avoid the contract. Moreso, it is the insurance company that usually
avoids the contract. In this situation, pro-insurance avoids the contract based on non-
disclosure. However, the remedy is often viewed as draconian, especially since a
misrepresentation may not amount to fraud or maybe an honest non-disclosure. This is
seen in the case Manifest Shipping Company Ltd. v. Uni-Polaris Shipping Company
where it was held that the avoidance remedy is completely one-sided and allows the
insurer to retroactively evade the need to indemnify. Similarly, in Drake Insurance plc v.
Provident Insurance Plc, it was held that avoidance seems excessive in situations of
honest non-disclosure. It permits the insurer to deny responsibility without suffering any
actual loss, while the insured, who would have experienced actual loss, is left without the
protection he believed he had agreed upon and paid for. Despite these views, Guyana
applies the strict historical common law position for disclosure which was established in
the Cater v Bowen and Pan Atlantic cases.
Conclusion:
As such it can be concluded that Richard’s proposal was for the householder’s insurance,
and his duty of utmost good faith applied when he claimed insurance money. Richard’s
misrepresentation of his age amounted to non-disclosure which can be argued that it
would be draconian for Pro Insurance Co to avoid a contract for honest non disclosure
However, under sections 18 (2) and (3) Richard did not breach his duty of utmost good
faith but was rather protected under this section. Additionally, Pro Insurance Co.
questions whether Richard has had any operations, accidents, or injuries within the past
five years that have limited his duty of disclosure and therefore the insurance company
cannot avoid his policy on this basis.