UTMOST GOOD FAITH

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UTMOST GOOD FAITH

• Lecture 18
• Week 9

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UBERIMMAE FIDEI

• Contracts of insurance are fiduciary contracts -
  they involve a promise.
• This means they are contracts uberrimae fidea -
  contracts of the utmost good faith
• This doctrine accepted to different degrees in
  most common law countries.

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BEGINNINGS

• Carter v. Boehm (1766)
• The reason of the rule which obliges one party
  to disclose is to prevent fraud and encourage
  good faith.
• One party knows all of the facts (the insured)
  the other needs to know all the facts (The
  insurer)

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THE RULE

• The parties to the fiduciary contract
• must disclose
• all material facts
• else the contract is voidable on the part of the
  aggrieved party
• that is it never existed.
• Distinguish between fraudulent and innocent
  misrepresentation

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WHO DISCLOSES

• The proposer and/or his agent should disclose.
• An agent who fails to disclose a material fact
  can be held liable for breach of professional
  duty
• The duty works both ways the insurer would also
  have to disclose any material facts
• Pan Atlantic v. Pine Top Ins Co (1994)

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WHEN TO DISCLOSE

• Disclosure only required throughout contract
• Extent depends on relationship
• This includes renewal or change of the policy
  disclosure arises (Manifest shipping v.
  Uni-Polaris (1995)
• This may be amended by policy conditions, eg
  clause requiring notification of changes

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WHAT TO DISCLOSE

• All material facts
• The definition of material facts in various
  jurisdictions ranges from the reasonable insured
  to the reasonable insurer test.
• Reasonable insured is what a reasonable proposer
  would reveal
• Reasonable insurer is what a reasonable
  underwriter needs to underwrite the risk.

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MARINE INSURANCE ACT 1906

• Confirmed existence of rule.
• Defined material fact as
• Every circumstance is material which would
  influence the judgment of a prudent underwriter
  in fixing the premium or determining whether he
  will take the risk.
• This prudent insurer test

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CTI v. OCEANUS (1984)

• any circumstance is material i.e. is one which
  would influence the judgment of a prudent insurer
  in fixing the premium or determining whether he
  will take the risk if it is a circumstance which
  would have had an impact on the formation of his
  opinion and on his decision-making process

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PAN ATLANTIC v. PINE TOP (1993)

• Two steps
• A circumstance may be material even though a
  full and accurate disclosure of it would not in
  itself have a decisive effect on the prudent
  insurers decision whether to accept the risk and
  if so at what premium

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PAN ATLANTIC v. PINE TOP

• If the misrepresentation or the non-disclosure of
  a material fact did not in fact induce the making
  of the contractthe insurer is not entitled to
  rely on it as a ground for avoiding the contract.

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IRISH TEST

• Has undergone development
• Chariot Inns v. Assicurazioni Generali SPA (1981)
• This the first decision apparently accepting the
  English law.

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CHARIOT INNS

• It is a matter of circumstance which wold
  reasonably influence the judgment of a prudent
  insurer in deciding whether he would take the
  risk, and if so, in determining the premium which
  he would demand.
• The standard by which materiality is to be
  determined is objective and not subjective. The
  matter has to be settled by the courts.

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HARNEY v. THE CENTURY INS (1983)

• Insured received letter of acceptance from health
  insurer agreeing to come on risk once premium
  paid
• Insured visited doctor for chest pains before
  paying premium and did not tell insurer
• After payment of premium insured became much
  worse and was in hospital and sick for a year

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JUDGEMENT

• Test of material fact is
• whether if the fact concealed had been disclosed
  the insurer would have acted differently either
  by declining the risk at the proposed premium or
  at least delaying acceptance
• If the former were established then insurers
  could void if latter they could not
• Held insurers would have delayed risk and
  therefore could not void policy.

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ARO ROAD v.ICI (1986)

• If the judgment of an insurer is such as to
  require disclosure of what he thinks is relevant
  but which a reasonable insured, if he though of
  it at all, would not think relevant, then, in the
  absence of a question directed towards the
  disclosure of such a fact the insurer, albeit
  prudent cannot properly to be held to be acting
  reasonably.
• The prudent insured test

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NEED NOT BE DISCLOSED

• Common knowledge
• Things that reduce the risk
• Things known to the insurer
• Constructive knowledge
• There are things which insurers can be presumed
  to know
• Business practice
• Waiver

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WARRANTIES AS TO MATERIAL FACTS

• Proposal forms used to contain a clause
  warranting the truth of statements in this
  document
• The statements of insurance practice now
  prohibits this practice.

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THE END