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UTMOST GOOD FAITH. Lecture 18 Week 9. 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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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 insurer’s 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 contract…the 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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