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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

UTMOST GOOD FAITH

Lecture 18

Week 9

uberimmae fidei
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.
beginnings
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)
the rule
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
who discloses
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)
when to disclose
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
what to disclose
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.
marine insurance act 1906
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
cti v oceanus 1984
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”
pan atlantic v pine top 1993
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”
pan atlantic v pine top
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.”
irish test
IRISH TEST
  • Has undergone development
  • Chariot Inns v. Assicurazioni Generali SPA (1981)
  • This the first decision apparently accepting the English law.
chariot inns
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.
harney v the century ins 1983
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
judgement
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.
aro road v ici 1986
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
need not be disclosed
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
warranties as to material facts
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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