The impact of non-disclosure on insurance claims

Abstract

The underlying principle of utmost good faith enjoins the contracting parties to an insurance contract to voluntarily disclose to each other all material facts known to each of them before the contract is concluded. The duty of disclosure is a peculiar feature of insurance contracts and has been regarded as one of the most controversial areas in insurance law. The original scope of this principle was to bring about fairness, justice and impartiality between both parties. However, throughout the years the courts have tended to favour the insurer in their interpretation of the duty even in the modem insurance industry where the position of the insurer seems to be totally different to that held in the eighteenth century. The main purpose of this thesis is to analyse the real meaning and effect of the notion of non-disclosure from a traditional point of view as well as a more contemporary standpoint. It will seek to determine what modifications should be made in order to adapt this conventional concept to modem day developments. In the first place, it will be necessary in Chapter 1 to distinguish the concept of non-disclosure from the better known notions of misrepresentation and fraud which also allow for the rescission of the contract. Subsequently the principle of uberrima fides which forms the basis of the insurance contract will be examined. Chapter 2 will deal with the juridical basis of the duty of disclosure. This is a crucial issue since this can be linked with the range of remedies available for non-disclosure especially the contentious issue of awarding damages. In Chapter 3 the nature of reciprocity of the duty of disclosure shall be tackled. Moreover, differences of how the obligation must be applied to intermediaries like agents or brokers shall be examined. Chapter 4 will deal with the test of materiality based on the prudent insurer as currently applied in Malta and in the United Kingdom and how this compares to other tests of materiality adopted by other jurisdictions such as Australia. The test has been the subject of a certain amount of judicial disagreement such as the standard for determining materiality and the degree of influence. The .significant development of the requirement of inducement of the actual insurer in order to avoid the contract for nondisclosure shall be analysed in the light of the decision of the House of Lords in Pan Atlantic Insurance Co. Ltd. V. Pine Top Insurance Co. Ltd. On the other hand, Chapter 5 will examine certain facts which need not be disclosed and which therefore do not form part of the duty of disclosure. Following this, Chapter 6 will analyse the significance of the proposal form and the various issues raised by waiver of disclosure on the part of the insurer. This will be done through the analysis of various proposal forms available on the Maltese insurance market and their adequacy in encouraging the proposer to reveal certain material facts. Chapter 7 will assess at which point the obligation of disclosure commences and where it actually ends. This will be discussed in the context of new contracts, renewal of existing contracts and other exceptional cases, for example, life insurance. In Chapter 8 the consequences and effects of non-disclosure will be examined. The right of rescission and the limits imposed on such right together with the effect where there is more than one assured and where third parties are also parties to, or affected by, the contract will be considered. In Chapter 9, a comparison shall be made with the way the rule is applied under foreign jurisdictions especially those of Australia and Canada where significant reform to the law has developed the application of the principle to modem day needs. Due to these modifications considerable differences subsist from the way the duty is interpreted by the Maltese and U.K. courts. The concluding Chapter shall look at the attempted reform programs in the U.K. which in practice have left little impact on the insurance industry since they failed to prompt legislative response even though the Law Commission made some useful recommendations. The best known forms of self-regulation in the U.K., that is, the Statements of General Insurance Practice and the Codes of Practice for insurance intermediaries shall be considered. Moreover, the role of the Financial Services Ombudsman in dealing with consumer complaints shall be evaluated. In conclusion, the current situation in Malta shall be provided and the urgent need for reform, notably through the introduction of legislation, shall be emphasized.