Duty to disclose

The proposer must disclose all material facts known to them to the insurer. The Marine Insurance Act 1906.

Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk.

The same principal applies to life insurance. The duty exists whether or not the life insurer asks a specific question. A life proposer might be justified in assuming that no questions in a certain area implied that the area was not material to the risk. For this reason many insurers phrase their questions widely in the aim to ‘catch all’. For example ‘is there any other factor which may affect your life’.

In addition the Long Term Insurance Practice made the following provisions.

Proposal forms

If a proposal form calls for a disclosure of material facts a statement should be included in the declaration, or prominently displayed elsewhere on the form or in the document of which if forms part,
Drawing attention to the consequences of failure to disclose all material facts and explaining that these are facts that an insurer would regard as likely to influence the assessment and acceptance of a proposal.
Warning that if the signatory is in any doubt about whether certain facts are material, these facts should be disclosed.
Neither the proposal nor the life insurance policy shall contain any provision converting the statements as to past or present fact in the proposal form into warranties, except where the warranty relates to a statement of fact concerning the life to be insured under a life of another policy. Insurers may, however, require specific warranties about matters which are material to the risk.
Those matters which insurers have commonly found to be material should be the subject of clear questions in proposal forms.
Insurers should avoid asking questions which would require knowledge beyond that which the signatory could reasonably be expected to possess.
The proposal form or a supporting document should include a statement that a copy of the policy form or of the policy conditions is available on request.
The proposal form or a supporting document should include a statement that a copy of the completed proposal form is available on request.

Regarding the fourth item above it is impossible to disclosure what you do not know and a proposer can not be expected to disclosure matters immaterial in themselves which if they were investigated and examined further might lead to information which is material. Joel v Law Union and Crown Insurance Co 1908. The example put forward by the judge in this case was that you would not expect a prudent man to disclose an occasional headache even if that might be a possible symptom of something more serious.

Under section 20 of the Marine Insurance Act 1906 a representation as to a matter of fact is true if it is substantially correct. So a representation made in the proposer’s belief or expectation that it is true would not be a misrepresentation of a material fact. The proposer can not shut his/her eyes to the truth Economides v Commercial Union Insurance Company plc 1997.

It is irrelevant whether or not the proposer considers a fact to be material or not. In Godfery v Britannic Insurance Co Ltd 1963 where a proposer did not disclose that his doctor had sent him to the hospital for a suspected kidney ailment. It was accepted at court that the proposer did not consider this to be material but that was not the question that had to be asked. The question was 'would a reasonable man' have considered that it was important and material. The court held that is was and the contract was void.

The case of Kelsall v Allstate Insurance Co Ltd 1986 confirmed that the test of materiality was whether a prudent insurer, not necessarily the individual insurer, would have considered the item material.

In Pan Atlantic Insurance Company Limited v Pine Top Insurance Company Limited 1994 the court held that in cases where there was misrepresentation it would be assumed there was also inducement. The court held that an underwriter needed to show that had he/she been aware of the material information (correct information) then he /she would not have written the insurance contract at those terms, basically that the representation with the material fact induced him to make the contract at those terms.

In the case of Simmer v New India Insurance Company Limited 1994 made it clear that the duty to disclose is limited and confined to matters within the proposer’s knowledge and does not require the proposer to make enquiries beyond his knowledge, unless requested to do so.

There is no duty to disclose,

Facts which the insurer already knows,
Facts which the insurer ought to know such as obvious items.
Facts about which the insurer waives his right to information,
Facts possible of discovery were enough information has been given to provoke enquiry by the insurer, but the proposer can not use this to mislead the insurer,
Facts which reduce the risk.

The duty to disclose also now works in reverse with insurers having to disclose in detail the policy coverage and key facts about the insurance under the Financial Services Authority rules.
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