The Plight of the Insured: Fact or Fraud - Case Study Example

Did it operate as an inducement to the insurer to enter into the policy In order to be entitled to avoid a contract of insurance or reinsurance on the ground of non-disclosure the insurer must show both that the fact not disclosed was material, and that its non-disclosure induced the contract? To be material a fact did not have to have a decisive influence on the mind of the prudent underwriter. The test is as stated in subsections 18(2) and 20(2) which relate to non-disclosure and misrepresentation respectively and which set out the common law principles relevant to non-marine (as well as marine) insurance.

The material non-disclosure or misrepresentation must induce the contract. It is not sufficient that the non-disclosure or misrepresentation is material. ". . . there is to be implied in the Act of 1906 a qualification that a material representation will not entitle the underwriter to avoid the policy unless the misrepresentation induced the making of the contract, using "induced" in the sense in which it is used in the general law of contract" and "in practice the line between misrepresentation and non-disclosure is often imperceptible.

"The claimants insured their yacht with the defendants for value as certified by an independent valuer. The defendants claimed he had misrepresented the value in the proposal. The words 'sum insured' indicated a ceiling on a claim on an unvalued policy. There was no indication from the insurers on the proposal form that they would agree with the value, but rather they asked only for the value to be insured. The policy was, therefore, an unvalued policy.HIH Casualty and General Insurance Ltd and Others -v- Chase Manhattan Bank and Others [2001] 1 Lloyd's Rep 30Disclosure law in other countries is possibly more tilted in favor of the insured than in the UK.

  The Canadian case of Marche –v- Halifax Insurance Company (2005) involved an insured who purchased a house, insured it, but then left it vacant before its first tenant moved in.  After the tenant moved in, the house was destroyed by fire, but the insurer attempted to avoid liability because the period of vacancy had caused a significant change in the condition of the house, according to the “statutory” condition of the contract.  While the defendant prevailed in a lower court, the appeal court found that Part VII of the Insurance Act applied only to contractual conditions – not statutory conditions – and so the plaintiff won the appellate judgment (Marche).

 A similar reversal occurred in a US case involving non-disclosure and liability.  Wilson –v- 21st Century Insurance Company (2006) was an action claiming “breach of contract and tortious bad faith” in adjusting the plaintiff’s claim of damages in an accident with an uninsured motorist.  The summary judgment initially awarded to the defendant was overturned, because the plaintiff had not been given sufficient time to complete discovery, specifically in the area of the defendant’s investigation of the plaintiff’s accident (Wilson).

Initially, it may appear that UK law seems to have a more even balance between insured and insurer, but it would be difficult, on the basis of case law, to urge reform in laws governing liability and disclosure.