What amounts to Mis-representation under Insurance Law
A misrepresentation of facts by the insured makes the contract voidable at the instance of the insurer. Basically, the insurer can avoid the contract of insurance if he was induced to enter into it by a misrepresentation of the facts by the insured that was false. The Duty Of Utmost Good Faith, Disclosure, Non-Disclosure And Misrepresentation on this subject.
There is always a question of whether the misrepresentation is material or in relation to a particular material fact. But what amounts to materiality shall be discussed further. What is important to note is that that these misrepresentations simply refer to the statements made prior to the conclusion of the contract of insurance before the parties. The usual not the only source of those misrepresentations is the proposal form.
Materiality
As earlier stated there is the issue of materiality of the facts stated or not disclosed. What amounts to material information is basically the information that the insurer would need the applicant for insurance to disclose to them in order for the insurer to be able to make an informed decision in speculating the risk and the premium to be paid. The test of materiality is whether the information misrepresented or not disclosed would have an effect on the insurer in assessing the risk.
In contract law, for a party to plead the defense of misrepresentation, he ought to show that he was induced by such misrepresentation to enter into the contract.
The court in the Pan Atlantic Insurance Co Ltd and another v Pine Top Insurance Co Ltd case Court stated that the inducement requirement in contract law is applicable to the misrepresentation in cases of insurance law.
What is more interesting is that the court went on to extend this inducement requirement to non disclosure. Essentially, for an insurer to plead misrepresentation or non disclosure as defenses or a basis for avoiding a contract, they ought to show that they were induced by the misrepresented facts and or the non disclosure to make a decision which they would otherwise not have made.
In the Pan Atlantic case, the court observed that the test of materiality of disclosure for the purposes of both marine insurance and non-marine insurance was, on the natural and ordinary meaning of whether the relevant circumstance would have had an effect on the mind of a prudent insurer in weighing up the risk, NOT whether had it been fully and accurately disclosed it would have had a decisive effect on the prudent underwriter’s decision whether to accept the risk and if so, at what premium (emphasis intended). Court further observed that, that test accorded with the duty of the assured to disclose all matters which would be taken into account by the underwriter when assessing the risk (ie the ‘speculation’) which he was consenting to assume
Furthermore, the same court observed that, however, for an insurer to be entitled to avoid a policy for misrepresentation or non-disclosure, not only did the misrepresentation or non-disclosure have to be material but in addition it had to have induced the making of the policy on the relevant terms. Accordingly, an underwriter who was not induced by the misrepresentation or non-disclosure of a material fact to make the contract could not rely on the misrepresentation or non-disclosure to avoid the contract.
There is always a question of whether the misrepresentation is material or in relation to a particular material fact. But what amounts to materiality shall be discussed further. What is important to note is that that these misrepresentations simply refer to the statements made prior to the conclusion of the contract of insurance before the parties. The usual not the only source of those misrepresentations is the proposal form.
Materiality
As earlier stated there is the issue of materiality of the facts stated or not disclosed. What amounts to material information is basically the information that the insurer would need the applicant for insurance to disclose to them in order for the insurer to be able to make an informed decision in speculating the risk and the premium to be paid. The test of materiality is whether the information misrepresented or not disclosed would have an effect on the insurer in assessing the risk.
In contract law, for a party to plead the defense of misrepresentation, he ought to show that he was induced by such misrepresentation to enter into the contract.
The court in the Pan Atlantic Insurance Co Ltd and another v Pine Top Insurance Co Ltd case Court stated that the inducement requirement in contract law is applicable to the misrepresentation in cases of insurance law.
What is more interesting is that the court went on to extend this inducement requirement to non disclosure. Essentially, for an insurer to plead misrepresentation or non disclosure as defenses or a basis for avoiding a contract, they ought to show that they were induced by the misrepresented facts and or the non disclosure to make a decision which they would otherwise not have made.
In the Pan Atlantic case, the court observed that the test of materiality of disclosure for the purposes of both marine insurance and non-marine insurance was, on the natural and ordinary meaning of whether the relevant circumstance would have had an effect on the mind of a prudent insurer in weighing up the risk, NOT whether had it been fully and accurately disclosed it would have had a decisive effect on the prudent underwriter’s decision whether to accept the risk and if so, at what premium (emphasis intended). Court further observed that, that test accorded with the duty of the assured to disclose all matters which would be taken into account by the underwriter when assessing the risk (ie the ‘speculation’) which he was consenting to assume
Furthermore, the same court observed that, however, for an insurer to be entitled to avoid a policy for misrepresentation or non-disclosure, not only did the misrepresentation or non-disclosure have to be material but in addition it had to have induced the making of the policy on the relevant terms. Accordingly, an underwriter who was not induced by the misrepresentation or non-disclosure of a material fact to make the contract could not rely on the misrepresentation or non-disclosure to avoid the contract.
Tags : Insurance Law