Insurance Law is a developing area
An insurance contract is seen as a “contract of utmost good faith which means that both parties to a contract must have a strict duty to be honest with each other at all times. Customers must disclose all facts which are relevant to the risk of which they are seeking cover. A material fact is one in which would influence the underwriter when deciding whether to accept the risk and terms of condition which should apply. If a customer fails to disclose information or misrepresents a material fact this would result in the insurer to accept the proposed risk whereas the legal remedy is to avoid the policy. This on the other hand means that the insurer is entitled to treat the contract as though it never existed. However saying that if fraud is committed the insurance company will not pay out any claim made under the policy and will render the contract as void.
Non Disclosure is defined as a failure/ refusal to state information that is required to be declared, Non – Disclosure contracts are usually signed by companies wishing to become a potential partnership or in some cases can be required by employers so that employees do not release confidential information about the company to non employees. A non disclosure is an agreement which contains specific information, and the information which can be shared and also exceptions for when the information is allowed to be shared. According to the Latin term known as Ubberimae fidei it is stated that “A contract in which knowledge of the material fact(s) lies with one party alone; that party is under a duty to make a full disclosure of these facts, and failure to do so makes the contract voidable".
However there are still confusions arising according to Professor Birds, “  It is the law that a man may act in perfect good faith within the ordinary meaning of the phrase, yet still be held not to have acted in the utmost good faith in the legal sense" this raises questions as to how can you determine whether someone is acting in ‘utmost good faith’ when clearly the insured may or may not have acted in ‘utmost good faith’
In compliance with section 18(1) of the Marine Insurance Act 1906 the insured “deemed to know, every circumstance which in the ordinary course of business, ought to be known by him" this can raise questions as to whether the above places unfair or just limitation on the insured. However this can be argued further within the case of “  Joel v Law Union and Crown Insurance Co" which highlighted that it ought to be known by them means the women did not know, so she could not disclose the information. It is seen that if you do not know about something you can’t disclose. Although she did go to see a doctor, the doctor did not tell her that she was suffering from depression.
Problems with Non-Disclosure:
One of the Major problems is the law applying to insurance contracts varies from consumer contract. This is done by requiring the potential insured to give information without being asked for it. The law protects the insurer more as they are not required to ask information and rely on the person seeking insurance to give the information. The can raise further issues as to what information are the potential insured supposed to give as they maybe unaware of what is required. Further problems lie with the remedy of avoidance which is seen to operate in a cruel way. This is seen as where the insurer establishes that the policyholder refused to disclose information and the insurer is allowed to refuse all claims.
Misrepresentation is defined as false statement of fact which induces a person to enter into a contract. A misrepresentation within a contract can give rise to the party to rescind the contract; the contract returns the parties back to their original positions before the contract was formed. A party can rescind a contract of misrepresentation only if the statement was material to the argument.
There are three types of misrepresentation which are known as Innocent, Negligent and lastly Fraudulent. Innocent misrepresentation is seen as “  there is no proof of fraud, no negligence and the defendant had reasonable grounds to believe in the truth of the statement" on the other hand negligent misrepresentation is when someone makes a false statement for the sole purpose of making a deal which results in the person relying on the statement facing danger. Fraudulent misrepresentation is seen as where one takes deliberate steps to deceive one or more parties.
According to the law reform committee report the duty to disclose information is under a general law that a party who entered into a contract relying on misrepresentation of fact by the other party can avoid the contract. The 1906 Marine Insurance Act places a burden on the insured. Section 20 (1) of the Marine Insurance Act states that every material representation made by the assured to the insurer must be true, before and after the policy has concluded, and if it is untrue the insurance can be seen as void by the insurer.
Problems with Misrepresentation:
The Law sets out that the 1906 Marine Insurance Act is seen to operate unfairly, even if the policy holder seemed to have acted honestly and fairly sometimes the policy holder maybe denied claims. Also the insured at the time of the questions being asked may have heard something else and answered something else however the law will consider this as a form of misrepresentation as the law favours the insurance company more than the insured. Also in accordance with Misrepresentation Act 1967 this only refers to innocent misrepresentation and does apply to Fraudulent and negligence.
Silence as Misrepresentation:
When we talk about silence we see that this does not amount to misrepresentation usual contracts however if it is ubberimae fidei (contracts of good faith) then silence is seen as misrepresentation and imposes a duty of disclosure of material facts as one party is seen to be in a stronger position to know the truth. This has amounted from the case of “  Lamberth v Co- operative insurance society". According to Lord Mansfield statement “the duty is reciprocal good faith forbids either party, concealing what he privately knows to draw the other into bargain from ignorance of the fact and his believing the contract. At this point it can be questioned as to why is it that misrepresentation amounts for the insurance not to pay out If the insured makes a material representation of fact which may be no be true, it would not matter if the insurer had no reason to know that the statement was true or not. This in itself shows some level of inconsistency within the law as it does not seem to protect the insured.
It can be argued as to how was the insured suppose to know that the statement was false. The duty of disclosure acts as a web to trap the insured, the insured are unaware that they have a duty to disclose information and may not occur to tell information that the insurer have not asked. it is seen that however in order to determine what is seen a material fact there is a test which is applied known as Materiality test which derived from the case of “  Lambert v Co – operative insurance society."
Furthermore in the case of “  Container Transport International Inc. v Oceanus Mutual Underwriting Associations (Bermuda) Ltd" in accordance with section 18 the requirement that a fact must be one which would influence the judgement of a insurer, it did not mean that the insurer would have acted differently if he had known about the fact, but merely that the insurer would have wanted to no of the fact when making the decision. This again imposes a heavy burden on the insured and shows that the law lies in favour of the insurer and there is no just and fairness for the insured.
In the case of “  Carter v Boehm" the outcome of this case is that the duty of disclosure has developed unfairly so that it lies significantly more out weighted on the person seeking insurance than the insurer.
Statement of opinion:
A statement of opinion is a statement made by one who does not have enough information to guarantee accuracy as seen in the case of “  Hubbard v Glover" this raises further concerns as to, how is the insurer meat to know whether the applicant is telling a statement of fact or a statement of opinion. The duty to disclose is that the statement is a fact and not an opinion, a statement as to wealth was seen as a statement of opinion in the case of “  Joel v Law Union and Crown Insurance Co". However where a person failed to disclose information about visiting a specialist it was seen to be held as a non disclosure of matter of fact even though the person never knew that they were suffering.
Distinction between Non – Disclosure and Misrepresentation
As mentioned before Non Disclosure is a denial/ refusal to state information that is required to be declared. Whereas misrepresentation on the other hand is defined as a false statement of fact which induces a person to enter into a contract. In the case of “Zurich Accident Liability and Insurance Co v Leven" Lord Normand mentioned the difference between Non- Disclosure and Misrepresentation are that Non disclosure is where someone refuses to declare information which was no subject of question but was ought to be considered for yourself as to what would be material. Whereas in term of Misrepresentation is considered as something directly said in answer to a specific question.
When talking about Fraud Misrepresentation we see that fraud is defined as knowing about a defect of something and lying to the interested party to gain a sale/deal. An example of this could be where one is trying to sell a house with termite or rats in the premises, and the person who is selling the house and knows about the situation, lies to the other party in order to sell the house this would be seen as amounting to Fraud misrepresentation.
Fraudulent misrepresentation is defined by Lord Herschell in the case of “  Derry v Peek" it was mentioned that a statement made knowingly or without belief in its truth or carelessly whether it be true or false is regarded as Fraudulent Misrepresentation. This be can questioned if a young driver states, that he has NCB (No claim bonus) to the insurance company and in reality he doesn’t would that be regarded as Fraud or Fraudulent Misrepresentation.
The Marine Insurance Act 1906 somewhat deals with, it has been proved to fail demands of the society. In order to make the law fair there is a need for reform which the law commission have started to do. The law reform have now taken on board a view that should bring the law in line with the industry practise and ombudsman guidance by requiring insurers to ask clear questions about any matter which is material to them.
In conclusion it can be said that the Law lies in favour of the insurer and that there is no protection available to the insured. It can be said that there is a certain degree of overlap between Fraud, Misrepresentation and Non Disclosure. Misrepresentation is answering a question directly with the view of inducing the other party, is that not seen as fraud. Materiality test mainly focuses on Non Disclosure and covers Misrepresentation why is it that there no separate test available for Non disclosure and misrepresentation, is this not seen as an overlap.