In the discharge of his duty of disclosure, the assured is required to state accurately all the facts to which the duty applies, whether they are such as are material in themselves, or are shown by the asking of questions to be regarded as material by the insurer. Accuracy is equally required where the assured, with a view of including the insurers to enter into the contract of insurance, volunteers statements relating to facts which it is not necessary for him to disclose, and the insurers treat such statements as material by acting upon them.
Statements of fact made during the negotiations are usually called ‘representations’. They have fulfilled their object when the final acceptance is achieved, and form no part of the subsequent contract of insurance. They must, therefore, be distinguished from statements which are contractual in their nature, and which are made part of the contract between the parties.
In order to determine whether a statement is accurate, it is necessary to take into consideration the surrounding circumstances, and to construe the statement with reference to the facts of the particular case. If the statement is accurate when applied to the circumstances to which it was intended to apply, the assured has discharged his duty, notwithstanding that it may be shown to be inaccurate when considered with other circumstances to which it was never intended by either party to apply.
A statement of belief or opinion as to a particular fact is not a representation that such a fact is true, but only that the belief or opinion stated is sincerely held. Such a statement is not therefore, inaccurate because the belief or opinion turns out to be erroneous. It must be shown that the assured never entertained such a belief or opinion at all.
The same principle is to applied to statements of intention. The only statement of fact involved in a statement of intention is that, at the time of making it, the proposed assured honestly intended to act as stated. If he never, in fact, so intended, the statement is inaccurate. If he did so intend at the time of insuring, it is immaterial that he afterwards changed his mind and never carried out his intention. It may be made a condition of the policy, however, that the stated intention shall be carried out.
A statement may be inaccurate because it is false in the sense of being wholly untrue, and, therefore, incapable of referring to the state of facts actually existing, e g where the proposed assured states that there are other insurances upon the same subject-matter, though there are none, or that previous accidents have been minor ones, whereas they have been serious.
Further, a statement though verbally accurate so far as it goes, is nevertheless false when taken in relation to other relevant facts which are not stated, e g where the proposed assured, in answer to a question as to previous proposals and their results, states that he is insured elsewhere, but omits to state that other proposals have been refused. So, too, a statement that there are other insurances on the property proposed to be insured implies such other insurances are good and valid. If, therefore, they are void, the statement is inaccurate.
The statement must, however, be considered as a whole, and if it is substantially accurate, a trivial mis-statement or an omission of immaterial details, does not render it inaccurate.
Where representations have been made by the insurers during the negotiations with a view of including the assured to enter into the contract, accuracy of statement is equally required from them in the discharge of duty of good faith towards him. This duty, though it applies to all matters relevant to the insurance, is especially applicable to statements as to the nature and scope or effect of the contract into which the insurers are prepared to enter.
A. MODIFICATION OF THE DUTY BY CONTRACT
The policy may contain an express stipulation defining the duty of disclosure and prescribing the manner in which it is to be preformed. The performance of the duty then becomes contractual; and if it is not preformed, there is a breach of the contract of insurance as distinguished from a breach of the duty of good faith.
Some stipulations merely express what, apart from contract, is required by good faith. In this case the duty of disclosure is not in any way extended or restricted. It is only made contractual.
Other stipulations, on the other hand, extend the duty of disclosure and require from the proposed assured more than is required by good faith.
Thus, stipulation may make the accuracy of all statements made during the negotiations a condition precedent to the validity of the policy. In this case, no distinction is to be drawn between the statements that are material and statements that are immaterial, unless the stipulation expressly refers only to material statements. Moreover, the policy is equally voidable whether the proposed assured, in making the inaccurate statement, is guilty of fraud or merely of innocent misrepresentation, since the statement must be true in fact, without any qualification of judgment, opinion or belief.
The practice of making the accuracy of the statements in the proposal form the ‘basis of the contract’ was alluded to in Provincial Insurance Co Ltd v Morgan, where Lord Wright said:
‘The policy is in a form which has in its general scheme long been in use by insurance companies, though the general scheme has exhibited many variations, some major and some minor, in detail. In that scheme there is a proposal form, signed by the assured, containing various particulars and answers to various questions, and a declaration that the answers are to be the basis of the contract and an agreement to accept the company’s policy. The policy itself contains a recital incorporating the proposal and declaration, and it sets out the risk insured, certain expectations and conditions, and a schedule embodying various particulars. Though this general scheme of policy has been, as it were, sanctified by long usage, it has often been pointed out by judges that it must be very puzzling to assured, who may find it difficult to fit the disjointed parts together in such a way as to get a true and complete conspectus of what their rights and duties are and what acts on their part may involve the forfeiture of the insurance. An assured may easily find himself deprived of the benefits of the policy because he had done something quite innocently but is breach of a condition, ascertainable only by the dovetailing of scattered portions.’
Thus, in Dawsons Ltd v Bonnin:
The assured had interested in a proposal form in respect of the insurance of a lorry, a statement that it was usually garaged at ‘No 46 Cadogan Street, Glasgow’. In fact it was usually garaged at a farm on the outskirts of the city. This mis-statement had been made inadvertently and was not material. But the proposal form had included ‘basis’ clause. The lorry was destroyed by fire.
Held, that the insured could not recover, for the statement, though not material, was inaccurate.
Viscount Haldane said:
‘I think that the words employed in the body of the policy can only be properly constructed as having made its accuracy a condition. The result may be technical and harsh, but if the parties have to stipulated, we have no alternative, sitting as a court of justice, but to give effect to the words agreed on. Hard cases must not be allowed to make bad law. Now the proposal, in other words the answers to the questions specifically put in it, are made basis to the contract. It may well be that a mere slip, in a Christian name, for instance, would not be held to vitiate the answer given if the answer were really in substance true and unambiguous. ‘Falsa demonstration non nocet.’ But that is because the truth has been stated in effect within the intention shown by the language used. This mis-statement as to the address at which the vehicle would usually be garaged can hardly be brought within the principle of interpretation in construing contracts. It was a specific insurance based on a statement which is made foundational if the parties have chosen, however carelessly, to stipulate that it should be so. Both on principle and in the light of authorities…it appears to me that when answers, including that in question, are declared to be the basis of the contract, this can only mean that their truth is made a condition, exact fulfillment of which is rendered by stipulation foundational to its enforceability.’
Similarly, in Mackay v London General Insurance Co Ltd:
In answer to the question in a proposal form for a motor car policy, the insured had said that he had never been convicted. Some years before he had been fined 10s. for riding a motor bicycle with defective brakes. The answer which he had given was immaterial.
Held, that since the insured had warranted the truth of his statements, he could not recover under the policy, for their accuracy had been made the basis of the contract.
Swift J was most outspoken in the comments which he made, for in the course of his judgment he observed:
‘If he had stated the truth in its full detail, this insurance company would have jumped at receiving his premium. They would never have dreamed of rejecting his application, but after they have given him the policy and after the accident has happened and the liability is incurred, they seize upon these inaccuracies in the proposal form in order to repudiate their liability. I am extremely sorry for the plaintiff in this case. I think he has been very badly treated, shockingly badly treated. They have taken his premium . They have not been in the least bit misled by the answers by the answers which he has made. They would never have refused to take his money; they would never have refused him his policy if they had known everything which they know now. But they have seized upon this opportunity in order to turn him down and leave him without any indemnity for the liability which he has incurred. But I cannot help the position. Sorry as I am for him there is nothing that I can do to help him. The law is quite plain.’
The proposed assured, may, however, expressly qualify his statements by stating that they are accurate to the best of his belief, in which case an innocent misrepresentation is not a breach of the condition precedent. Stipulations of this kind are strictly constructed, and it must be clearly shown that the assured agreed to be bound by them.
Some Stipulations, however, restrict the duty of disclosure and require from the proposed assured less than is required by good faith. Thus, the stipulation may provid that the policy is to be avoided only in the event of fraud, or, in the case of insurances covering several items of property, that the policy is to be avoided only as regards the item in respect of which the inaccurate statement is made.
B. QUESTIONS AND ANSWERS
The insurers may, at any time during the negotiations, ask the assured questions as to any matters upon which they require information. In practice, a list of printed questions in the proposal form is usually submitted to him to answer in writing. In addition, he may be asked other questions on specific matters not covered by the questions in the proposal form. Such questions may be put and answered in writing or by parol.
A. The effect of the questions
Where questions, whether written or verbal, are asked by the insurers, the assured’s duty of disclosure is to some extent altered.
Notwithstanding the questions, the Common Law duty of disclosure remains, and the proposer must disclose material facts which are not covered by the questions.
On the other hand, though the asking of questions is not conclusive, the questions show what facts are regarded by the insurers as material.
‘There is…no doubt that both in life and burglary insurances the insurance offices make it plain to the assured that they think it material to know whether anybody else has refused the risk. The question nearly always appears in some form or other in the proposal forms of those offices. And in my view, when it is shown to the assured that the underwriter is treating a certain fact as material, he comes under an obligation to disclose any fact of that character.’
If the insurance company does not ask a question about a particular fact in the proposal form, it runs a risk form for, as Scrutton LJ pointed out, it might be said: ‘Well there is a material fact which you did not ask a question about, and as you did not ask a question about it, you cannot say that it was material and ought to have been disclosed.’
Again, in a motor insurance case, where no question in the proposal form was directed as to whether the proposer had failed to pass a driving test, Goddard LJ said:
‘Underwriters cannot frame their questions so as to include everything that may affect any particular proposer, and the fact which ought to be disclosed may well be something peculiar to an individual case. But whether or not a person has failed in his test must, I should think, affect a very large number of proposers. The underwriter exhibits to them a long catechism in which he puts questions on matters which may affect any proposer, such as whether the car is to be used for hire, whether the person who will drive has any infirmity, or whether he had been convicted of any motoring offence, and I cannot help thinking that if it is material for the underwriter to know whether or not the proposer has failed in a test, he would ask the question’
On the other hand, the questions serve to define the limits of what is material, and may, be requiring information of a specific sort, thus relieve the assured from the duty of disclosing facts which are not within their scope, though, if the questions have not been asked, such facts would have had to be disclosed by him in the ordinary discharge of his duty.
Thus, in a case concerning burglary insurance Asquith LJ said:
‘It is unquestionably plain that questions in a proposal form may be so framed as necessarily to imply that the underwriter only wants information on certain subject-matters, or that within a particular subject-matter their desire for information is restricted within the narrow limits indicated by the terms of the question, and, in such a case, they may pro tanto dispense the proposer from what otherwise at Common Law would have been a duty to disclose everything material.’
Further, if the proposer for a fire policy is asked to state how many fires he has had during the last three years, the specification of a precise period will relieve him from the duty of disclosing a fire which happened five years before.
Again an example of this effect of the questions is to be found in Jester-Barnes v Licenses and General Insurance Co Ltd, where MacKinnon J said (obiter) that if an insurance company had asked a proposer the question ‘Have you or your driver during the past five years been convicted of any offence? and he had said ‘No’, and that was true, he would have come without any hesitation to the conclusion that the company was not entitled, after asking that question and receiving the true answer, to take it to mean that he had failed to disclose that he had been convicting eight years ago, and that that was a material fact.
The question may be so framed as to apply to the future as well as to the circumstances at the date of the answers, but in order to effect this, the intention must be clear.
B. The effect of the answers
The effect of the answers will depend upon whether there is or is not a ‘basis’ clause in the proposal form.
1. Where there is a ‘basis’ clause
The usual declaration at the foot of the proposal form that the answers are true, and that they are to be the basis of the proposed contract of insurance, makes the truth of the answers a condition precedent, and the proposed assured, by signing it, signifies his agreement thereto. The condition may, however, appear for the first time in the policy, in which case the assured signifies his agreement by suing on the policy.
A condition will not, however, be so construed, unless its language is sufficiently clear and amounts to a warranty that the facts stated in the answers are true. Thus, Fletcher-Moulton LJ said:
‘To make the accuracy of these answers a condition of the contract is a contractual act, and if there is the slightest doubt that the insurers have failed to make clear to the man on whom they have exercised their right of requiring full information that he is consenting thus to contract, we ought to refuse to regard the correctness of the answers given as being a condition of the validity of the policy. In other words, the insurers must prove by clear and express language, the amimus contrahendi on the part of the applicant; it will not be inferred from the fact that questions were answered, and that the party interrogated declared that his answers were true.’
Where this is the case, it is open to the assured to qualify his answers by stating that they are correct to the best of his belief. Sometimes the condition itself contains a similar qualifications.
Where the truth of the statements is made the basis of the contract, it is unnecessary to consider whether the fact inaccurately stated is material or not, or whether the assured knew or did not know the truth.
(b) Fifth Report of Law Reform Committee
In 1957 the Law Reform Committee stated in their Fifth Report that the result of the presence of a ‘basis’ clause in a proposal form was to render irrelevant any question either of the materiality of the information so obtained, or the honesty or care with which it was given. If the answer given was inaccurate, the insurers were at liberty to repudiate. Further, it was clear that the answering of specific questions, however detailed and searching, did not relieve the proposer from his duty to disclose material facts, although in practice, especially in life insurance, the exhaustive nature of the inquiry might be such as to make it highly improbable that any possible material fact would not be covered.
The Committee recommended that ‘notwithstanding anything contained in or incorporated in a contract of insurance, no defence to a claim should be maintainable by reason of any mis-statement of fact by the insured, where the insured can prove that the statement was true to the best of his knowledge and belief.’
2. Where there is no ‘basis’ clause
Where there is no condition making the proposal the ‘basis’ of the contract, the inaccuracy of the answers does not entitle the insurers to repudiate liability unless it amounts to the non-disclosure or misrepresentation of a material fact.
A fraudulent representation relating to a material fact avoids the contracts. In the fact is not material, the validity of the contract is not affected.
As far as marine insurance is concerned, the insurer is entitled to avoid liability on the policy, whether the misrepresentation is fraudulent or innocent. Section 20(1) of the Marine Insurance Act 1906, states:
‘Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it be untrue the insurer may avoid the contract,’
In the case of non-marine insurance, whether the insurers can avoid liability in the case of an innocent misrepresentation is not settled.
In Graham v Western Australian Insurance Co Ltd, Roche J said that ‘If there is information given, be it quite innocent, which is not a matter of contract, and never becomes a matter of contract, yet, nevertheless, if it is inaccurate, it can be used to avoid the policy or policies in question,’
C. The types of inaccuracy
Sometimes, the answer which is given contains a statement of fact which is directly contrary to the truth. Thus, in answer to a question as to previous refusals, the assured may state that there have been none, whereas, in fact, a previous proposal has been declined.
But at other times the answer may contain no statement of fact which is directly contrary to the truth. It may be true, so far as it goes; but by reason of the omission of other facts falling within the scope of the question, the answer is, in effect, inaccurate and misleading.
Thus, the assured may fail to give an alternative name by which he has been known, understate the number of other insurances, or of previous losses. In answer to a question as to previous refusals, he may state only that negotiations with other insurers are pending, and omit to disclose the fact that there have been actual refusals.
D. The interpretation of the questions and answers
The scope of any particular question depends partly on the language in which it is framed, and partly on the circumstances to which it is intended to relate.
The statement must be considered as a whole, and a fair and reasonable construction must be adopted. The assured is under a duty to tell the whole truth. A half-truth is not enough. The answers must be constructed against the background of any other information which the insurers happen to have. Where the answers are unsatisfactory, the insurers may be deemed to have waived their rights if they do not make further inquiries. Sometimes the space for the answer is left blank and here special rules apply.
1. The statement must be considered as a whole
The statement must, however, be considered as a whole, and if it is substantially accurate, a trivial mis-statement or an omission of immaterial details does not render in inaccurate. Thus, where an assured, having two occupations, is asked to state his occupation, his answer is not inaccurate because he states one of them only, and omits to state the other, unless the fact that he has two occupations is material to the risk.
2. A fair and reasonable construction must be adopted
It is a general principle that a fair and reasonable construction must be placed on the questions in the proposal form and on the answers which the proposer has given to them.
Thus, in the leading case of Condogianis v Guardian Assurance Co Lord Shaw of Dunfermline said:
‘In a contract of insurance it is a weighty fact that the questions are framed by the insurer and that if an answer is obtained to such a question which is upon a fair construction a true answer, it is not open to the insuring company to maintain that the question was put in a sense different from or more comprehensive than the proponent’s answer covered. Where an ambiguilty exists, the contract must stand if an answer has been made to the question on a fair and reasonable construction of that question. Otherwise the ambiguilty would be a trap against which the insured would be protected by Courts of Law. Their Lordships accept that doctrine to the full, and no question is made of the soundness of it as set forth in many authorities.’
In Connecticut Mutual Life Insurance Co of Hertford v Moore
A question in a proposal for a policy of life assurance stated, ‘Have you had any other illness, local disease, or personal injury? And if so, of what nature, how long since, and what effect upon general health?’ The answer which was given was, ‘No’.
Held, a reasonable construction must be put on the question which must be assumed to refer to serious illnesses only.
Sir Robert P Collier said:
‘This is a question of a somewhat embarrassing character, and one which the company could hardly reasonably have expected to be answered with strict and literal truth. They could not reasonably expect a man of mature age to recollect and disclose every illness, however slight, or every personal injury, consisting of a contusion, or a cut, or a blow, which he might have suffered in the course of his life. It is manifest that this question must be read with some limitation and qualification to render it reasonable; and that personal injury must be interpreted as one of a somewhat serious or severe charcter.’
Where a question in a proposal form for life insurance said, ‘What medical men have you consulted? when? and what for?’ it was held that this did not mean that the insured had to give a list of all the doctors she had seen in her life. She had only to give a list which was sufficient for practical purposes.
Similarly, some limitation must be put on a question such as ‘Have any of your relations had any signs of consumption, on been insane, or had fits?’ If the answer given were, ‘No’, and were interpreted strictly, it would mean that countless persons, many of whom could never have been known to the answerer, as, for instance, his great-grandparents, were included in the answer.
The question in the proposal form for a life insurance policy stated, ‘Are you now and have you always been of sober and temperate habits?’ McCardie J said that these words must receive such an interpretation as would be placed upon them by ordinary men of normal intelligence and average knowledge of the world. ‘So interpreted, I can entertain no real doubt that they refer only to the use or abuse of alcohol. They are inappropriate to what are known as “drug habits”. If in the future an insurance company desires express information with respect to habits such as these, then a further question of a direct character should be added to the proposal form.’
In Austin v Zurich General Accident and Liability Insurance Co Ltd:
A proposal form for motor insurance stated, ‘Do you…suffer from loss, or loss of use, of limb or eye, defective vision or hearing or from any physical infirmity?’ The proposer said, ‘No’. The insurance company maintained that his eyes must be defective because he wore ‘thick’ glasses. Held the answer was a true one, for his eye-sight was sufficient for the purpose of driving.
Tucker J said:
‘It is well known that a high proportion of people use glasses for reading but not for long distance sight, and have perfect vision for driving purposes, yet in a sense their vision is defective. I cannot suppose that such people are required to answer “Yes” to this question. Its meaning must be constructed in relation to the circumstances in which it is put, and I think when occurring in a proposal form for motor insurance, it is limited to defects which in some degree affect the competence of the assured as a motor driver and have not been corrected by glasses or other means.’
Again, in Revell v London General Insurance Co Ltd:
A question in a proposal form in respect of the insurance of a car stated: ‘Have you or any of your drivers ever been convicted of any offence in connection with the driving of any motor vehicle?’ The proposer answered ‘No’, but she and her driver had been convicted of using a motor vehicle which did not have an exterior mirror, and of not having in force a third party insurance policy. The insurance company attempted to avoid liability on the ground that the answer was untrue.
Held, by the King’s Bench Division, that it could not do so, for a person reading the question might reasonably regard its purpose as being directed to the carefulness of the driver who was likely to have charge of the insured vehicle. Consequently the proposer was entitled to have answered the question in the negative.
Further, in Corcos v De Rougemont:
In 1923 the insured was asked the following question in a proposal form relating to motor insurance:–‘How long have you driven a motor car?. ‘She answered ‘Seven years’. She had driven her father’s car from 1907 to 1912, and a friend’s car in 1915. In 1923she bought a car and had some driving lessons.
Held, by the King’s Bench Division, that the answer which had been given was a fair one.The question was ambiguous and did not obviously relate to the proposer’s recent motoring experience, as the insurer had contended.
Where a question in a proposal form for a householder’s insurance policy stated: ‘To what extent are the premises left unattended regularly apart from holidays?, the proper way to regard the question and the answer was to treat them as being an indication of the state of affairs which existed at the time the answers were given or was going to exist within the immediate future thereafter and was going to continue so far as the assured was concerned for the period of the policy, but they did not amount to a warranty that no change would occur. To regard them as a to have a named individual in occupation throughout the period was putting an unreasonable interpretation on the effect of the questions and answers there appearing.
Where the question is directed to particular fact, an answer to the question as asked may be sufficient.
Thus, a question as to the existence of other insurance, in the absence of clear language to the contrary, is to be taken as referring only to the property proposed to be insured. The answer is not inaccurate because insurances on other property are not disclosed.
Further, where the question does not in terms require the other insurers to be named, a failure to name them does not render the answer inaccurate.
Similarly, where the question is whether any other insurers have declined to accept or renew the insurance, the answer is not inaccurate because the assured omits to disclose the fact that he has been refused the transfer of another person’s policy, or that a previous policy has been cancelled by mutual consent.
3. The whole truth must be told
The fact that the answer is literally true does not protect the assured where the statement is nevertheless false when taken in relation to other relevant facts which are not stated.
So in Condogianis v Guardian Assured Co Ltd:
A proposal form in respect of a fire policy contained a question stating, ‘He proponent ever been a claimant on a fire insurance company in respect of the property now proposed, or any other property? If so, state when and name of company, ‘The answer which was given was, ‘Yes’. ‘1917.’ ‘Ocean.’ This answer was literally true since he had claimed against the Ocean Insurance Co in respect of the burning of a motor car. But he had omitted to state that in 1912 he had made another claim against the Liverpool and London and Globe Co in respect of the burning of another motor car.
Held, the answer was not a true one.
Lord Shaw of Dunfermline said:
‘The argument of the [insured], however, was that it was sufficient to answer the question, “has the proponent ever been a claimant…? If so, state when and name of company?” by answering in the singular and giving one occasion alone. Accordingly, if, say, several years ago a proponent had been a claimant under an insurance policy, it would be sufficient for him to mention that fact and to exclude from mention the further fact that every year since that occasion he had also been a claimant upon insurance companies for fire losses. It appears to their Lordships quite plain that this would be no good answer to the question, “Has proponent ever been a claimant? If so, state when?” In short, when that question is reasonably constructed, it points to the insurer getting the benefit of what has been the record of the insured with regard to insurance claims. This was distinctly its intention and in their Lordships’ opinion is plainly its meaning. To exclude, however, from that record what might in the easily supposed case be all its important items, however numerous these might be, and to answer the question in the singular, which again in the easily supposed case might be a colourless instance favourable to the claimant, would be to answer the question as to misrepresent the true facts and situation and to be of the nature of a trap’
Further, in London Assurance v Mansel:
In a proposal from for life insurance there was a question which stated ‘Has a proposal ever been made on your life at any other office or offices? If so, where? Was it accepted at the ordinary premium or at an increased premium, or declined?’ The answer was ‘Insured now in two offices for £16,000 at ordinary rates. Policies effected last year.’ In fact, several insurance companies has declined to insure the life of the proposer.
Held, that the answer given was not a true one.
Jessel MR observed:
‘It is to be observed that the man proposing the assurance, who knows the facts, does not answer the question. The question was, “Has the proposal been made at any office or offices; if so, where?” He does not state, “I proposed to half a dozen offices”, which was the truth, but simply says, “Insured now in two offices”, which, of course, must have been intended to represent an answer, therefore would mislead the persons receiving it, who did not look at it with the greatest attention into the belief that he was insured in two offices, and that they were the only proposals that he made. “Was it accepted at the ordinary premiums or an increased premiums?” His answer is, “At ordinary rates.” That is the answer to the second branch of the inquiry, but he has not answered the question, “Or declined?” The inference, therefore, which must have been intended to be produced on the mind of the person reading the answer was that it had not been declined. And in my opinion that is the fair meaning of the answer, and the assured is not to be allowed to say, “I did not answer the question”.’
A further illustration is provided by Holt’s Motors Ltd v South East Lancashire Insurance Co Ltd:
A proposal form for a motor insurance policy contained the question, “Has any company or underwriter declined to insure?’ The proposer gave the answer, ‘No’. In fact another insurance company had stated that it would not renew an existing policy.
Held, the answer which had been given was true in words, though untrue in substance.
Scrutton LJ said:
‘A further question arises…as to whether the question is answered truly: “Has any company or underwriter declined to insure?” The Lion company said they did not invite renewal :owing to the claims experience” and [Counsel for the insured] contended” “Well they were never asked to, and you cannot decline a thing you were never asked to do.” That may be so in ordinary life; but I am quite clear, with such knowledge and experience as I have, that in the insurance world a transaction like that, though expressed in polite terms, would be treated by everybody as a declining to insure; and if so, the question has been answered wrongly.’
In the case of an insurance on partnership property, a question as to previous losses may refer only to partnership property, and a failure to disclose the previous losses of individual members of the partnership does not render the answer inaccurate unless the question extends thus far. Nevertheless, the previous history of the individual members may be material, and the failure to disclose it may avoid the policy. Even in the case of a limited company, its insurances may be affected by the non-disclosure of events which happened before it came into existence.
4. Other information in the possession of the insurers
In considering the accuracy of the answers, regard must be had not only to the statements contained in the answer itself, but also to any other information in the possession of the insurers. An answer, which when taken by itself is insufficient, may not be inaccurate when read with other answers in the proposal. Consequently, the whole of the proposal must be taken into account; and where the assured submits at the same time a number of proposals relating to different properties, but referring to each other, they are all to be read together, and the accuracy of the answers determined accordingly.
5. Inconsistent or unsatisfactory answers
When the answers which the proposers gives are inconsistent or unsatisfactory, and no further inquiries are made by the insurance company, and a policy is issued, the company cannot repudiate liability on the ground that there has not been a full disclosure, for it will be held to have waived its right. ‘If his answer is hesitating or unsatisfactory, the insurers are put upon their guard, and have the option of declining the assurance or seeking information from other sources, or of charging a higher premium.’
So in Keeling v Pearl Assurance Co Ltd:
There was an inconsistency between the date of birth and the age which the proposer had given in answer to a question in a proposal form for life insurance. The insurance company with knowledge of this inconsistency issued a policy.
Held, that liability could not be repudiated on the ground of non-disclosure.
Bailhache J said:
‘ The date of birth is given as November 28,1863…then the age next birthday is given as 48. Now, of course it is obvious to anybody who does the simplest subtraction sum, that a person born in 1863 would not be 48 but would be 57, in 1920. There was no reason to suppose that time had stood still for [him], and it was obvious that there was some mistake about his age, and it turns out that, in fact, 1863 is the wrong date of the birth, and that the age next birthday, instead of being 48, ought to be 49. The insurance company had that form before them, and they saw, on the fact of it, that there was a mistake somewhere about the age. Obviously, it must have hit them in the eye the moment they had the proposal form. Yet notwithstanding that, they chose to issue a policy; and if they chose to issue a policy on a proposal form which contained a mistake, obviously, on the face of it, without further inquiry, there is no ground, in my opinion, for vitiating the policy.’
6. Where the space for the answer is left blank
Where the question is not answered at all, the space for the answer being left blank, there is no inaccurate statement, since there is no statement at all, and hence there cannot be any fraud or misrepresentation or any breach of a condition warranting that the statement made was true.
If the only answer open to the assured would have disclosed a fact unfavourable to the acceptance of the proposal, there is a concealment; and, indeed, concealment has been defined to include the case where the assured purposely avoids answering a question, and thereby does not state a fact which it is his duty to disclose.
Where the space for the answer is left blank, the Court may infer that this implies that it is a negative one.
In Roberts v Avon Insurance Co Ltd:
The insured made a declaration in a proposal form in respect of a burglary policy that ‘I have never sustained a loss in respect of any of the contingencies specified in this proposal expect…NOTE—Give date, amount and name of insurers in respect of such loss’. The insured had recovered from another insurance company in respect of a previous burglary loss. But he did not put any words at all after the word ‘expect’ in the declaration form.
Held, that this meant that no exception existed.
Barry J said:
‘This inference to be drawn from leaving blank the two lines provided for the purpose of stating any exception can, to any reasonable applicant and to any reasonable insurer, have only one meaning, namely, that no exception exists…It seems to me perfectly clear that any applicant for insurance, completing this form, would appreciate without any doubt or ambiguilty that the insurers required particulars of any previous loss in respect of contingencies specified to be set out on the two blank lines left for that purpose, with the date, amount and the name of the insurers who were concerned in respect of each of those losses. If that information is clearly required, it seems to me that the only inference, and the obvious inference, is that the applicant intended the blank lines to represent what I think has been described as a negative answer .As this statement is in a declaration, the obvious inference to be drawn from the applicant leaving those lines blank is there was in fact no exception to his categoric statement that he has never sustained any loss in respect of any of contingencies specified.’
C. THE ONUS OF PROOF
The issue of the policy raises the presumption that everything was rightly done. Hence, the onus of providing that the assured has failed to perform the duty of disclosure or has made a misrepresentation or has broken a condition relating to disclosure lies upon the insurers.
1. What must be proved
When the insurers seek to avoid the policy, the facts which they will have to prove will vary according to whether they wish to establish non-disclosure or misrepresentation, and whether there is an express stipulating in the contract on this matter.
(a) Non-disclosure
Where non-disclosure is alleged the insurers must prove:
i That the fact not disclosed was material;
ii That it was within the knowledge of the assured; and
iii That it was not communicated to them.
(b) Misrepresentation
In the case of fraudulent or innocent misrepresentation it must be shown:
i That the statement alleged to have been made was inaccurate;
ii That the statement relates to a material fact;
iii That, in the case of fraud, the assured knew the statement to be false, or did not believe it to be true, or made it recklessly, not caring whether it was true or false; or, in the case of innocent misrepresentation, ought to have known the truth; and
iv That the statement was made by the assured or by his agent.
(c) Where there is an express stipulation
Where the ground of avoidance is a breach of a condition relating to non-disclosure or mis-statement the insurers are required to show:
i That by express stipulation, the duty of disclosure is made contractual;
ii That the non-disclosure or mis-statement alleged to have been made is a breach of duty as defined the stipulation; and
iii That the assured was guilty of the alleged non-disclosure or made the alleged mis-statement.
Thus, in Stebbing v Liverpool and London and Globe Insurance Co Ltd:
A proposal for burglary policy stated that the proposer declared that the answers he had given were full and true ones, and that he agreed that the proposal was to the basis of the contract between him and the insurance company. The company disputed liability on the ground that his statement in the proposal form was not true.
Held, that the burden of providing this lay on the insurance company.
Viscount Reading CJ said:
‘The proposal form contains a question “Have you ever proposed for burglary insurance?” The claimant has answered. “No” and his answer is challenged by the company. He has been asked about another policy signed by him, and he has given an explanation. The arbitrator [against whose decision this appeal is brought] is in doubt whether asked about another policy signed by him, and has given an explanation. The arbitrator [against whose decision this appeal is brought] is in doubt whether the answer to the question is true, and he asks the Court on whom is the burden of proof; whether on the claimant to prove that the answer is true or on the company to prove that it is false. The burden of proof, in the first instance at all events, lies on that party against whom judgment should be given if no evidence were adduced upon the issue. Assuming in this case that a loss was established and the policy put in evidence, then the claimant would be entitled to recover. If he is met by the company with the objection that his answer to a question is not true, they must establish that the answer is not true. If they fail to establish that, their objection fails. That is to say, the burden lies on the company to prove that the claimant’s answer in untrue.’
2. Some examples of the evidence required
If the only question in issue is whether a fact, admittedly material, was or was not disclosed, or whether a statement, admittedly inaccurate, was or was not made, slight evidence is required to prove that the fact was not disclosed or what the statement was made.
Thus, the mere issue of the policy is sufficient proof where it is clear, as in the case of a retrospective insurance upon a subject-matter which is, to the knowledge of the assured, already destroyed, that no prudent insurers would have issued the policy if they had known the true state of affairs; or where the rate of premium charged by other insurers to whom full disclosure was admittedly made, leads to the conclusion that the insurers in question would not, if they had known the true state of things, have issued the policy at the rate actually charged by them.
On the other hand, the fact that a higher premium than usual has been paid may be important as showing that the assured made a full disclosure.