Materiality Insurance Law

• Materiality


  Determined on a contract-by-contract basis
• Insurance contract


  • It is aleatory- a contract where performance of the promise is dependent on the occurrence of a fortuitous event
  • It is a contract of adhesion
  • May be unilateral
  • A contract of Uberrimae fidei- utmost good faith- most important
• Utmost good faith


  Fundamental principle of all insurance contracts
• Carter v Boehm 1766: 'Insurance is a contract based upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risque as if it did not exist. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary'
• London Assurance v Mansel [1879]: 'As regards the general principle, I am not prepared to lay down the law as making any difference in substance between one contract of assurance and another. Whether it is life or fire or marine assurance, I take it good faith is required in all cases, and though there may be certain circumstances from the peculiar nature of marine insurance, which require to be disclosed and which do not apply to other contracts of insurance, that is rather, in my opinion, an illustration of the application of the principle than a distinction in principle'
• Greenhill v Federal Insurance Co Ltd. [1927]: 'Now, insurance is a contract of the utmost good faith, and it is of the gravest importance to commerce that that position should be observed. The underwriter knows nothing of the circumstances of the voyage to be insured. The assured knows a great deal, and it is the duty of the assured to inform the underwriter of everything that he has not taken as knowing, so that the contract may be entered into on an equal footing'
• The rationale behind this duty is not only based on the knowledge of the parties to a contract but based on the nature of the contractual relationships. It is necessary for the parties to be "Ad idem"
• Materiality


  At the heart of the question of liability and often determines whether an assured my recover the indemnity for which he had purported to insure in his insurance policy
• Duty to disclose


  Only applies to material facts
• Test of materiality


  • Would disclosure of the fact influence a 'prudent' insurer?
  • Would a 'reasonable' assured consider the fact 'material'?
• Babatsikos v Car Owners' Mutual Insurance Co. Ltd. [1970]


  • The court gave weight to the opinion of insurers
• The idea that it was material (according to the evidence by an insurer) that a proposer (many years after the occurrence of the event) had been caught stealing apples when he was twelve, was ridiculed by McNair J. in Roselodge Ltd. v Castle, [1966]
• Reynolds v Phoenix Assurance Co [1978]

  • The court rejected a submission that if an insurer is telling the truth and he is held to be reasonable, the evidence MUST be accepted
• • Whether a fact may be material in any case is a question of LAW
  • Whether it is a material fact in a specific case is a question of FACT
• Marine Insurance Act 1906 sec 18 (2)

  Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk
• Babatsikos v Car Owners' Mutual Insurance Co. Ltd. [1970]

  • Motor insurance
• Marene Knitting Mills Pty. Ltd v Greater Pacific General Insurance Ltd, [1976]


  • Fire insurance
• Reynolds and Anderson v Phoenix Assurance Co Ltd. [1978]


  • Fire insurance
• Associated Oil Carriers Ltd. v Union Insurance Society of Canton Ltd


  • Marine insurance
• Reasonable assured test


  What would a reasonable assured consider material?
• Becker v Marshall (1922): 'In my view, it is very important to maintain the obligation on the assured of communicating to the underwriter every material fact, and I understand, and have always understood the definition of material fact to be that contained in the Marine Insurance Act. "Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk"'
• Zurich General Accident and Liability Co. Ltd v Morrison [1942]: 'What is important is that which would influence the mind of a prudent insurer in deciding whether to accept the risk or fix the premium, and if this be proved it is not necessary further to prove that the mind of the actual insurer was so affected. In other words, the assured could not rebut the claim to avoid the policy because of material representation by a plea that the particular insurer concerned was so stupid, ignorant or reckless, that he could not exercise the judgment of a prudent insurer, and was, in fact, unaffected by anything the assured has represented or concealed'
• The assured's opinion as to whether a fact is material is IRRELEVANT. Materiality is always a question of facts and must be decided in a case-by-case basis, judging the facts presented. Therefore, what is important in one case may not be important in another
• The WHETHER DISCLOSURE INFLUNCES THE INSURED IS IRRELEVANT AND THE INSURED'S OPINION REGARDING THE MATERIALITY OF A FACT IS IRRELEVANT- in keeping with the reasonable assured test
• Materiality judged at


  The date and time when the fact, if it should at all, have been communicated to the insurer
• Even if the material fact subsequently became immaterial, the fact of its non-disclosure at the time of the contract would make it liable to avoidance
• Non-disclosure of a fact which was not material at the time of contracting but which subsequently became material, even if such fact caused the loss, would NOT make the policy voidable
• Watson v Mainwaring [1813]


  • Life insurance where the proposed assured was suffering and ultimately died from a disease which was not generally a disorder tending to shorten life within the meaning of the proposal
• The duty of disclosure is a continuing duty, at any rate, where the policy comes up for renewal from time to time
• If a fact is not known though it ought to have been known at time of contract but becomes known after policy has been issued, the assured should then make disclosure so that the insurer has the choice to adjust the policy or the premium
• Classification of material facts

  • Any fact indicating an exposure to more than normal danger
  • Any fact which suggests that the subject matter of the insurance by reason of its nature, condition, user, surroundings or other circumstances is exposed to more than normal peril or risk
• Material fact


  Any fact indicating an exposure to more than normal danger
• Material facts


  • Facts suggesting that the assured is motivated by special motive
  • Facts showing that the liability of the insurer might be greater than would normally be expected
  • All facts relating to 'moral hazard'
  • All facts which to the knowledge of the assured are regarded as material by the insurer
• Material facts - Nature


  • Biggar v Rock Life Assurance Co - Insured described himself as a "tea-traveller" but failed to state he was also the operator of a pub (a Publican)
  • Perrins v Marine and General Travellers Insurance Society - Assured described himself as an "esquire" but did not say he was also an "ironmonger"
• Material facts - Condition

  • Santer v Poland - The date of the manufacture of a motor car was held to be a material fact which should be disclosed
  • Russell v Thornton - Fact that ship had run aground not disclosed
  • Boyd v DuBois - Failure to disclose the fact that the cargo had been so damaged that it was likely to erupt in spontaneous combustion
  • Greenhill v Federal Insurance Co - Cargo was previously carried, partly on deck, in a protracted voyage from New York to Halifax, where, the vessel being unable to proceed further, it was unloaded and part put in a warehouse, and the rest left on the open quay, exposed to severe weather for over two months
• Material facts - Use of property

  • Quin v National Assurance Co - Property being insured was described as a "dwelling house" occupied by a caretaker, but was in fact a house under construction and was in the charge of the carpenter who was engaged on the work
• Material facts - Surroundings

  • Versicherings and Transport AG Daugava v Henderson - Whether the contents of a building should be disclosed where the circumstances are such that the insurer may otherwise think the building is empty
• Material facts - Other circumstances

  • Existence of a letter the contents of which could place the insurer on enquiry
  • Structure and locality of the garage when insuring a car against fire
• Dawsons Ltd. v Bonnin - The assured had inserted in the proposal form for the insurance of a lorry that the lorry was garaged at No 46 Cadogan Street, Glasgow, but it was usually garaged on a farm in the outskirts of the city. This mis-statement had been made inadvertently and was not material, but the proposal form had included a basis clause, so the assured could not recover
• Facts suggesting that the assured is motivated by special motive

  Property is greatly over-valued and so is in the nature of a speculative risk