The Duty Of Disclosure - Part 2 of 2

1.5 What Need not be Disclosed?

Despite the onerous nature of the duty of disclosure upon the

insured, the situation is ameliorated somewhat by some seven

categories of facts which need not be disclosed to the insurer:

1.5.1 Facts within the constructive knowledge of

insurers.

The proposer need not disclose what is known or assumed to be

known by the insurer.113 It is instructive to compare

the assumptions of knowledge made by the proposer with the

assumptions of knowledge in the insurer.

It is clear law that insurers are assumed to know the practices

of the trade they insure,114 but in current affairs the

insurer's memory is assumed to be short. In the leading case of

Bates v. Hewitt115 the Court decided

that, as the insurance of a ship did not in fact realise that the

ship was the same one as the confederate cruiser that had come to

England four months earlier in a glare of publicity, that should

have been brought home to the insurer by the assured.

If the prudent insurer has a short memory, perhaps prudence

dictates that he should keep records. If so, a question arises on

whether he is obliged to look at them? The law sometimes expects

the insurer to remember what he reads in Lloyd's list coming to

the office, so some might think it would also expect him to know

what was in his drawer, when he got there.116

The law was restated in favour of insurers in two decision by

the Court of Appeal. One was Greenhill v. Federal

Insurance Co.117 The other was London General

Insurance Co v General Marine Underwriters

Association118 in which the Court of Appeal first held

that the proposer of reinsurance should have known the contents of

casualty slips received from Lloyd's. So the proposer argued

that by the same token there is no need to disclose the contents to

the reinsurer, for he should also have known the contents of the

same slip. The argument was rejected and the decision was in favour

of the reinsured.

Lord Sterndale M R said that119: "The

defendants, supposing they had these slips, could not be expected

to have always present to their mind information which at the time

they got it would have no interest for them at all".

While true, this did not answer the real question, which is

whether they should have checked on the receipt of the proposal.

But that question was answered clearly by Warrington L J by stating

that120: "the defendants cannot be presumed to have

had knowledge of this casualty merely because they had the

opportunity of ascertaining it". So, I have concluded from the

above judgments by the Court of Appeal that there is little or no

duty on the insurer to look in his drawer, his memory perhaps, but

not his files.

1.5.2 Facts outside actual or presumed knowledge of

insured.

The insured can only be expected to disclose material facts

which are within his actual knowledge or which he ought to have

known in the ordinary course of his business.121 Where

the insured fails to make reasonable enquiries to discover a

material fact, this will show a lack of uberriuma fides on

his part, even if unintentional, for he will have neglected his

duty towards his insurer. What are reasonable enquiries will depend

upon the circumstances of each case.122

1.5.3 Facts as to which insurer waives

information.

This is a principle which applies to all branches of

insurance,123 and as far as marine insurance is

concerned the Marine Insurance Act 1906, Section 18(3) states that:

"In the absence of inquiry the following circumstances need

not be disclosed, namely . . . (c) any circumstance as to which

information is waived by the insurer".

The insurer may waive certain information and once he has done

so, he cannot expect to retain the right to void liability if this

information is not disclosed to him. The Act, therefore, excuses

the assured from disclosing any circumstances as to which

information is waived by the insurer.124

1.5.4 Facts within actual or presumed knowledge of

insurer.

1.5.4.1 Actual knowledge.

There are many matters as to which the insured may be innocently

silent. An underwriter cannot insist that the policy is void

because the insured did not tell him what he actually knew; what

way so ever he came to the knowledge".125

So where the secretary of an insurance company, which had

guaranteed the solvency of a third party, knew that he was in

financial embarrassment, it was held that the company could not

avoid liability on the grounds that the insured had not disclosed

this fact.126

As far as marine insurance is concerned, the Marine Insurance

Act 1906, Section 18(3), provides that: "In the absence of

inquiry the following circumstances need not be disclosed, namely .

. . (b) any circumstance which is known . . . to the insurer . .

.". Thus where the underwriters knew of the age, type,

condition and agreed value of a ketch and the intended manner in

which she was going to be laid up, it was not material for the

assured to describe the neglected state of her topside

caulking.127

1.5.4.2 Presumed knowledge.

"The insured is not bound to communicate facts or

circumstances which are within the ordinary professional knowledge

of an underwriter. He is not bound to communicate facts relating to

the general course of a particular trade, because all these things

are supposed to be within the knowledge of the person carrying on

the business of insurance and which, therefore, it is not necessary

for him to be specially informed of".128

In Hales v. Reliance Fire & Accident Insurance

Corp. Ltd.129 a retail shopkeeper had taken out a

policy against losses or damages to his shop due to fire or

explosion. The business consisted of grocery, provisions,

newspapers, tobacco and confectionery. For a period round Guy

Fawkes Day substantial quantities of fireworks were kept on the

premises in a tin box and not in a place of safety, as required by

the Explosives Act 1875.

Here, there was no obligation in this class of insurance to

disclose to the underwriter that fireworks would be, or might be,

on the premises during the short season, for this was a matter

which the underwriter must be taken to have known. "It is also

true that when a fact is one of public notoriety, as of war . . .

the party proposing the insurance is not bound to communicate what

he is fully warranted in assuming the underwriter already

knows".130 Thus, in Leen v.

Hall131 a castle in County Kerry in Ireland was

insured against damage from riot, civil commotion, war, rebellion

and fire. It was destroyed in May 1921 by members of the Irish

Republican Army during the troubles of that year. In an action on

the policy the insurer pleaded that the insured had not disclosed

that the castle had been occupied for short periods during that

year by Crown Forces and that it had been used by them for the

detention of Sinn Fein prisoners. The jury found that it was not

material to communicate these facts, presumably because they

considered that they were common knowledge.

The insured is not bound to tell the underwriter what the law

is. As far as marine insurance is concerned, the Marine Insurance

Act 1906, Section 18(3) states: "In the absence of inquiry the

following circumstances need not be disclose, namely . . . (b) any

circumstance which is . . . presumed to be known to the insurer.

The insurer is presumed to know matters of common notoriety or

knowledge and matters which an insurer in the ordinary course of

business, as such, ought to know".

1.5.5 Facts tending to diminish the risk.

The Marine Insurance Act 1906 provides that the insured need not

disclose, in the absence of enquiry "any circumstance which

diminishes the...

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