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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