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Published online by Cambridge University Press: 01 March 1999
This article takes a fresh look at the test for inducement of the insurer where there can be said to have been non-disclosure of a material fact by the insured. Specifically, the article questions the assumption that the test for inducement of the actual insurer operates in precisely the same way as it does under the general law of contract in misrepresentation. The speeches of the majority of the House of Lords in Pan Atlantic v. Pine Top (1995) appear to make no distinction between the operation of these concepts. Yet two recent Court of Appeal decisions (Downs v. Chappell; Bristol and West Building Society v. Mothew – both reported in 1997) would seem to suggest that there is a distinction to be made. The conclusion reached in this article is that evidence of actual inducement of the insurer in the sense of evidence that he would have refused to take the risk or would have taken it only on other terms is necessary when the case is put on the basis of “pure” non-disclosure. Where, in contrast, the case is properly framed in misrepresentation the insurer need only show that he acted in reliance or was induced to act by the representations actually made.
1 Pan Atlantic Ins. Co. Ltd. v. Pine Top Ins. Co. [1995] A.C. 501.
2 An expression here borrowed from J. Birds and N.J. Hird, “Misrepresentation and Non-disclosure in Insurance Law—Identical Twins or Separate Issues?” [1996] M.L.R. 285.
3 Banque Keyser Ullmann SA v. Skandia (UK) Insurance Co. Ltd. [1990] 1 Q.B. 665 (C.A.); [1991] 2 A.C. 249, a case strictly decided on the issue of causation and so the comments concerning the non-availability of damages for non-disclosure are obiter. It appears that the Misrepresentation Act 1967 on its terms is not designed to apply to non-disclosure; see Atiyah and Treitel, 30 M.L.R. 370 and Hudson, 85 L.Q.R. 524.
4 A recent example of this for non-disclosure is the now well-known case of St. Paul Fire Insurance Co. (UK) Ltd. v. McConnell Dowell Constructors Ltd. and others [1995] 2 Lloyd's Rep. 116 (C.A.).
5 See, for example J. Birds and N.J. Hird, “Misrepresentation and Non-Disclosure in Insurance Law—Identical Twins or Separate Issues?” [1996] M.L.R. 285; N.J. Hird, “Rationality in the House of Lords” [1995] J.B.L. 194; N.J. Hird, “Pan Atlantic— yet more to disclose?” [1995] J.B.L. 608; H.N. Bennett, “Utmost Good Faith in the House of Lords” [1995] L.Q.R. 405; M. Clarke, “The Significance of Silence—Non-disclosure Again” [1995] L.M.C.L.Q. 477.
6 Pan Atlantic v. Pine Top [1995] 1 A.C. 501, at p. 549d.
7 Ibid., at pp. 549e and 551d.
8 Ibid., at pp. 516e–f and 551h–552b.
9 Ibid., at pp. 560b and 565d.
10 Ibid., at pp. 568a–569e and 571f.
11 A.G. Guest and others, Chitty on Contracts, 27th ed. (1994) at para. 6-019.
12 Halsbury's Laws, vol. 31 (4th ed.) para. 765.
13 See, for example, Re Northumberland and Durham District Banking Co. ex p. Bigge (1858) 28 L.J. Ch. 50; Horsfall v. Thomas (1862) 1 H. & C. 90.
14 Marine Insurance Act 1906, s. 18(3); see, for example, in misrepresentation Cooper v. Tomms (1988) 1 E.G.L.R. 257 and J.E.B. Fasteners Ltd. v. Marks Bloom & Co. (a firm) [1983] 1 All E.R. 583 (C.A.). In the latter case the purchasers of a company had carried out their own stock verification analysis and were found not to have relied on the company's own accounts which had been shown to be demonstrably wrong.
15 The case of J.E.B. Fasteners, n. 14 above, can be seen in this way, as may Smith v. Chadwick (1884) 9 App.Cas. 187; Attwood v. Small (1838) 6 Cl. & Fn. 232 at pp. 447–448.
16 Insurers often limit the disclosure required on specific matters, for example previous convictions are prima facie always relevant to moral hazard considerations but those many years previous and or considered to be minor are often expressly waived. That this is done can be seen both (or either) in terms of the information not being material and in terms of it having no impact on the eventual decision as to risk and premium.
17 Edgington v. Fitzmaurice (1885) 29 Ch.D. 459, per Cotton L.J. at p. 481; Fry L.J. at p. 485; and Bowen L.J. at pp. 482–483 citing Clarke v. Dickson 6 C.B.(N.S.) 453 and expressing inducement in terms of an impact upon the claimant's mind and the disturbance of his mind being a part at least of the cause of what he did. The investigation is a question of fact.
18 See note 14 above.
19 J.E.B. Fasteners, note 14 above, at p. 589a.
20 See St. Paul Fire & Marine Insurance Co. (UK) Ltd. v. McConnell Dowell Constructors Ltd. and others [1995] 2 Lloyd's Rep. 116, at p. 124.
21 Cf. Denning M.R., Industrial Properties (Barton Hill) Ltd. and others v. Associated Electrical Industries Ltd. [1977] 1 Q.B. 580 (C.A.), who spoke in terms of this lack of any difference in end result as being of relevance. This issue was, however, decided by the Court of Appeal on the issue of estoppel.
22 [1997] 1 W.L.R. 426 (C.A.).
23 [1998] Ch. 1 (C.A.).
24 Ibid., at p. 11e per Millett L.J.
25 Ibid., at p. 11b.