Lloyd's Maritime and Commercial Law Quarterly
MATERIALITY, NON-DISCLOSURE AND FALSE ALLEGATIONS: FOLLOWING THE NORTH STAR?
James Davey *
The Court of Appeal decision in
The North Star shows continuing judicial dissatisfaction with the doctrine of utmost good faith in insurance contract law. As a vehicle designed in the 18th century to counteract inequalities of access to information, it has failed to keep pace with modern circumstances. However, the most recent “hard” case represents an age-old problem: whether to require disclosure of information known by the insured to be untrue, but not yet disproven. This article considers three potential mechanisms for reform: the concept of materiality; the doctrine of inducement and ex post controls on the remedy of avoidance.
I. INTRODUCTION
The undeveloped nature of the doctrine of utmost good faith in insurance law has once again come under the scrutiny of the Court of Appeal in The North Star
.1
It appears that reform is closer than it has been for some time. Waller LJ began his review of the relevant legal principles by noting “[t]he law in this area is… capable of producing serious injustice” and concluded by welcoming the future review of the area by the Law Commission.2
This focus on legislative interference, rather than judicial reform, was shared by Longmore LJ.3
Whilst noting the interest of the Law Commission,4
this paper focuses on the scope for judicial intervention, as the Law Commission has previously called for reform of the doctrine of utmost good faith, with little success.5
The facts of The North Star
raised a series of related but distinct issues as to the limits and operation of the doctrine of utmost good faith. The key facts are relatively simple. At the time of placing the risk, allegations of dishonesty and formal proceedings6
against one or both insureds were not disclosed. However, the insureds were subsequently either acquitted or the charges were dropped and in one case the key prosecution witness was
* Cardiff Law School. I am grateful to Professor Richard Lewis and David Glass for their comments on an earlier draft, The usual caveat applies.
1. North Star Shipping Ltd
v. Sphere Drake Insurance Plc
(The North Star
) [2006] EWCA 378.
2. Ibid
, [17] and [20].
3. Both Waller LJ (at [20]) and Longmore LJ (at [54]) welcomed the Law Commission’s proposed review of the area.
4. The Law Commission is undertaking a review of insurance contract law, including non-disclosure. See Law Commission and Scottish Law Commission, Insurance Contract Law: A Joint Scoping Paper
(2006). A consultation paper is due in 2007.
5. See, eg, Law Commission Insurance Law: Non-Disclosure and Breach of Warranty
: Law Com No. 104 (Cmnd 8064, 1980).
6. The charges, before the Greek courts, were of involvement in an alleged investment fraud.
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