Lloyd's Maritime and Commercial Law Quarterly
INSURANCE CONTRACTS AND NON-DISCLOSURE
Pan Atlantic v. Pine Top
The person who applies for insurance must disclose information which is material. Information is material if, in the words of the Marine Insurance Act 1906, s. 18(2), it “would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk”.1 But what is influence? Whether one is under the influence of the moon or of moonshine, the degrees of influence are infinite and various; one man’s mead is another man’s poison. As regards the degree of influence that an undisclosed fact might have had on the prudent insurer, reported cases suggest, broadly speaking, four possibilities and four types of information; and now, perhaps, five.
Type (A) is information such that, if the insurer had known it, after due consideration he would have refused to make the contract at all. This is the rule in some parts of the United States.2 Type (B) is information such that, if the insurer had known of it, he would have made the contract of insurance but only on terms, especially (but not only) as to premium, different from those which he did agree.3 This appears to be the rule in Australia,4 Canada,5 New Zealand6 and most jurisdictions of the United States.7 Type (C) is information such that, if the insurer had known it, he would have considered it relevant but not, unlike Type (A), so relevant that he would have refused to contract and, unlike Type (B), not so relevant that he would have insisted on different terms. It would have “affected” his
1. This rule applies also to non-marine insurance; see, e.g., Lambert v. Cooperative Ins. Soc. Ltd. [1975] 2 Lloyd’s Rep. 485 (C.A.).
2. E.g., Roberto v. Hartford Fire Ins. Co. (1949) 177 F. 2d 811, 814 (7 Cir.), cert.den. (1950) 339 U.S. 920; American Home Assurance Co. v. Fremont Indemnity Co. (1990) 745 F. Supp. 974, 977 (S.D.N.Y.).
3. Some support for this rule can be found in England (and Scotland), mostly in older cases: Blackburn, Low & Co. v. Vigors (1886) 17 Q.B.D. 553, 562, per Lord Esher, M.R., whose dissenting judgment was upheld by the House of Lords without comment: (1887) 12 App.Cas. 531. On these early cases, see Brooke [1985] LMCLQ 437.
4. Barclay Holdings (Australia) Pty. Ltd. v. British National Ins. Co. Ltd. [1987] N.S.W.L.R. 514, 523.
5. Gauvremont v. Prudential Ins. Co. of America [1940] S.C.R. 139, 156–157.
6. FAME Ins. Co. Ltd. v. McFadyen [1961] N.Z.L.R. 1070, 1074.
7. Penn Mutual Life v. Mechanics’ Savings Bank (1896) 72 F. 413, 429 (6 Cir.); rehearing denied (1896) 73 F. 653. More recently: Parker v. Prudential Ins. Co. (1990) 900 F. 2d 772 (4 Cir.); Petersen v. Mutual Life Ins. Co., (1990) 803 P. 2d 406, 409 (Alaska).
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