Lloyd's Maritime and Commercial Law Quarterly
CHIPPING AWAY AT C.T.I. V. OCEANUS
Barclay Holdings (Australia) Pty. Ltd. v. British National Ins. Co. Ltd.
No topic within insurance law receives more attention from judges and writers than non-disclosure of material facts, in particular the test of materiality. Probably no case on this topic has received so much attention as the decision of the English Court of Appeal of nearly four years ago, Container Transport International Inc. v. Oceanus Mutual Underwriting Association (Bermuda) Ltd.,1 in which Kerr, L.J., stated his test of materiality in the following terms:2
To prove the materiality of an undisclosed circumstance, the insurer must satisfy the court on a balance of probability—by evidence or from the nature of the undisclosed circumstance itself—that the judgment, in this sense, of a prudent insurer would have been influenced if the circumstance in question had been disclosed. The word “influenced” means that the disclosure is one which would have had an impact on the formation of his opinion and on his decision-making process in relation to the matters covered by s. 18(2) [of the Marine Insurance Act 1906].
Is the above statement of principle consistent with the long line of authority extending back to Carter v. Boehm
3 or is it a discordant note?
The New South Wales Supreme Court has contributed to the materiality debate with a statement of principle, which is often repeated in the authorities, by Samuels, J. (as he then was) in Mayne Nickless Ltd. v. Pegler.4 The following was said to be the test of materiality:
It seems to me that the test of materiality is this: a fact is material if it would have reasonably affected the mind of a prudent insurer in determining whether he will accept the insurance and, if so, at what premium and on what conditions. The word “reasonably” is necessary to maintain control over the evidence of possibly stringent insurance practice … It achieves the purpose of the “reasonable assured” test, but fixes the area of judgment where it properly belongs—that is, with the insurer.
That test was subsequently approved by the Privy Council in Marene Knitting Mills Pty. Ltd. v. Greater Pacific General Insurance Ltd.5
The niceties of emphasis that have marked the formulation of the materiality test in many English and Australian cases since Carter v. Boehm are now of historical interest only to Australian lawyers because, since the commencement of the Australian Insurance Contracts Act 1984 on 1 January 1986, the duty of disclosure and the incidental test of materiality are provided by statute. The duty of disclosure is still an essential ingredient, although the remedies for its breach under Australian statute are less severe. Section 21 of the Act requires disclosure to the insurer of every matter that is known to the insured being a matter that the insured knows to be relevant to the decision of the insurer whether to accept the risk, and if so on
2. Ibid., 492.
3. (1766) 3 Burr. 1905.
4. [1974] 1 N.S.W.L.R. 228, 239.
5. (1976) 11 A.L.R. 166, 172; [1976] 2 Lloyd’s Rep. 631, 642.
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