From utmost good faith to fair presentation in insurance contracts What is new?

By Joseph Akyeampong Esq

Contracts of insurance are not differentiated from any other type of contracts in the sense that, all contracts rest on the understanding that parties reach in formulating contractual agreements. Consequently, any contract covering any aspect of human or business endeavour can be vitiated or set aside on grounds of fraud, misrepresentation, mistake, undue influence and duress and other such vitiating factors.

One distinguishing factor in contract law and insurance law is that, contract law is subject to the principle of “buyer beware” or “caveat emptor” while contracts in insurance law is founded on the principle of “uberrima fides” or utmost good faith.

The peculiarities of the doctrine of uberrima fides or utmost good faith in insurance requires the insured in entering into a contract with the insurer to make an honest disclosure of all the material circumstances regarding the transaction so as to afford the insurer the chance to exercise the discretion as to whether to accept the insurance and if it decides to enter into the insurance contract to determine the premium payable.

The reason for elevating the hallowed principle of uberrima fides is that, the insured holds the private or exclusive knowledge of the risk involved with the insurance and is consequently obliged to make a full disclosure of all the material circumstances concerning the risk involved with the insurance to the insured.

In discharging the burden of utmost good faith, the insured is to avoid making a fraudulent misrepresentation to the insurer. In the case of DERRY v PEEK 1889 14 APP CAS 337, it was pronounced that, being guilty of fraudulent misrepresentation equates to making statements which are basically false without belief in their truth or recklessly as to whether they are true or not.

The connotation of fraudulent misrepresentation also encompasses the situation where the insured is guilty of fraudulent non-disclosure, concealing from the insured wilfully any material fact that the insurer would wish to be aware of or must necessarily be aware of. There is a duty cast on the insured to avoid any misrepresentation of facts so as to induce the insurer to enter into the contract. This is for the insured to make a full disclosure of all the material circumstances of the risk involved with the insurance.

In determining the latitude of utmost good faith or uberrima fides, the insured was not to make any representation of facts to the insured which is false in a material particular whether the representation of the fact was done negligently or innocently.

Thus, the duty to disclose material facts by the insurer connotes that, failure to disclose a particular material fact so as not to induce the insurer to enter into the insurance contract was deemed an act of misrepresentation and thus, a breach of the principle of utmost good faith.

The legal foundation of uberrima fides

The principle of utmost good faith underpinning a contract of insurance has been codified in the Marine Insurance Act of 1906, section 17 of which states as follows:

“A contract of marine insurance is a contract based on the utmost good faith and if the utmost good faith be not observed by either party, the contract may be avoided by the other party.”

An early formulation of the principle of uberrima fides in insurance law was laid down in the founding judgment of Lord Mansfield in the case of CARTER v BOEHM; 97 ER 1162 (1766) as follows:

“Insurance is a contract of speculation. The special facts upon which the contingent chance is to be computed lie mostly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance to his knowledge to mislead the underwriter to a belief that the circumstance does not exist and to induce him to estimate the risk as if it did not exist”.

In this case, George Carter, Governor of a fort in Sumatra, Indonesia took an insurance over the fort with Charles Boehm, an underwriter but did not disclose the fact that the fort was vulnerable to attack. The fort was later captured in an attack by the French. In an action of repudiation of the claim by Charles Boehm, Lord Mansfield ruled that the situation of the vulnerability of the fort should have been known by Boehm due to the political climate persisting in the area at the time and so therefore its non-disclosure by Carter did not involve any material concealment of a fact.

The rationale of the principle of uberrima fides was to enable the insurer to determine the risk which is associated with the insurance in order for the insurer to make a determination as to whether or not to accept the risk and if the insurer was to accept the risk, to determine the premium payable. However, if the risk was known to the insurer, the insured was not obliged to make any such disclosure.

Other circumstances which may constitute a non-disclosure of material facts and a breach of the uberrima fides principle are indicated in cases like LIC v CONSUMER EDUCATION AND RESEARCH SOCIETY 1996 where an insurer failed to disclose a condition of pre-existing illness in a life insurance policy and AVIVA LIFE INSURANCE CO v HARJEET SINGH 2015 where a misrepresentation was made regarding medical history which voided the insurance contract on account of failure to disclose a material fact.

Lord Mansfield’s statement of the principle of uberrima fides for a considerable period of time applied strictly to all forms of insurance contracts. However, later events have revealed that it may be a very onerous duty cast on an insured to make a full disclosure of every material circumstance of the risk involved with the insurance.

This is for the reason that the statement of the material circumstances of the risk involved with the insurance may be characterised into statements of opinion and statements of facts. Consequently, an insured may not be able to distinguish between the blurred lines of statements of opinion and statements of facts since the insured may not be an expert in the particular subject matter of which he is required to make a disclosure of all the material facts concerning the insurance.

This particular situation came up in the case of JOEL v LAW UNION INSURANCE CO 1908 2 KB 863. In this case, an insured, Robina Morrison who placed a life insurance with the insurance company was made to fill a

questionnaire subsequently by a medical doctor appointed by the insurance company. The insured did not disclose her consultation of a medical specialist for nervous breakdown following an influenza and also for her confinement for acute mania. In an action by the executrix of the estate of Robina Morrison for the claim on her life insurance, it was held that the non-disclosure by Robina Morrison in not stating her visit to a medical specialist about her condition was not deemed material to affect the repudiation of the policy by the Insurer.

However, contrasted with the case of GODFREY v BRITANNIC ASSURANCE CO 1963 2 LLOYDS REPORT 515, it was held that the non-disclosure by an insured of a visit to a medical specialist was considered a non-disclosure of a material fact sufficient to avoid the contract.

Departure from utmost good faith to fair presentation of risk

Though the dictum of utmost good faith by Lord Mansfield in CARTER v BOEHM has stood the test of time in determining the width of the disclosure of material facts in an insurance contract, later rulings by the courts of the determination of the materiality of disclosure has ignited debate leading to a reformation of the spectrum of the utmost good faith principle.

Cases like JOEL v LAW UNION and CROWN INSURANCE CO LTD and GODFREY v BRITANNIC ASSURANCE CO LTD has jolted the Law Commission of England in an opinion paper issued in June 2012 in a reformulation of the principle of utmost good faith to state that, “It is now common for courts to describe the policy holder’s duty in terms of making a fair presentation of the risk”.

The reformulation of the principle of utmost good faith to one of “fair representation of the risk” was deemed a “more limited concept than every material circumstance”. This seems to be a much more acceptable construct of the width of the utmost good faith principle in settling the dichotomy on statements of facts and statements of opinion in ascertaining the presentation of the risk.

Consequently, the courts have favoured the new line of “fair presentation of risk” in insurance contracts with such pronouncements in cases like GARNAT TRADING & SHIPPING (SINGAPORE) PTE LTD v BAOMINH INSURANCE CORP 2012 1 AER 790 with the dictum of Clarke J as follows:

“A minute disclosure of every material circumstance is not required. The assured complies with the duty if he discloses sufficient information to call the attention of the underwriter to the relevant facts and matters in such a way that, if the latter desires further information, he can ask for it.

A fair and accurate presentation of a summary of material facts is sufficient if it would enable a prudent underwriter to form a proper judgment, either on the presentation alone or by asking questions if he was sufficiently put upon enquiry and wanted to know further details whether to accept the proposal and if so on what terms.”

In the Insurance Act of 2015, there is a further reformulation of the principle of utmost good faith which translates into a fair presentation of the risk by the insured. It is provided that, a pre-contractual duty is imposed in business

insurance contracts of a duty of fair presentation of the risk, but still retaining the elements of utmost good faith. The insured is also required to make the presentation of risk reasonably clear and accessible and also the requirement of the insured discharging the duty of fair presentation of the risk if the information discloses sufficient information to put a prudent insurer on notice that it needs to ask further questions.

Following the passage of the Insurance Act 2015 in England consequent upon the reformulation of the utmost good faith principle to fair presentation of the risk, a number of cases in England have been decided to ascertain the width of the principle of fair presentation.

In Berkshire Assets (West London) Ltd v AXA Insurance UK Plc 2021, it was held that failure to disclose that a director was subject to criminal charges constitutes a moral hazard that a prudent insurer would deem material. In Delos Shipping SA & ORS v Allianz Global Corporate & Speciality SE & ORS 2025, it was stated that a corporate policy holder would be deemed to know only what is known by its senior management and that a non-disclosure of a director’s background where the director possesses no operational role or knowledge of the risk did not constitute a breach.

In Young v Royal & Sun Alliance Plc 2020, it was held that an insurer did not waive his right to information about a director’s insolvency history just by not asking further questions after a presentation.

A distillation of the English cases referred to above affirms the width of the principle of fair presentation as being materiality, knowledge, and remedies.

With materiality, a presentation is deemed material if the circumstances of the risk would influence a prudent insurer. Regarding knowledge, the insured must disclose what they know or ought to know including information known by senior management. Also, where a breach of the insurance contract is not considered deliberate or reckless, the insurer may reduce claims proportionately or apply different policy terms.

Conclusion

The reformulation of the principle of utmost good faith to a fair presentation of the risk does not in any way diminish the duty cast on the insured to make adequate disclosure of the risk associated with the insurance.

It is fair to say that the reformulation of the principle of utmost good faith to fair presentation of the risk actually reinforces the concept of utmost good faith by splitting the burden equally on the insured and the insurer for a proper assessment of the risk associated with the insurance.

With a fair presentation of the risk, the insured is required to furnish information about the insurance to the extent that the insured would be put on enquiry to probe further on any matters which he deems relevant as constituting a risk to the insurance before acceptance.

The writer is a lawyer and the Principal of Akyeampong & Co, Corporate and International Business Attorneys with special focus practice in Commercial, Corporate, Banking, Finance, Insurance, International Business, International Trade, Intellectual Property and Mining Law.

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