REFORMING INSURANCE LAW: - Law Commission

with the duty of disclosure unless the assured has been fraudulent: s 22(3), subject to limited
exceptions in s 69.
4.3 Both Australia and New Zealand 53 have rejected the notion that the broker should, for
placement purposes, be treated as the agent of the insurers rather than as the agent of the assured.
Pre-contract disclosure
4.4 The criteria. The ALRC analysed the operation of the doctrine of disclosure at common
law 54 and concluded 55 that changes in the incidence of knowledge since the doctrine was
developed in the eighteenth century called for a revision of the law. The ALRC did not
recommend abolition, but preferred modification. Its recommendations were, with one
significant variation, adopted by the 1984 Act. Section 21 of the 1984 Act lays down the basic
principle of disclosure, which replaces the common law. 56 Under s 21(1): 57
an insured has a duty to disclose to the insurer, before the relevant contract is entered
into, every matter that is known to the insured, being a matter that:
(a) the insured knows to be a matter relevant to the decision of the insurer
whether to accept the risk and, if so, on what terms; or
(b) a reasonable person in the circumstances could be expected to know to be
a matter so relevant.
4.5 The knowledge of the assured. Under s 21(1), the fact must be “known to the assured”. The
Marine Insurance Act 1906 requires disclosure of facts which “are known to the assured, and the
assured is deemed to know every circumstance which in the ordinary course of business ought to
be known to him.” The English courts have established that the word “known” means actual or
at the very least blind-eye knowledge (in that the assured has shut his eyes to facts that would
otherwise be obvious) but there is no duty on the assured to undertake any inquiries to discover
things which are not known by him. 58 The deemed knowledge of the assured necessarily applies
only if he is carrying on business, and here the courts have ruled that a fact possessed by an agent
of the assured only falls within the deemed knowledge of the assured if the agent was under
53
For the latter, see the review of the Ministry of Economic Development, published in September 2006 and
discussed below in the context of good faith. The review specifically recommended a clarification of New Zealand
law to confirm that the broker is the agent of the assured during the placement process.
54
ALRC 20, paras 150-165.
55
ALR 20, paras 175-183.
56
The common law is accordingly no longer relevant: Advance (NSW) Insurance Agencies Pty Ltd v Matthews
(1989) 166 CLR 606. For a comparison, see Kirby, “Marine Insurance: Is the Doctrine of "Utmost Good Faith" Out
of Date?” (1995) 13(1) Australian Bar Review 1.
57
At present, in the case of a life policy, where the policyholder and the life assured are different persons, false
statements by the life assured in response to express questions by the insurers as to his health and other relevant
matters are treated as having been made by the policyholder himself: s 25. Treasury Review II, 2004,
recommendations 4.4 and 4.5, have proposed that the life assured should be under a duty of disclosure, although
only if he is warned of its existence in accordance with the provisions of s 22. See infra.
58
Economides v Commercial Union [1997] 3 All ER 636.
16