REFORMING INSURANCE LAW: - Law Commission

More documents

Recommendations

Info

confirmed by s 28 which requires the actual inducement of the insurer in question before any remedy is available. One clear advantage of this approach is that it removes the common law difficulty that the insurer’s own method of assessing the premium had no parallel elsewhere in the market and accordingly could not be subjected to an objective materiality test. 69 4.7 Actual knowledge under (a) refers to what the assured believed to be relevant. 70 One important issue arising from the test of actual knowledge is the extent to which the knowledge of an agent can be imputed to the assured. On ordinary common law principles, as stated above, imputation is possible only where the agent is employed to transmit that information to the assured or is the alter ego of the assured. 4.8 The alternative test of relevance, what a reasonable person in the circumstances could be expected to know to be relevant to the insurers, was substituted for the ALRC’s preferred formulation of “a person in the circumstances of the assured”, which was to encompass the assured’s position in life, mental condition and ability, education, literacy, knowledge, experience and cultural background. 71 There has been a good deal of debate as to whether the revised statutory formulation has the effect of excluding from consideration “intrinsic” factors relating to the assured, so that the test of deemed knowledge is that of a reasonable person in the light of external factors such as the nature of the policy and the nature of the negotiations leading up to it, or whether the test incorporates the assured’s own proclivities and comprehension. The balance of authority is that the ALRC’s formulation is not part of the law and that only extrinsic factors are relevant to the determination of reasonableness, 72 although there is no unanimity on the point. 73 An issue also arises as to whether the test focuses on the knowledge which could be held by a reasonable person or on the knowledge which could be expected to be held by a reasonable person. 74 Treasury Review II, 2004, felt that it was important to lay down a clear test Insurance (Australia) Ltd [1990] VR 919; Macquarie Bank Ltd v National Mutual Life Association of Australasia Ltd (1996) 40 NSWLR 543; Commercial Union Assurance Co of Australia Ltd v Beard (2000) 47 NSWLR 735. 69 A point noted but not expanded upon in Drake Insurance Co v Provident Insurance Co [2004] Lloyd’s Rep IR 277. 70 Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd (2001) 50 NSWLR 679; GIO General Limited v Wallace [2001] NSWCA 299; McCabe v Royal & Sun Alliance Life Assurance Australia Ltd [2003] WASCA 162. 71 ALRC 20, para 183. 72 See the authorities cited in Mann, para 21.10.8, and in particular Twenty-First Maylaux Pty Ltd v Mercantile Mutual Insurance (Aust) Ltd (1990) VR 919; Dew v Suncorp Life and Superannuation Ltd [2001] QSC 252. See, by way of illustration, GIO General Ltd v Wallace [2001] NSWCA 299. 73 See in particular: Delphin v Lumley General Insurance Ltd (1989) 5 ANZ Ins Cas 60-941, and Plasteel Windows Aust Pty Ltd v C e Heath Underwriting Agencies Pty Ltd (1989) 5 ANZ Ins Cas 60 – 926. See Sutton, para 5.70. 74 See Derrington and Ashton, “What have they done to the Common Law? Disclosure and Misrepresentation” (1988) 1 Insurance Law Journal 1, who comment that the question under s 21(1)(b) is not whether a reasonable person could have the relevant knowledge but whether a reasonable person could be expected to have the knowledge. They suggest that the correct test is “is it reasonably possible that a reasonable person would probably (or most probably) know of the relevance of the fact?” Cf Delphin v Lumley General Insurance Ltd (1989) 5 ANZ Insurance Cases 60-941. The point was left open in GIO General Limited v Wallace [2001] NSWCA 299. Derrington and Ashton, "What have they done to the Common Law? Disclosure and Misrepresentation" (1988) 1 Insurance Law Journal 1, who comment that the question under s 21(1)(b) is not whether a reasonable person could have the relevant knowledge but whether a reasonable person could be expected to have the knowledge. They suggest that the correct test is “is it reasonably possible that a reasonable person would probably (or most probably) 18
which could be applied consistently by the courts. It deliberated on whether the objective test in s 21(1)(b) imposed too high a burden on the assured and whether the original view of the ALRC opting for a substantially subjective test would be preferable. Its conclusion was that s 21(1)(b) imposed an undue burden on consumer assureds but that the law worked satisfactorily in the context of commercial insurance. Its recommendation 75 was that the test should remain the same but that it should be applied by reference to considerations such as the nature and extent of the cover provided by the contract of insurance, the class of persons who would ordinarily be expected to apply for cover of that type and the circumstances in which the contract of insurance is entered into including the nature and extent of any questions asked by the insurer. The Treasury agreed with this conclusion and the proposed new version of s 21(1)(b), set out in the Insurance Contracts Amendments Bill 2007 lays down a non-exhaustive list of factors to which the court is to have regard when determining whether a reasonable person in the circumstances could be expected to know a matter was relevant to the decision of the insurer whether to enter the contract of insurance. The revised s 21(1) would require the assured to disclose every matter known to him, being a matter: (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, having regard to factors including, but not limited to: (i) the nature and extent of the insurance cover to be provided under the relevant contract of insurance; and (ii) the class of persons for whom that kind of insurance cover is provided in the ordinary course of the insurer’s business; and (iii) the circumstances in which the relevant contract of insurance is entered into, including the nature and extent of any questions asked by the insurer. In accepting the recommendations of Treasury Review II, the Treasury specifically rejected the alternative possibility that the duty of disclosure should be abolished entirely: the evidence was that the duty remained important in the commercial insurance and life markets. As far as UK reform is concerned, clarification on which test is to be adopted would be necessary. 4.9 The ALRC’s recommendations in its 1991 report on marine insurance are at variance with this approach. The ALRC was persuaded that the 1984 Act was primarily aimed at consumers 76 and has suggested that in the commercial context of marine insurance the “prudent insurer” test should be retained over the prudent assured test. Accordingly, under its recommendations, a fact has to be disclosed by the assured only if he knew or ought to have known that it was material, that term being defined as it is presently, namely “Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether it will take the risk.” It may here be pointed out that the prudent assured test is self-policing, in that a know of the relevance of the fact?” Cf Delphin v Lumley General Insurance Ltd (1989) 5 ANZ Insurance Cases 60- 941. The point was left open in GIO General Limited v Wallace [2001] NSWCA 299. 75 Recommendation 4.1. 76 It has to be said that this does not appear from the 1984 Act itself, although the Regulations made under it do, for specific purposes, treat certain forms of policy which are primarily non-commercial differently. 19
Page 1: REFORMING INSURANCE LAW: IS THERE A
Page 4 and 5: 6 FRAUDULENT CLAIMS 6.1 Meaning of
Page 6 and 7: legislation as it relates to substa
Page 8 and 9: different fate. On 9 September 1976
Page 10 and 11: invaluable in that it was devised a
Page 12 and 13: in deciding whether or not to appro
Page 14 and 15: 3.8 As regards misrepresentation, t
Page 16 and 17: with the duty of disclosure unless
Page 20 and 21: easonable proposer for a marine pol
Page 22 and 23: in the revised version of s 22 set
Page 24 and 25: 4.23 The section is hardly a model
Page 26 and 27: elevant to the decision of the insu
Page 28 and 29: treated as misrepresentation if it
Page 30 and 31: therefore, an assured who uses a br
Page 32 and 33: the matter could be resolved by an
Page 34 and 35: here, in that there can be non-disc
Page 36 and 37: Cases other than fraud: damages 4.5
Page 38 and 39: elevant facts or the assured’s mi
Page 40 and 41: and investment policies with surren
Page 42 and 43: developed has raised exactly the sa
Page 44 and 45: Co-assureds 4.68 English law draws
Page 46 and 47: Temporary cover 206 4.72 English la
Page 48 and 49: utmost good faith. 218 The remedy i
Page 50 and 51: purpose, 232 proof of honesty is no
Page 52 and 53: of the insurers under the policy, u
Page 54 and 55: 5.14 A second obvious possibility i
Page 56 and 57: has been held - perhaps inconsisten
Page 58 and 59: is unduly harsh. Whatever the effec
Page 60 and 61: 56(2), 298 and that what is require
Page 62 and 63: Warranties of fact 7.3 Warranties o
Page 64 and 65: person not to do the act or to avoi
Page 66 and 67: the risk and is purely administrati
Page 68 and 69:
7.14 The position in Australia has
Page 70 and 71:
personal injury claim failure by th
Page 72 and 73:
7.20 Treasury Review I, 2003, found
Page 74 and 75:
Continuing obligations in marine in
Page 76 and 77:
contributed to by the illegality an
Page 78 and 79:
waters, 391 that the classification
Page 80 and 81:
changing market, and the Court of A
Page 82 and 83:
unresolved issues as to whether the
Page 84 and 85:
8.14 Although the point is not fina
Page 86 and 87:
which the need for each of the part
Page 88 and 89:
Review II, 2004, as an appropriate
Page 90 and 91:
8.21 Finally, s 68 seeks to protect
Page 92 and 93:
also include an address and telepho
Page 94 and 95:
Standard cover 8.28 Standard cover
Page 96 and 97:
period. In addition, such policies
Page 98 and 99:
(the existing s 40(1)); or (b) the
Page 100 and 101:
disputes as to whether the correct
Page 102 and 103:
interests to do so. However, insure
Page 104 and 105:
Matters in the 1984 Act already a p
show all

REFORMING INSURANCE LAW: - Law Commission

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?