REFORMING INSURANCE LAW: - Law Commission

easonable proposer for a marine policy is almost certainly going to have a far higher degree of
knowledge of what might be material than a reasonable proposer for a general policy, so that by
definition the duty will operate at an enhanced level. For the same reason, the prudent assured
test will operate in a rather different fashion in reinsurance contracts, it would be almost
impossible for a reinsured to deny that it was unaware that facts were relevant in the sense laid
down by s 21 of the 1984 Act. It should also be remembered that virtually all marine and
reinsurance contracts are placed by brokers, and the ALRC in drawing a distinction between
marine and non-marine insurance does not appear to have given consideration to the question
whether a marine reinsurance should be treated in the same way as all other reinsurances.
4.10 The test of relevance as it stands has been tested in only a relatively small number of
cases. 77 Perusal of the decisions shows that the main impact has been on matters which go to the
moral hazard: 78 where the physical hazard is affected there is little difficulty in demonstrating
that the relevance test has been satisfied. 79 That said, it is arguable that the common law
materiality test, at least in the hands of the present generation of English judges, would probably
ultimately meander its way to much the same outcome despite the different starting point. 80
4.11 Fact not excluded. Four classes of fact are excluded from the disclosure requirement. 81
These exclusions echo what is presently s 18(3) of the Marine Insurance Act 1906, with the
omission of s 18(3)(d) concerning matters covered by express warranties. 82
4.12 First, the assured is not required to disclose any fact which diminishes the risk (s 21(2)(a)).
This simply reflects the point that the definition of disclosable fact refers to a premium sensitive
fact, and prevents insurers from arguing that a fact which would point to a lower premium has to
be disclosed.
4.13 Secondly, the assured is not required to disclose a matter of common knowledge (s
21(2)(b)). This is a modernised version of the existing principle that the assured is not required to
disclose matters which are of common notoriety.
4.14 Thirdly, the assured is not required to disclose any fact which the insurers know or ought to
know. This replaces the existing formulation that the assured is not required to disclose “matters
which an insurer in the ordinary course of his business, as such, ought to know” (s 21(2)(c)). The
77
These are helpfully listed in Sutton, paras 3.105 to 3.106.
78
Lumley General Insurance Ltd v Delphin (1990) 6 ANZ Ins Cas 60-986; Fruehauf Finance Corporation Pty Ltd v
Zurich Australian Insurance Ltd (1990) 6 ANZ Ins Cas 61-104; Von Braun v Australian Associated Motor Insurers
Ltd (1998) 10 ANZ Ins Cas 61-419.
79
See, eg: Orb Holdings Pty Ltd v Lombard Insurance Co (Australia) Ltd [1995] 2 Qd R 51; Prime Forme Cutting
Pty Ltd v Baltica General Insurance Co Ltd (1991) 6 ANZ Ins Cas 61-028. It was held in Permanent Trustee
Australia Co Ltd v FAI Insurance Co Ltd (2003) 197 ALR 364 that relevance means relevant to the risk and not
merely to the commerciality of the contract, an approach similar to that in England in North Star Shipping v Sphere
Drake Insurance plc [2006] Lloyd’s Rep IR 519.
80
North Star Shipping Ltd v Sphere Drake Insurance plc [2006] Lloyd’s Rep IR 519; Norwich Union Insurance v
Meisels [2006] EWHC 2811 (QB).
81
Sutton, paras 3.74 to 3.81.
82
ALRC 91 recommended the retention of the existing list of exceptions, modifying s 18(3)(d) to refer to policy
terms rather than to warranties (given the abolition of warranties as recommended in ALRC 91).
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