REFORMING INSURANCE LAW: - Law Commission

the section of the legislation dealing with remedies rather than in the definition of what had to be
disclosed. This is really a drafting matter and nothing appears to turn on the point. 143
4.44 English law has taken important steps to define inducement. Drake Insurance v Provident
Insurance 144 decides that the question to be asked in considering inducement is whether the
insurers would have acted differently had the true facts been known to them, a process which
requires making the assumption that there had been a proper presentation of the risk and that – in
response to the insurers’ refusal of the risk or demand for an increased premium or different
terms – there would have been a dialogue between the insurers and the assured which might
ultimately have led to insurance on the original terms. Plainly this could not have been
contemplated by the ALRC, and although the decision is not free from criticism 145 it now seems
to be established. 146 The definition of inducement in s 28(1) is plainly capable of the same
interpretation. It provides that the insurer has no remedy if:
the insurer would have entered into the contract for the same premium and on the same
terms and conditions, even if the insured had not failed to comply with the duty of
disclosure or had not made the misrepresentation before the contract was entered into.
To prove inducement, insurers need to have evidence of their office practice and underwriting
guidelines to show that a different decision would have been reached. 147
Fraud
4.45 What is fraud? The right of insurers to avoid for non-disclosure or misrepresentation
depends upon proof of fraud. There is no definition of fraud in s 28. 148 Professor Sutton’s
definition of fraud as “a deliberate decision by the assured to mislead or conceal something from
the insurer, or recklessness amounting to indifference about whether this occurs” 149 has been
adopted by the courts 150 and accords with English law. 151 There is an element of double-counting
143
ALRC 91 adopted the same approach for marine insurance: para 10.97. This was to make it clear that under its
proposals materiality was primarily objective whereas inducement was entirely subjective, and it was necessary to
separate out the two concepts to avoid confusion.
144
[2004] Lloyd’s Rep IR 277.
145
The argument was rejected at first instance by Moore-Bick J and by Pill LJ in the Court of Appeal, each of whom
felt that the approach ultimately adopted by the majority (Clarke and Rix LJJ) simply piled speculation on
speculation.
146
Bonner v Cox [2006] Lloyd’s Rep IR 385; Meisels v Norwich Union [2007] Lloyd’s Rep IR 00
147
Delphin v Lumley General Insurance Ltd (1989) 5 ANZ Ins Cas 60- 941. For the meaning of inducement, see
Hendry Rae and Court v FAI General Insurance Co Ltd (1991) 5 WAR 376 (Supreme Court of Western Australia),
where it was held that if the matter not disclosed would have been the subject of a policy exclusion had it been
disclosed, there was the necessary inducement to enter into the contract on different terms. See also McNeill v
O’Kane [2002] QSC 144.
148
Recklessness may suffice. See the authorities discussed in Mann, para 28.20.1. The extension of fraud to reckless
conduct is consistent with English law, both in respect of misrepresentation and in respect of fraudulent claims. In
both jurisdictions negligence is not fraud: Australian Casualty & Life Ltd v Hall (1999) 151 FLR 360.
149
Sutton, para 3.138.
150
Von Braun v Australian Associated Motor Insurers (1998) 135 ACTR 1; NRG Victory Australia Ltd v Hudson
[2003] WASCA 291.
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