|
The materiality
of a particular circumstance has to be judged when the risk is accepted
and by reference to the impact it would have on the mind of a prudent
insurer; certainty is always an important requirement in any insurance
contract. Allegations of dishonesty must be disclosed whether or not
they are proven.
The reinsured,
Aseguros, failed to disclose serious allegations of criminality that
had been made against the insured bank's president. The reinsurers,
Brotherton, sought to avoid the policy for breach of duty of good faith.
It was
held that the materiality of a particular circumstance had to be judged
when the risk was accepted and by reference to the impact it would have
on the mind of a prudent insurer.
It was
not a defence to show that the allegations were subsequently proved
to be unfounded and those paragraphs of Aseguros's statement of case
dealing with such issues were struck out. It was held that an underwriter
complaining of non-disclosure should not have to await the outcome of
a trial to determine the extent of risk. Such a determination would
represent a complete departure from the important requirement of certainty
in insurance dealings. The time for consideration of all the circumstances
was when the risk was accepted.
This Court
of Appeal decision has now effectively overruled the decision made last
year in The Grecia Express (2002). In that case Colman J confirmed that
allegations were capable of being material circumstances, even if it
could later be shown that they were untrue. Unusually, however, he also
held that if evidence at trial proved the allegations were untrue, the
court should regard maintaining an avoidance as a breach of the underwriter's
reciprocal duty of good faith to the assured and therefore debar underwriters
from enforcing their avoidance. The Brotherton Court of Appeal decision
was also in accordance with another case that was heard just before,
in February 2003, Drake Insurance v. Provident Insurance (2003). This
case also successfully challenged The Grecia Express doctrine.
|