The duty of disclosure as enunciated by the principle of utmost good faith is imposed on
The proposer only
the insurer only
the proposer and the insurer
neither the proposer nor the insurer
Answers
Answer:
The parties to an insurance contract must be honest with each other and must not hide any information relevant to the contract from each other. This is known as the principle of Utmost Good Faith. It is important to the insurer that they have a full and accurate picture of the risk that is proposed to them
Answer:
The duty of disclosure is not the same as that of representation.
Insurers can avoid insurance contracts if they were induced to enter into them by a misrepresentation of material facts made by the proposed which were false in material particular, whether the proposed acted negligently or quite innocently.7 This right differs little from that attaching generally in the law of contract.
Historically, misrepresentation in the strict sense has not been of particular importance in the insurance context. This is partly because the extreme width of the duty to disclose material facts has meant that often non-disclosure has subsumed questions of misrepresentation. Cases have frequently failed to distinguish between the two defences taken by an insurer and indeed it appears to be standard practice for an insurer, where possible, to plead both defences. While this may be conceptually unsatisfactory,8 Lord Mustill held that the rules relating to misrepresentation and non-disclosure at least as they affect materiality and subsequent avoidance, should be, and indeed always have been, the same.9 Whilst Lord Mustill's proposition may be a desirable one from a practical point of view, we would argue that the law may be wrong in theory, to assume that an undisputed principle of misrepresentation must necessarily apply to non-disclosure. Lord Mustill's judgement is based upon this assumption. This is not surprising if one considers that the rules relating to misrepresentation have been developed by the Courts of Equity, whilst non-disclosure is decidedly a creature of the common law.10 Furthermore, an innocent misrepresentation, on its true construction can never be an actionable non-disclosure - one is not held liable for not disclosing what one does not know and it is the representor's genuine belief in the truth of his statement that distinguishes the innocent misrepresentation from the fraudulent.
Remedies also present a problem when misrepresentation and non-disclosure are treated as one and the same. Traditionally, the remedy for misrepresentation has always been recession, granted by the Courts of Equity. The common law gave no remedy for innocent misrepresentation although it always recognised fraud. The remedy for non-disclosure is a common law remedy. So now if misrepresentation and non-disclosure are the same creature, and is an equitable one, this automatic right to avoid the contract must become questionable.
Will the judiciary be able to deny avoidance, even if materiality and inducement are proved, and insist instead that the innocent party settles for damages?12 Finally, it is not understandable why his Lordship held that inducement is required for non-disclosure as well as misrepresentation!
The absolutely novel in relation to non-disclosure, although not of course to misrepresentation - inducement has always been a requirement for misrepresentation, at least in the general law of contract. Also it is difficult to appreciate how an undisclosed fact is contrast to a misrepresented one can actually induce an insurer into making a contract. A misrepresented fact clearly can be an inducement, but to suggest that something the insurer has no idea of its existence, can actually induce him into making a contract seem, with respect, rather odd...
Explanation: