Reviews
| Date | 01 January 1998 |
| DOI | http://doi.org/10.1111/1468-2230.t01-1-00133 |
| Published date | 01 January 1998 |
REVIEWS
Semin Park,The Duty of Disclosure in Insurance Contract Law, Aldershot:
Dartmouth, 1996, xiii + 284 pp, hb £42.50.
Unlike many legal systems, English law recognises no general principle of good
faith in contract. In English law, the default position is ‘cards close to the chest’
rather than ‘cards face up on the table’ (as Sir Thomas Bingham put it in the
Interfoto case). To this general rule, however, there are exceptions — most
notably, the exceptional position in insurance contracts where, ever since Lord
Mansfield’s seminal judgment in Carter vBoehm, full disclosure of material facts
has been required. It follows that, for those English contract lawyers who wonder
what might be involved in the adoption of a general principle of good faith, the
disclosure rules in insurance contracts offer an interesting test case.
Semin Park’s book opens (in ch 2) by rehearsing the transformation in the
insured’s duty to disclose as effected in English law. In Carter vBoehm, Lord
Mansfield apparently took the duty to apply only in relation to those material facts
that are within the exclusive knowledge of the insured. Yet, two centuries later, this
duty has become a requirement on the insured to disclose all facts that are material
from a prudent insurer’s standpoint (going well beyond the less onerous obligation
to disclose those facts that are believed to be material or that a reasonable insured
would judge to be material). Moreover, recent English case law (particularly the
majority view of the House of Lords in the Pan Atlantic case) has apparently taken
this transformation one step further by holding that a fact is material if a prudent
insurer would wish to know about it (even if the fact, once known, would exert no
decisive influence on the premium fixed or, indeed, whether to write the policy at
all) — although, as commentators on Pan Atlantic have observed, the law might, at
the same time, have taken a corrective step backwards by imposing a requirement
of actual inducement (see ch 6). Nevertheless, Park is moved to condemn the Pan
Atlantic test of materiality as ‘absurd and irrational, and [as] tend[ing] to favour the
insurer too much’ (p 118). Certainly, if insurance contracts are supposedly guided
by principles of good faith, the present position is flawed, for it is an open
invitation to insurers to avoid their obligations in bad faith (citing non-disclosure
where there has been no detrimental reliance).
Furthermore, this is not the full extent of the pathology, for the duty that Lord
Mansfield treated as mutual (or reciprocal) has tended to become a one-sided
obligation on the part of the insured. In this light, Park (in ch 7) looks for straws of
comfort in the complex litigation in Banque Financiere and the Good Luck, where
there is some support for the notion of reciprocity. However, as he rightly says, if a
reciprocal duty of good faith is to mean very much to the innocent insured,
avoidance and recovery of premium is scarcely adequate — in principle, damages
must be one of the options available within the remedial repertoire.
The sense that the duty of good faith has gone off the rails in insurance contract
law is scarcely novel. Both the Law Reform Committee (in 1957) and the Law
Commission (in 1980) recommended modifications to the insured’s duty of
disclosure (see ch 9); and even the insurance industry itself recognises (in its self-
regulatory statements) that best practice demands both restraint and responsibility
The Modern Law Review Limited 1998 (MLR 61:1, January). Published by Blackwell Publishers,
108 Cowley Road, Oxford OX4 1JF and 350 Main Street, Malden, MA 02148, USA. 115
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