Statements of Fact and Statements of Belief in Insurance Contract Law and General Contract Law

Publication Date01 Nov 1998
DOIhttp://doi.org/10.1111/1468-2230.00184
AuthorHoward N. Bennett
Statements of Fact and Statements of Belief in Insurance
Contract Law and General Contract Law
Howard N. Bennett*
The basis of many insurance policies is a proposal form consisting of a series of
questions followed by a signed declaration that the answers are true and complete
to the best of the proposer’s knowledge and belief. In Economides vCommercial
Union Assurance Co plc1insurers sought to avoid liability on a household contents
policy on the basis of a misrepresentation as to the replacement cost of the insured
property. At renewal of the policy, the assured had completed a proposal form in
which he stated that the replacement cost was £16,000 and signed a ‘best
knowledge and belief’ declaration. The replacement cost was in fact approximately
£40,000. The case raised the distinction at common law between statements of fact
and statements of belief or opinion, an issue that is complicated in insurance law by
statutory intervention.
The law of misrepresentation in insurance contract law is codified in section 20
of the Marine Insurance Act 1906, a provision which applies equally to marine and
non-marine insurance. Section 20 stipulates that all material representations made
by the assured in negotiating the contract must be true and then proceeds to define
truth for these purposes. Section 20(4) provides that statements of fact are true if
‘substantially correct, that is to say, if the difference between what is represented
and what is actually correct would not be considered material by a prudent insurer.’
Section 20(5) provides that ‘[a] representation as to a matter of expectation or
belief is true if it be made in good faith.’ In Economides, it was accepted that the
inaccurate statement of replacement cost was not fraudulent. The insurers argued,
however, that the statement of the cost had to be interpreted as representing the
existence of reasonable grounds justifying the belief expressed as to cost. The
Court of Appeal rejected this argument. Simon Brown and Peter Gibson LJJ held
that section 20(5) precluded any such interpretation. In addition, Peter Gibson LJ
and Sir Iain Glidewell held that, even if such a representation could be implied, the
assured possessed the requisite reasonable grounds. It is suggested that the
conclusion that section 20(5) in all circumstances excludes an implied
representation of reasonable grounds justifying a belief is regrettable in
undesirably and unnecessarily compelling insurance contract law and general
contract law to diverge.
Statements of fact and belief in general contract law
The law of misrepresentation is confined to statements of fact. The inaccuracy of a
belief or opinion will never, in and of itself, give rise to a right to rescind a
contract. In drawing the line between fact and opinion, however, three issues arise.
* Department of Law, University of Nottingham.
The Modern Law Review [Vol. 61
886 The Modern Law Review Limited 1998

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