Professional Liability Guide

CHAPTER 8 – NON-DISCLOSURE AND MISREPRESENTATION

Notice of the duty of disclosure to the insured The duty on an insured to disclose relevant matters will only apply if, before the insurance contract is entered into, an insurer has clearly informed the insured in writing of, among other things, the general nature and effect of the duty of disclosure. 507 If an insurer fails to do so, it may not exercise a right in respect of an insured’s failure to comply with the duty of disclosure unless that failure was fraudulent. 508 Those principles apply regardless of whether an insured is applying for a new insurance policy or renewing an existing policy. In practice, insurers’ product disclosure statements and proposal forms are issued to ensure compliance with that obligation. Misrepresentations A statement will not be taken to be a misrepresentation where that statement is untrue but based on a belief held, provided the belief is one that a reasonable person in the circumstances would have held. 509 Similarly, a statement will not be taken to be a misrepresentation unless the person who made the statement knew, or a reasonable person in the circumstances could be expected to have known, the statement would have been relevant to the decision of the insurer whether to accept the risk and, if so, on what terms. 510 A person shall not be taken to have made a misrepresentation by reason only that the person failed to answer a question included in a proposal form or gave an obviously incomplete or irrelevant answer to such a question. 511 Consequences of failing to comply with the duty of disclosure The remedies available to an insurer in the event of a non-disclosure or misrepresentation by an insured are set out in section 28 of the ICA.

That section applies where a person who became the insured under a contract of general insurance upon the contract being entered into:

failed to comply with the duty of disclosure; or

ƒ

ƒ made a misrepresentation to the insurer before the contract was entered into.

The section will, however, not apply where 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. If the failure was fraudulent or the misrepresentation was made fraudulently – for example, if an insured deliberately failed to disclose a matter in the expectation that disclosure would result in an insurer refusing to provide cover or increasing the premium 512 – the insurer may avoid the contract. 513

507 ICA s 22(1). 508 ICA s 22(5). 509 ICA s 26(1). 510 ICA s 26(2). 511 ICA s 27. 512 Dalgety & Co Ltd v AMP Society (1908) VLR 481, 499. 513 ICA s 28(2).

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