1.5 What Need not be Disclosed?
Despite the onerous nature of the duty of disclosure upon the insured, the situation is ameliorated somewhat by some seven categories of facts which need not be disclosed to the insurer:
1.5.1 Facts within the constructive knowledge of insurers.
The proposer need not disclose what is known or assumed to be known by the insurer.113 It is instructive to compare the assumptions of knowledge made by the proposer with the assumptions of knowledge in the insurer.
It is clear law that insurers are assumed to know the practices of the trade they insure,114 but in current affairs the insurer's memory is assumed to be short. In the leading case of Bates v. Hewitt115 the Court decided that, as the insurance of a ship did not in fact realise that the ship was the same one as the confederate cruiser that had come to England four months earlier in a glare of publicity, that should have been brought home to the insurer by the assured.
If the prudent insurer has a short memory, perhaps prudence dictates that he should keep records. If so, a question arises on whether he is obliged to look at them? The law sometimes expects the insurer to remember what he reads in Lloyd's list coming to the office, so some might think it would also expect him to know what was in his drawer, when he got there.116
The law was restated in favour of insurers in two decision by the Court of Appeal. One was Greenhill v. Federal Insurance Co.117 The other was London General Insurance Co v General Marine Underwriters Association118 in which the Court of Appeal first held that the proposer of reinsurance should have known the contents of casualty slips received from Lloyd's. So the proposer argued that by the same token there is no need to disclose the contents to the reinsurer, for he should also have known the contents of the same slip. The argument was rejected and the decision was in favour of the reinsured.
Lord Sterndale M R said that119: "The defendants, supposing they had these slips, could not be expected to have always present to their mind information which at the time they got it would have no interest for them at all".
While true, this did not answer the real question, which is whether they should have checked on the receipt of the proposal. But that question was answered clearly by Warrington L J by stating that120: "the defendants cannot be presumed to have had knowledge of this casualty merely because they had the opportunity of ascertaining it". So, I have concluded from the above judgments by the Court of Appeal that there is little or no duty on the insurer to look in his drawer, his memory perhaps, but not his files.
1.5.2 Facts outside actual or presumed knowledge of insured.
The insured can only be expected to disclose material facts which are within his actual knowledge or which he ought to have known in the ordinary course of his business.121 Where the insured fails to make reasonable enquiries to discover a material fact, this will show a lack of uberriuma fides on his part, even if unintentional, for he will have neglected his duty towards his insurer. What are reasonable enquiries will depend upon the circumstances of each case.122
1.5.3 Facts as to which insurer waives information.
This is a principle which applies to all branches of insurance,123 and as far as marine insurance is concerned the Marine Insurance Act 1906, Section 18(3) states that: "In the absence of inquiry the following circumstances need not be disclosed, namely . . . (c) any circumstance as to which information is waived by the insurer".
The insurer may waive certain information and once he has done so, he cannot expect to retain the right to void liability if this information is not disclosed to him. The Act, therefore, excuses the assured from disclosing any circumstances as to which information is waived by the insurer.124
1.5.4 Facts within actual or presumed knowledge of insurer.
184.108.40.206 Actual knowledge.
There are many matters as to which the insured may be innocently silent. An underwriter cannot insist that the policy is void because the insured did not tell him what he actually knew; what way so ever he came to the knowledge".125
So where the secretary of an insurance company, which had guaranteed the solvency of a third party, knew that he was in financial embarrassment, it was held that the company could not avoid liability on the grounds that the insured had not disclosed this fact.126
As far as marine insurance is concerned, the Marine Insurance Act 1906, Section 18(3), provides that: "In the absence of inquiry the following circumstances need not be disclosed, namely . . . (b) any circumstance which is known . . . to the insurer . . .". Thus where the underwriters knew of the age, type, condition and agreed value of a ketch and the intended manner in which she was going to be laid up, it was not material for the assured to describe the neglected state of her topside caulking.127
220.127.116.11 Presumed knowledge.
"The insured is not bound to communicate facts or circumstances which are within the ordinary professional knowledge of an underwriter. He is not bound to communicate facts relating to the general course of a particular trade, because all these things are supposed to be within the knowledge of the person carrying on the business of insurance and which, therefore, it is not necessary for him to be specially informed of".128
In Hales v. Reliance Fire & Accident Insurance Corp. Ltd.129 a retail shopkeeper had taken out a policy against losses or damages to his shop due to fire or explosion. The business consisted of grocery, provisions, newspapers, tobacco and confectionery. For a period round Guy Fawkes Day substantial quantities of fireworks were kept on the premises in a tin box and not in a place of safety, as required by the Explosives Act 1875.
Here, there was no obligation in this class of insurance to disclose to the underwriter that fireworks would be, or might be, on the premises during the short season, for this was a matter which the underwriter must be taken to have known. "It is also true that when a fact is one of public notoriety, as of war . . . the party proposing the insurance is not bound to communicate what he is fully warranted in assuming the underwriter already knows".130 Thus, in Leen v. Hall131 a castle in County Kerry in Ireland was insured against damage from riot, civil commotion, war, rebellion and fire. It was destroyed in May 1921 by members of the Irish Republican Army during the troubles of that year. In an action on the policy the insurer pleaded that the insured had not disclosed that the castle had been occupied for short periods during that year by Crown Forces and that it had been used by them for the detention of Sinn Fein prisoners. The jury found that it was not material to communicate these facts, presumably because they considered that they were common knowledge.
The insured is not bound to tell the underwriter what the law is. As far as marine insurance is concerned, the Marine Insurance Act 1906, Section 18(3) states: "In the absence of inquiry the following circumstances need not be disclose, namely . . . (b) any circumstance which is . . . presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge and matters which an insurer in the ordinary course of business, as such, ought to know".
1.5.5 Facts tending to diminish the risk.
The Marine Insurance Act 1906 provides that the insured need not disclose, in the absence of enquiry "any circumstance which diminishes the risk".132 There would appear to be no benefit to the insured to withhold information that diminishes the risk, for the information can only put the risk in a more favourable light to the insurer. But it would be unfair to the insured to leave a loophole for avoidance merely because the insured failed to disclose something which it would have been to his advantage not to disclose. In Carter v. Boehm133 Lord Mansfield illustrated this point when he said that134: "The underwriter need not be told what lessons the risqué agreed and understood to be run by the express terms of the policy . . . if he insures for three years, he need not be told any circumstance to show it may be over in two; or if he insures a voyage with liberty of deviation, he need not be told what tends to show there will be no deviation".
1.5.6 spent convictions.
The Rehabilitation of Offenders Act 1974 entitles a proposer for insurance to withhold from the insurer information about convictions that have become spent, after the expiry of the relevant rehabilitation period, which varies in length according to the seriousness of the sentence. Under Section 4 of the Act, a spent conviction is to be treated for all purposes in law as though it had never happened, and the person who has the spent conviction is to be treated as though he had never committed or been charged with the offence in question. Thus, an insurer will not be able to avoid a contract of insurance on the grounds of non-disclosure of a spent conviction or the facts surrounding it.
1.5.7 Facts covered by or dispensed with by a warranty
Any circumstance which is superfluous to disclose by reason of any express or implied warranty need not be disclosed to the insurer,135 for the insurer will be fully protected by the warranty.136
1.6 Knowledge of the Principal or of the Agent.
Though a transaction carried out through an agent is in contemplation of law, the transaction of the principal, it is nevertheless, in point of fact, carried out by a person other than the principal. It may, therefore, happen that facts material to the transaction are known to the one and not known to the other. In which case the question arising is how far the knowledge of the one is to be imputed to the other.
This question is of special importance in connection with the discharge of the duty of disclosure, though it arises at any stage of the contract, whenever notice or knowledge of a fact becomes material.137 Thus, the insurer may be bound by notice of a breach of condition, by notice of assignment, by notice of loss or by the knowledge of any material communication,138 if received or acquired by their agent within the scope of his authority, although the notice or communication never actually reached them. The policy may, however, contain a condition requiring notice to be given to the insurer themselves and not to an agent, in which case, notice to an agent is not sufficient,139 unless actually transmitted to the insurers by the agent.
1.5.1 Imputed Knowledge in General.
(a) Principal's Knowledge Imputed to Agent.
Third persons dealing with an agent are entitled to assume that the principal has communicated to his agent all facts within his knowledge, that are material to the transaction which the agent is employed to carry out for the purposes of the transaction. The knowledge of the principal is imputed to the agent and the principal cannot rely on his agent's actual ignorance of the truth.140
(b) Agent's Knowledge Imputed to the Principal.
Third persons are further entitled to assume that every agent employed by his principal has communicated or will communicate, all material facts which have come to his knowledge in the course of his employment141 and which it is his duty to communicate to his principal.142 The knowledge of the agent in question is imputed to the principal as from the time when it would have reached him if the agent had done his duty and the principal cannot rely upon his own ignorance.
The agent must have actual knowledge of the fact in question at the time when such knowledge is relevant to the transaction. It is not sufficient that he possessed the knowledge at an earlier stage of the transaction, unless it was his duty to have retained the fact within his knowledge until it became material.143
The agent must have acquired the knowledge in the course of his employment as agent and in pursuance of his duty to his principal, it is not sufficient that he acquired the knowledge before the employment began, or in some other capacity, unless it was his duty to place his knowledge, however acquired, at his principal's disposal.144
1.6.2 Imputed Knowledge in Insurance Transactions (in relation to the insured and his agent).
The rules relating to imputed knowledge apply, in the case of the insured, for the most part during the negotiations leading up to the policy and it is, therefore, necessary to consider how far they affect the duty of disclosure. They also apply at other stages of the insurance.
(a) Duty of Disclosure
It is the duty of the agent, as representing the proposed assured in the negotiations, to disclose to the insurers all material facts which are within his knowledge, however acquired, or which ought to have come to his knowledge in the ordinary course of business.145 Thus, the Marine Insurance Act, 1906, provides in Section 19 that: ". . . where an insurance is effected for the assured by an agent, the agent must disclose to the insurer (a) every material circumstance which is known to himself and an agent to insure is deemed to know every circumstance which in the ordinary course of business ought to be known, or to have been communicated to him . . ."
Thus, a broker must not misrepresent his client's claims history to the insurer, and the failure to exercise reasonable care in presenting proposals to insurers is a breach of the broker's duty of care to his client.146 Information regarding criminal convictions of employees or partners must likewise be disclosed to the insurer when required, otherwise the insurer will be entitled to repudiate the policy and the client may recover his loss from the broker who failed to correctly complete the proposal form on his behalf.147
Since the proposed insured appoints the agent to represent him in the negotiations and to perform the duty of disclosure on his behalf, it is his duty to place the agent in possession of all the material facts which the proposed insured would have been bound to disclose to the insurers, if he himself had been conducting the negotiations. An omission or mis-statement on the part of the agent which, if judged solely from the agent's state of knowledge, would have no effect on the validity of the policy when the proposed insured's knowledge is imputed to the agent, amount to non-disclosure entitling the insurer to avoid the policy.148
Where it is the duty of any agent in the employment of the proposed insured to obtain and communicate to the principal information relating to the subject matter of insurance, the knowledge of the agent relative to the subject-matter is imputed to the principal.149 Thus, an agent who is entrusted with the care and management of a subject-matter is bound to keep the principal acquainted with its state and condition, and the insurer's are entitled to assume that the agent has performed his duty.150 If this duty is not performed, the insurer may avoid the policy, although the proposed assured himself did not know the truth, and therefore could not communicate it to the agent who actually negotiated the policy.151 The knowledge of any particular agent is only imputed to the proposed insured so far as it affects the transaction in which the agent is employed. Thus, the knowledge of an agent entrusted with the care or management of the subject matter of insurance is imputed to the proposed assured in any negotiations for its insurance, since his employment is to take care of the subject matter and his knowledge of its state or condition equally concerns every proposed insurance.152
If, on the other hand, the agent whose knowledge is in question is employed to effect a particular insurance, his knowledge of the state or condition of the subject matter is imputable to the proposed insured, not generally, but only in connection with such insurance.153
Not long ago, the Court of Appeal held that a broker was not liable in negligence where he had incorrectly completed a proposal form on behalf of his client and then passed the completed form to his client to check the answers and sign the form. The client did not notice the incorrect answer to a question inserted by his broker and signed the form. As a result, when a loss was sustained by the insured client, the insurers avoided the policy because of the erroneous answer given in the proposal form. The client sued his broker for damages in the sum of the insurance monies rendered irrecoverable but was unsuccessful. The Court of Appeal held, on previous authorities,154 that it is the duty of the proposer for insurance to see and make sure that the information contained in the proposal form is accurate, it being no argument that he did not read it properly or was not fully appraised of its contents.155 In this regard, it should be noted that in the Code of Conduct issued by the Insurance Brokers Registration Council for the Guidance of Insurance Brokers, it is recommended that:156 "In the completion of the proposal form, claim form or any other material document, insurance brokers shall make it clear that all the answers or statements are the client's own responsibility. The client should always be asked to check the details and told that the inclusion of incorrect information may result in a claim being repudiated".
Clients may now be in a very difficult position if they seek to rely on their broker's advice about the completion of answers in a proposal form, the broker's liability in this direction now seem virtually non-existent.157 The doctrine of imputed knowledge applies equally at any stage of insurance at which knowledge of the particular facts may become material.
Thus, where a policy is applied for through an agent, the agent's knowledge of the terms of the policy is imputed to the assured, who cannot therefore object that the policy includes terms not contained in the proposal form.158
1.6.3 Imputed Knowledge (in relation to the insurers and their agents).
In the case of the insurers, the doctrine of imputed knowledge may apply at any stage of the insurance. Greum L J observed that159 the knowledge of the broker, to whom in the ordinary course of their business, the insurer entrusts the duty of comparing the claim forms with the proposal forms so as to ascertain whether there was any discrepancy between them, fixes the insurer with the knowledge of that which came to the knowledge of their agent. Hence the insurers is not entitled in law to say that they were not aware of the contents of documents such as the proposal form and the claim form, which at their request the claimant addressed to them. They must be treated as having received the information contained in these two documents and they cannot be heard to say that they did not know their contents. If there be no evidence that the company has delegated the ascertainment of the relevant facts to some officers of the company, it may well be that nothing short of knowledge by the Board of Directors will bind the company. If it be established by evidence that the duty of investigating and ascertaining the facts had been delegated in the ordinary course of the company's business to a subordinate official, the company will in law be bound by his knowledge for the same reasons that they are affected by the knowledge of the Board of Directors.
However, for the knowledge of the agent to be imputed to the insurance company it must be shown that:
(a) The agent was in fact the agent of the insurers. The onus of showing that he was their agent lies on the insured. Thus, the mere fact that the person in question has received a commission from the insurers in respect of the policy was held not to be sufficient to show that he was their agent.160
(b) The agent must have authority to acquire the knowledge. Thus, a disclosure to their solicitor, who is not concerned in the insurance, is not sufficient for the knowledge to be imputed to the insurers.161
Knowledge which is not acquire in the course of this employment, but which he already possessed when his employment begun, such as knowledge of a previous refusal acquired when he was acting for different insurers, is not imputed to them.162
If the proposed assured, or the agent conducting the negotiations on his behalf, makes a full and accurate disclosure of every material fact to the agent conducting the negotiations on behalf of the insurers, the duty of disclosure is performed.163 The proposed assured has a right to expect that the agent will transmit to the insurers all that he has been told and that the agent will do so accurately. He is, therefore, not responsible if the agent, by misadventure, mistake or fraud, transmits an imperfect statement, whether by omitting to state some of the facts which he was told or by mis-stating them.164
Though the insurers act upon an imperfect statement which would avoid the policy if made by the proposed assured directly to them, it is the statement of their own agent, and its imperfections is due to an act for which they, and not the assured, must accept responsibility. The validity of the policy is therefore not affected.165 The same principle applies where the proposed assured makes a mis-statement which he subsequently points out to the agent and corrects.
Knowledge of the facts which the agent has or ought to have ascertained in the course of his own investigations into the circumstances of the risk, is imputed to the insurers; and the proposed assured is not responsible for the agent's failure to bring such facts to their actual knowledge.166
(c) The agent was not guilty of fraud on the insurers, where the agent, acting with the proposed assured, conceals or misrepresents any material fact within his knowledge or assists the proposed assured in concealing or misrepresenting them, his conduct is a fraud upon the insurers and his knowledge of the truth is not imputed to them.167
Thus, Mr Justice Caulfield held in one case168 that he: " accept the evidence called by the defendants, that the plaintiffs criminal past affected the risk and ought to have been disclosed by him, but by 22 March 1974 the third party, as agents for the defendants, knew something of the plaintiff's past and the third party had in some way acquired this knowledge in the ordinary course of its business as brokers and as agents for the defendants, the insurers. This knowledge on the authorities must be imputed to the defendants.
On these facts the assured had no duty to disclose his part to the third party . . . therefore, the defendants cannot avoid the policy. The defendants are, however, entitled to be indemnified by the third party . . ."
- Robert H Brown, Marine Insurance, vol. 1 - The Principles (1st ed., Witherby & Co. Ltd., London.).
- Hales v. Reliance Fire & Accident Corp. Ltd.  2 Lloyd's 391 (fire).
- Bates v. Hewitt  LR 2 QB 595.
- J Kenneth Goodacre, Marine Insurance Claims ( 1st ed., Witherby & Co. Ltd, London, 1974.)
- Greenhill v. Federal Insurance Co.  1 KB 65.
- London General Insurance Co. v. General Marine Underwriters Association  1 KB 104.
- Ibid. at p. 110.
- Ibid. at p. 112.
- Marine Insurance Act 1906, Section 18(1), "subject to the provisions of this section, the assured must disclose to the insurer . . . every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him . . ."
- Australia and New Zealand Bank Ltd. v. Colonia and Eagle Wharves Ltd.  2 Lloyd's Rep 241.
- Carter v. Boehm ER 96 KB 343
- Supra 182.
- Supra 70 at p. 346 (per Lord Mansfield).
- Anglo-Californian Bank Ltd v. London and Provincial Marine and General Insurance Co. Ltd. , 10 com, cas 1.
- St Margaret's Trust Ltd. v. Navigators and General Insurance Co. Ltd.  82 LIL Rep 752.
- Bates v. Hewitt  LR 2 QB 595 at p. 611 (per Shee J).
- Hales v. Reliance Fire & Accident Insurance Corp. Ltd.  2 Lloyd's Rep 391.
- Supra 197 at p. 605.
- Leen v. Hall  16 LIL Rep 100 KB.
- Section 18(3a).
- ER 96 KB 342.
- Ibid. at p. 1910.
- Marine Insurance Act 1906, Section 18(3d).
- De Maurier (Jewels) Ltd. v. Bastion Insurance Co. Ltd and Coronet Insurance Co. Ltd.  2 Lloyd's Rep 550.
- Digby Charles Jess, A Guide to the Insurance of Professional Negligence Risks (Butterworths, London, 1982).
- General Accident, Fire and Life Assurance Co. Ltd. v. Robertson  AC 404 per Loreburn L C at p. 411.
- Re Williams and Lancashire and Yorkshire Accident Insurance Co.'s Arbitration  9 TLR 82.
- Supra n. 7.
- Blackburn v. Haslam  21 QBD 144 per Pollock, Bat p.153.
- Blackburn, Law & Co. v. Vigers  12 AC 531 per Lord Watson at p. 541.
- Molynex v. Hawtrey  2 KB 487, CA.
- Supra n. 211 per Lord Halsbury, C. at p. 539.
- London General Insurance Co. v. General Marine Underwriters Association  1 KB 104, 4 LIL Rep 382, CA.
- Claude R Ogden & Co. Pty Ltd. v. Reliance Fire Sprinkler Co. Pty Ltd.  Lloyd's Rep 52, Aust Sup Ct.
- Ruselodge Ltd. v. Brow, Gibb (Holdings) Ltd.  2 Lloyd's Rep 99.
- Gandy v. Adelaide Insurance Co.  LR 6 QB 746.
- Supra n. 211 per Lord Watson at p. 541.
- Ibid. per Cockburn at p. 537.
- Stribley v. Imperial Marine Insurance Co.  1 QBD 507.
- Supra n. 211 per Lord Watson at p. 540.
- Supra n. 210 per Pollock B at p. 153.
- Biggar v. Rock Life Assurance Co.  1 KB 516; Newsholme Bros. v. Road Transport and General Insurance Co. Ltd.  2 KB 356, CA.
- O'Connor v. BDB Kirby & Co.  1 QB 90.
- Insurance Brokers Registration Council (Code of Conduct) Approval Order 1978 (SI 1978/1394), example 14.
- Supra n. 206.
- Ivamy, General Principles of Insurance Law ( 3rd ed.).
- Evans v. Employer's Mutual Insurance Association Ltd.  52 LIL Rep 51, CA at p. 54.
- Rozanes v. Bown  32 LIL Rep 98, CA.
- Wilkinson v. General Accident Fire and Life Assurance Co. Ltd.  32 Lloyd's Rep 182, where the agent had acquired the knowledge of the sale of the insured car as a car dealer, and not as the agent of the insurance company.
- Supra n. 198.
- Supra n. 73.
- Ayrey v. British Legal and Union Provident Assurance Co.  1 KB 136.
- Golding v. Royal London Auxiliary Insurance Co. 30 TLR 350.
- Bawden v. London, Edinburgh and Glasgow Insurance Co.  2 QB 534, CA, as explained in Newsholme Bros. v. Road Transport and General Insurance Co. Ltd.  2 KB 356.
- Dunn v. Ocean Accident and Guarantee Corporation Ltd.  50 TLR 32.
- Woolcott v. Excess Insurance  1 Lloyd's Rep 633 at p638, col. 2;  1 Lloyd's Rep 231, CA; , 2 Lloyd's Rep 211.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.