Chapter 7. Utmost Good Faith, Fraud, Misrepresentation and Non-disclosure

• Pages: 129-161

CHAPTER 7

UTMOST GOOD FAITH, FRAUD,

MISREPRESENTATION AND NON-DISCLOSURE

7.1 INTRODUCTION

Utmost good faith, fraud, misrepresentation and the duty to disclose, like no other area of

insurance, has received substantial attention from insured(s), insurers, lawyers and the judiciary.

Indeed, a large percentage of regional legal reporting is devoted to this issue.

1 The considerable

case law explains and determines the range and reach of the duty, infl uenced by extra-regional

common law.

2 As far as statute is concerned, early twentieth-century Marine Insurance Acts

continue as the foundation of insurance, assisted by consumer legislation, replacing early Mis-

representation Acts in the jurisdictions of Antigua and Barbuda

3 and Trinidad and Tobago.

4

A noteworthy development is Rehabilitation of O enders legislation,

5 alleviating the burden

of uberrimae fi dei with respect to ‘spent’ convictions as it pertains to the moral hazard. Insurance

contracts require utmost good faith uberrimae fi dei – the duty is mutual – imposed on both the

insurer and the insured. Originating from early marine insurance legislation, notwithstanding

the title of the statute, the concept applies to all types of insurance,

6 there being no di erence

between marine and non-marine insurance in this respect.

7 The rationale is explained in the

Guyana case Prasad v Demerara Mutual Life Assurance Society Ltd : 8

As is well known, insurance is a contract uber rimae fi dei and requires full disclosure of such material

facts as are known to the assured. As the underwriter knows nothing and the man who comes

to him to ask to insure knows everything, it is the duty of the assured, the man who desires to

have a policy, to make a full disclosure to the underwriter without being asked of all the material

circumstances, because the underwriter knows nothing and the assured knows everything. This

is expressed by saying that it is a contract of the utmost good faith per Scrutton LJ in Rozanes v

1 See CARILAW; OECS Law Reports; Jamaica Law Reports: Roberts v Colonial Life Insurance Co . GY 1980

HC 23.

2 The three headings are treated as one by practitioners.

3 Misrepresentation Act No. 7 of 1992.

4 Misrepresentation Act No. 12 of 1983.

5 The Bahamas Rehabilitation of O enders Act No. 11 of 1991; Barbados Criminal Records (Rehabilitation

of O enders) Act No. 6 of 1997; Cayman Islands Rehabilitation of O enders Law No. 20 of 1985; Guyana

Rehabilitation of O enders Act No. 6 of 1994.

6 Lindenau v Desborough (1828) 8 Barn & C 586.

7 PCW Syndicates v PCW Reinsurers [1996] 1 WLR 1136.

8 GY 1978 HC 6. See also Hilton v Barbados Fire & Commercial Insurance Ltd LC , 2005 HC 48, according Shanks

J It is important to note the limits of this doctrine, however:

In a business context the assured’s duty of disclosure is not confi ned to his actual knowledge;

it also extends to those material facts which, in the ordinary course of business, he ought to

know. But a person e ecting insurance cover as a private individual must disclose only material

facts known to him and he is not to have ascribed to him any form of deemed or constructive

knowledge.

See Halsbury’s Laws of England, 5th edn (LexisNexis: 2017), Vol. 16, para. 44 and Economides v Commercial

Union [1997] 3 All ER 636. It is also su cient if facts which are disclosed put insurers on inquiry and their

inquiry would in the normal course elicit such further facts as may be material. See Halsbury’s Laws of England

(2017) , para. 37 and Anglo-African Merchants v Bayley [1969] 2 All ER. An entirely innocent misrepresentation may

entitle the insurer to avoid the insurance, but where the representation is qualifi ed and stated to be to the best of

an assured’s knowledge and belief, then provided the assured is honest in making the representation, the insurer

is not entitled to avoid the insurance even if it is in fact inaccurate.

130 Utmost good faith, fraud, misrepresentation

Bowen . 9 The assured therefore must disclose everything known to him that is material in fact even

though he does not appreciate its materiality and even though a reasonably prudent man would

not do so.

7.2 FRAUD

Fraud can occur at any stage of the insurance relationship. At this juncture, however, the focus

is on fraudulent conduct at the time the contract is being e ected (i.e. conduct inducing the

other party to enter into the contract), as opposed to the operation of fraud at the point of

loss, where the insured allegedly brings about the insured peril through fraudulent conduct as

exemplifi ed in the decisions of Derrick St Ville v Netherlands Antilles General Insurance Corp . 10 and

Soloman Ghany Oil & Engineering Ltd v N.E.M. (West Indies) Insurance Ltd . 11 It is noted that there is

Caribbean authority which highlights the mutuality of the duty to disclose: Charles v The New

India Assurance Co .: 12

After all, the duty to disclose material facts in insurance agreements is mutual, so that the insurer

too must come clean and cannot hope to avoid a contract by less than a frank and full explana-

tion to the customer of the ter ms of the proposed policy.

In Merchants Insurance Co. v Hunt , 13 the plainti knew that the answers he made on the proposal

form were incorrect and ‘this fact should immediately distinguish that case from the instant

matter where I have found that what’s on the proposal form did not represent accurately the

information the plainti supplied.’ So although it is the plainti ’s document in that he signed

it, yet because the plainti relied for the wording of the answers on the expertise of the Com-

pany’s servant, I would consider that on the married equitable I hold therefore that the con-

struction to be placed on the words in the instant proposal form should not conform with

the construction placed on the words in the Hunt ease. There it was held that the a rmative

unqualifi ed negative ‘No’ could not be qualifi ed to mean ‘No, to the best of my knowledge

and belief,’ and understandably because the plainti knew that the information was false. The

instant matter is very di erent and should be given a di erent interpretation because there was

no misrepresentation by the plainti and no failure to disclose any material fact.

It has been said that ‘fraud is a thing apart .. . refl ect[ing] an old legal rule that fraud

unravels all: fraus omnia corr umpit . It refl ects the practical basis of commercial intercourse. Proof

of fraud, vitiates judgment, contracts and all transactions whatsoever.’ The leading authority

on fraud and a decision which has been consistently applied in the Caribbean is Der ry v Peek 14 –

to wit – the insured is guilty of fraudulent misrepresentation if he knowingly makes a statement

that is false without belief in its truth or recklessly disregards whether it be true or false. Derry

v Peek was followed and applied for instance in Dalkan v Colonial Life Insurance Co. Ltd , 15 where

9 ( 1928) 32 L1 LR 98 at 102.

10 High Court of Dominica Suit No. 100 of 1997; DM 1982 HC 7.

11 High Court of Trinidad and Tobago No. S 3114 of 1986.

12 DM 1982 HC 7.

13 (1940) 4 All ER 205.

14 [1889] UKHL 1.

15 (1965) 12 WIR 133. In this case, the appellant had insured his house and its contents with the respondent

insurance company against loss by fi re. He did not disclose that he had taken out insurance with another

company against similar loss, and in his declaration, he misrepresented the value of the property to the

respondent. The house was destroyed by fi re and the appellant claimed $23,000 from the respondent. In

its defence, the respondent pleaded breach of certain conditions of the policy. They identifi ed the failure

to disclose the existence of another policy of insurance and the false declaration of the value of the house

($27,000) when the appellant knew that is worth no more than $14,000.

Utmost good faith, fraud, misrepresentation 131

the failure to disclose the existence of another policy of insurance led the Court of Appeal

of Trinidad and Tobago to fi nd that there was fraudulent misrepresentation: ‘There was no

question here of mere exaggeration based on the appellant’s honest opinion of the value of the

insured property, but that this is a case of wilful misrepresentation made with full knowledge

of its actual value.’ Similarly, in Dass v Maritime Life Caribbean Ltd , 16 the High Court of Trinidad

and Tobago found that there was evidence of fraudulent misrepresentation. In this case the

insured was asked, ‘Have you ever been treated or ever known to have chest pain, palpitation,

high blood pressure, diabetes, thyroid; are you under observation or taking treatment?’ The

deceased, who replied in the negative, in fact had an 11-year history of diabetes, elevated blood

pressure and unstable angina. The defendant insurer was held to be entitled to avoid the policy.

Applying the decision of Der ry v Peek , the court restated the salient principle that, fraud is proved

when it is shown that there is a false representation made knowingly or without belief in its

truth or recklessly, careless as to whether it be true of false. This decision highlights the burden

of proof necessary to establish fraud and its relevance to the issue of fraudulent misrepresenta-

tion. In order to sustain an action of deceit there must be proof of fraud, nothing short thereof

will su ce.

17 The onus probandi is upon he who alleges; those who allege fraud must clearly and

distinctly prove the fraud alleged.

In Der rick St Ville v Netherlands Antilles General Insurance Corp ., 18 reference was made to false or

fraudulent claims, citing the decision of Hosein & Co. Ltd . The standard of proof by which the

insurer has to discharge this burden is the ordinary civil standard – proof on a balance of proba-

bilities that the assured wilfully caused the loss, or that the claim was dishonest and/or fraudulent.

The degree of probability varies with the determined extent of criminality or fraud alleged. ‘It

does not, require proof which reaches the criminal standard – proof beyond a reasonable doubt.’

T he application of fraud to misrepresentation can also be seen in the Barbadian Court of

Appeal decision of Matthe w Joseph v CLICO International General Insurance Co. Ltd . 19 In this case, the

insured, a professional musician and entertainer, kept his musical instruments and electronic

equipment in the house used by members of his band. After the destruction of the house and

contents by fi re in January 2000 while the insured was on St Lucia, it was discovered that the

house had already been insured with another insurer, British American, for $35,000. Kentish

J, in the lower court, ruled that the insurer was entitled to avoid the policy because on the pro-

posal form, a pre-existing mortgage on the house was not disclosed and further, that the insured

had failed to disclose that he had already insured with another insurance company. Finding that

the insured was fraudulent, the insurer was held to be entitled to avoid a claim for payment

under the insurance policy, a position upheld by the Court of A ppeal. Chief Justice Simmons

in the Court of Appeal, citing with approval the earlier decision of Dalkhan , which in his words

‘reeked of fraud,’ stated:

It was for the trial judge to deter mine as a question of fact whether his claim was fraudulent

within the meaning adumbrated in Derry v Peek (1889) 14 App Ca 357 (i.e. whether it contained

false statements made recklessly, not caring whether the statements were true or false). His

duty to act with the utmost good faith extended beyond the contractual date of the policy.

The Caribbean jurisprudence on point illustrates the utility of fraud in establishing fraudulent

misrepresentation.

16 High Court of Trinidad and Tobago No. 2456 of 1998.

17 Ibid.

18 Derrick St Ville v Netherlands Antilles General Insurance Corp ., High Court of Dominica. See per Phillips J.A., supra

n. 16., 138; High Court of Trinidad and Tobago No. 2456 of 1998.

19 Court of Appeal of Barbados Civil Appeal No. 2 of 2003.