The Marine Insurance Act 1906 (MIA) confirms what most would expect, namely that the assured must disclose before the contract is concluded every material circumstance that is known to the assured. The assured is deemed to know every circumstance that in the ordinary course of business ought to be known by him. Any failure in this regard by the assured allows the insurer to avoid the contract (MIA section 18).
The question then becomes ‘what is a material fact?’ The Act defines it as anything that would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk. It can be seen how an exaggerated sum insured would be material to a prudent insurer.
The assured does not need to declare details of circumstances that reduce the risk, nor anything known or ‘presumed to be known’ to the insurers. The insurer is deemed to know matters of common notoriety and that which he ought to know in the ordinary course of his business. Similarly if insurers dispense with the need for certain information or by reason of the inclusion of policy terms the need becomes superfluous, then they need not be disclosed.
There is clearly room for debate here as to whether or not a fact is material and the only guidance the Act gives on this subject is to say that each circumstance will be judged on its own merits and in all cases what is material is a question of fact (MIA section 88).
In the case of marine insurance placed by a broker on behalf of an assured the broker is said to ‘represent’ the risk to insurers. There is a parallel set of rules to those mentioned above namely that the broker must disclose all that he is supposed to know in the ordinary course of his job plus every material thing known by the assured, (MIA section 19).
The Act draws a distinction between the representation of a fact and the representation of a belief. Facts are held to be true if they are substantially correct, meaning that the difference between the representation and actual correctness is not itself material. On the other hand a representation as to a matter of belief is held to be true if it is made in good faith.