Tijdschrift voor Vervoer en Recht Em.Prof. Marc A. Huybrechts C. UNIVERSITY OF LEUVEN Tijdschrift voor Vervoer en Recht Symposium Antwerpen 11 December

Tijdschrift voor Vervoer en Recht

Em.Prof. Marc A. Huybrechts

C. UNIVERSITY OF LEUVEN

Tijdschrift voor Vervoer en Recht Symposium

Antwerpen

11 December 2015

Overzicht

• Van Lord Mansfield

• over de M.I.A. 1906

• naar de nieuwe Insurance Act 2015

2015 Univ Leuven Marine Inusrance TVR

Marc A.Huybrechts Law Office BVBA Antwerp

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The Insurance Act 2015

• Is er iets grondig gewijzigd of is het alleen maar cosmetische opsmuk ?



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Abandonment of “Good Faith”?

The dumping of article 17 on the avoidance sanction attached to the duty of the Utmost Good Faith of the Marine Insurance Act 1906 in the new Marine Insurance Act 2015 !

A legalistic U-turn : A surprise or a drama or evolutionary logic?



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The Insurance Act 2015• Lord William Murray, 1st Earl of

Mansfield, (2 March 1705 – 20 March 1793) was a British barrister , politician and judge noted for his reform of English Law

• He introduced Civil law concepts into the Common Law

• De “Lex Mercatoria” en het continentale verzekeringsrecht

• Het princiepe van goede trouw, “Good Faith” in Carter va Boehm,

• Later wordt dat in de tekst van de wet :The Utmost Good Faith”2015 Univ Leuven Marine

Inusrance TVR Marc A.Huybrechts Law Office BVBA

Antwerp5

Carter v Boehm ,1766

• De pogingen van Lord Mansfield om het “Good Faith” princiepe in het contractenrecht van Engeland te doen opnemen mislukken grotendeels!

• Alleen toepasselijk het Marine Insurance en in het “The law on partnerships”



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Lord Mansfield and the Remains of Carter v Boehm (1766)

• We owe the inclusion of good faith into English marine insurance to Lord Mansfield!

• The Duty of Good Faith in the pre-contractual stage and the Marine Insurance Act 2015



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The MIA 1906• Law commission under Chairmanship of

McKenzie Chalmers resulted in the

• M.I.A.1906 Act ,(a legislative master piece)

• A codification in the British sense;

• A systematic synthesis of the existing law as it was contained in decided Court cases so far, this codification was in relation to a limited part of the law unlike the continental civil law codifications !



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The Approach of the MIA 1906• The pre-contractual duty under the old

• ( but still actual ) article 17 ,18 to 21 of the Marine insurance act 1906

• the duty of the utmost good faith sanctioned by avoidance, ( art. 17)

• the duty of disclosure, ( art. 18)

• the duty of disclosure by agents, (art.19)

• and the representations pending negotiations of the contract( art.20)



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Art 17 is sacrified by the Insurance Act 2015 !



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Art17. Insurance is uberrimae fidei

A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party.

How did the Courts deal with the M.I.A.?

• In considering the statute, which is a codification of the then existing case law on Marine insurance, Courts nonetheless went back to earlier decided cases to explain the full meaning of the statutory rule.

• Articles 17,18,19 & 20



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How Did the Courts apply the M.I.A. 1906

• Typical approach by the common law system.

• The statute or a statutory rule never carries the same weight and authority as Court decisions.

• See “Major Legal Systems in the World Today “



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How Did the Courts apply the M.I.A. 1906

When the Courts had to apply the articles on full disclosure, on full disclosure by the agent, on representation during negotiations as spelled out in the articles 17, 18,19 and 20 of the Marine Insurance Act, they continued to rely on previous Court decisions to ascertain their meaning.



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Art 18 of the M.I.A. 1906

• Disclosure by the assured• (1)subject to the provisions of this section, the

insured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to insured, and the insured is deemed to know every circumstance which, in the ordinary course of business, or to be known by him. If insured fails to make such disclosure, the insurer may avoid the contract,



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Art 18 of the M.I.A.1906• (2)every circumstance is material which

would influence the judgement of a prudent insurer in fixing the premium, or determining whether he will take the risk.

This test of materiality is engulfed by

a blanket of simplicity! But things got rather

complicated!2015 Univ Leuven Marine Inusrance TVR


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Art 18 of the M.I.A.1906

• A circumstance material to the risk ?

• ( physical hazard)

• or material to the Prudent insurer? (moral hazard)

• more must be made known to the insurer by the proposer than circumstances strictly related to the risk itself



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Art 18 of the M.I.A.1906

• Mr J Coleman in the Moonacre ( 1992):

• “Given the width of the general principle of the utmost good faith, there can be no justification for confining material circumstances to those which are directly relevant to the assessment of the risk.”



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Art 18 of the M.I.A.1906• Ionides v Pender (1873)

• Judge’s Duer view

• V Willard Phillips view

• Pan Atlantic v Pine Top decision(1995

• Lord Mustill

• “A circumstance can be material without being decisive” !

( dit lijkt in te gaan tegen de tekst van de wet!)2015 Univ Leuven Marine Inusrance TVR


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Art 18 of the M.I.A.1906• Moral hazard !

• Such circumstancs relating to the insured himself , criminal record, pending charges, rumors, earlier refusals, financial transactions



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Law Commsssion:Need for Reform of the 1906 Act

• Complying with the duty of art 18 is difficult !• The existing law is not adequately equipped for

the realities of the 21st century business life• The duty is poorly understood• The law and encourages “underwriting” at the

claims stage !• The remedy for failure is too harsh, “the all or

nothing approach”,• art 17 is a tool of oppression!



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The new Act in preparation• Since 2006• The need for reform,precontractual stage, warranties

and fraudulent claims• The Law commission released 3 consultation

papers ,9 issue papers• Broadly supported by the market• Parliamentary procedure for uncontroversial Law

commission bills• Distinction between consumer and non consumer

insurance contracts2015 Univ Leuven Marine Inusrance TVR


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• For non consumer contracts possibility of Contracting out but

• Marginal test by Court

• Requirement of transparancy



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Art 18 of the M.I.A.1906( effective in august

2016)Artcicle 14

(2) Any rule of law to the effect that a contract of insurance is a contract based on the utmost good faith is modified to the extent required by the provisions of this Act and the Consumer Insurance (Disclosure and Representations) Act 2012England has disposed of the heritage of Lord Mansfield! Art 17 of the MIA 1906 is crippled !


• The general principle of good faith ( a civil law principle) was never popular as principle as general principles alone are never popular in the Common Law

• Lawyers prefer detailed expression of the law which they find in decided cases.



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A General mistrust of Good Faith in English law !

• Recent article by Professor Andrew Tettenborn ( Swansea University)

• In 2015 21 Journal of International Maritime Law: “The instinctive mistrust of English commercial lawyers of Good Faith as an overarching conception may well have a good deal more going for it than meets the civilian eye”



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Insurance Act 2015• PART 2 THE DUTY OF FAIR

PRESENTATION

• 2 Application and interpretation

• 3 The duty of fair presentation

• 4 Knowledge of insured

• 5 Knowledge of insurer

• 6 Knowledge: general

• 7 Supplementary

• 8 Remedies for breach



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• The Duty of Full disclosure of the M.I.A. 1906 , Art 18 has now been replaced by the duty to a “fair Presentation”

• What is “Fair”?

• The Underwriter has now a much more active role to play

• Insurer can no longer be passive , sit back and relax !



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• PART 2

• THE DUTY OF FAIR PRESENTATION

• 2 Application and interpretation

• (1) This Part applies to non-consumer insurance contracts only.

• (2) This Part applies in relation to variations of non-consumer insurance contracts as it applies to contracts, but— (a) references to the risk are to be read as references to changes in the risk relevant to the proposed variation, and (b) references to the contract of insurance are to the variation.



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• 3 The duty of fair presentation

• (1) Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.

• (2) The duty imposed by subsection (1) is referred to in this Act as “the duty of fair presentation”.



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The Insurance Act 2015 • (3) A fair presentation of the risk is one—

• (a) which makes the disclosure required by subsection (4),

• (b) which makes that disclosure in a manner which would be reasonably clear and accessible to a prudent insurer, and

• (c) in which every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of fact is substantially correct and every material representation as to a matter of expectation or belief is made in good faith.



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The Insurance Act 2015 • (4) The disclosure required is as follows,

except as provided in subsection (5)—

• (a) disclosure of every material circumstance which the insured knows or ought to know, or

• (b) failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.



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The Marine Insurance Act of 2015• What happened in the 2015 Act reminds us of that

typical common law approach . The general very broad principle of the requirement of the utmost good faith is being jettisoned in favor of a much more detailed regulation replacing the articles 18 to 20 of the previous statute 1906 on Marine insurance,

• In a rather detailed and complicated way proposer/insured is being told what to do while negotiating an insurance contract !



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• 4 Knowledge of insured • (1) This section provides for what an insured

knows or ought to know for the purposes of section 3(4)(a).

• (2) An insured who is an individual knows only— (a) what is known to the individual, and

• (b) what is known to one or more of the individuals who are responsible for the insured’s insurance.



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• (3) An insured who is not an individual knows only what is known to one or more of the individuals who are—

• (a) part of the insured’s senior management, or

• (b) responsible for the insured’s insurance.



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The Insurance Act 2015 • 8 Remedies for breach • (1) The insurer has a remedy against the insured

for a breach of the duty of fair presentation only if the insurer shows that, but for the breach, the insurer—

• (a) would not have entered into the contract of insurance at all, or

• (b) would have done so only on different terms. (2) The remedies are set out in Schedule 1.



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• (3) A breach for which the insurer has a remedy against the insured is referred to in this Act as a “qualifying breach”.

• (4) A qualifying breach is either— • (a) deliberate or reckless, or • (b) neither deliberate nor reckless.



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• (5) A qualifying breach is deliberate or reckless if the insured —

• (a) knew that it was in breach of the duty of fair presentation, or

• (b) did not care whether or not it was in breach of that duty.

• (6) It is for the insurer to show that a qualifying breach was deliberate or reckless.



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Proportionate Remedies

• General 1) This Part of this Schedule applies to qualifying breaches of the duty of fair presentation in relation to non-consumer insurance contracts (for variations to them, see Part 2).

• Deliberate or reckless breaches • 2) If a qualifying breach was deliberate or

reckless, the insurer— (a) may avoid the contract and refuse all claims, and (b) need not return any of the premiums paid.



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Remedies • Other breaches

• 3 Paragraphs 4 to 6 apply if a qualifying breach was neither deliberate nor reckless.

• 4 If, in the absence of the qualifying breach, the insurer would not have entered into the contract on any terms, the insurer may avoid the contract and refuse all claims, but must in that event return the premiums paid.

• 5 If the insurer would have entered into the contract, but on different terms (other than terms relating to the premium), the contract is to be treated as if it had been entered into on those different terms if the insurer so requires.



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Remedies

• 6 (1) In addition, if the insurer would have entered into the contract (whether the terms relating to matters other than the premium would have been the same or different), but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim



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Conclusions• A rather complicated new piece of

legislation,( 7 parts , 2 schedules)

• Many open ends

• Will probably result in a few test cases

• More balanced approach

• The insurer must be proactive

• Better protection of the insured against abuses by insurers,



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Conclusions• In het Kort : Wat is er echt veranderd ?

• 1) de ontmanteling van het vereiste van Goede Trouw, minstens de sanctie voor een inbreuk op de goede trouw ( avoidance) bestaat niet meer,

• In het beste geval blijft “goed trouw” over als “ interpretative principle”, maar het mist slachtkracht,

• Het is verworden tot een homeopathisch medicament= 1000 keer verdund!



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Het verzwakte priciepe• Guy Blackwood, The pre-contractual duty of

(utmost) good faith: the past and the future, LMCLQ,2013 p.322

• “I am not certain how the principle would assist in the process of construction of policy terms, or in defining of parties’ obligations, if the breach of the duty does not give rise to a cause of action”

•



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Conclusions• 2) The duty of Full disclosure wordt

vervangen door de: duty to a “fair” presentation !

• Wat is ‘fair”?

• De fraseologie blijft eigenlijk de zelfde als in de MIA 1906

• Zie :art 3, 3&4 en art 7 (3) van de nieuwe wet

• “Material to the risk” en “material to the insurer”



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Conclusions• 3) de verzekeraar moet van meet af een actievere

rol gaan spelen !• Hij moet de nodige bijkomende

inlichtingenvragen aan de proposer, ( of elders) vragen

• Hij wordt geacht veel te weten en kan zich niet beperken tot een loutere passieve houding,

• Dit is om misbruiken te voorkomen waarbij de verzekeraar “ kritische vragen gaat stellen” pas op het ogenblik dat hij met een claim wordt geconfronteerd.



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Conclusions

• 4) in geval van inbreuk op de duty to a fair presentation is er nu een getrapt remedie systeem waarbij een onderscheid gemaakt wordt of de inbreuk , deliberate of reckless was , dan wel ongewild of uit onachtzaamheid



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Conclusions

• It is suggested by British authors that in practice not so much will change and the changes have been introduced to strike a more equal balance between insurer's interest and insureds’ interest, and it is claimed that the changes are evolutionary but not revolutionary.



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Documents

Tijdschrift voor Vervoer en Recht Em.Prof. Marc A. Huybrechts C. UNIVERSITY OF LEUVEN Tijdschrift voor Vervoer en Recht Symposium Antwerpen 11 December