(A) Information type A is so material that the insurer, if he had known about it would have refused to enter the contract or in the alternative the insurer would have made further investigations resulting in refusal to do so. (B) Information type B consists of facts, which if the insurer had been aware of, would have resulted in the insurers making the contract of insurance but on quite different terms especially in respect of premium or conduction of a further investigations leading to insurance on a different set of terms altogether.
The proposer has to reveal the material facts known to him whilst proposing insurance. However, in Berger Ltd. v. Pollock , non-disclosure of certain information, was held to be immaterial because the judge was far from satisfied that, if the undisclosed matters had been fully reported and explained to these underwriters, they would in fact have declined to accept this declaration under open cover or have sought to vary its terms or to require an increased rate of premium.
(C) Information type C is that information, whose knowledge would have made the insurer consider it relevant but would not have resulted in the insurers refusal of the contract or insistence on different terms. It is information, which though affecting his judgment would have, in conjunction with other facts, had they been present, would have resulted in a different contract, but, which of its own accord, would not have affected the particular contract or its terms. This is the present position in England and is the consequence of the judgments of the Court of Appeal in CTI v. Oceanus .
It has been suggested that this case propels English law in the direction suggested by the Law Commission. However, the Court of Appeals objective was to respect the Courts view of precedent. The reality is that the Court has succeeded in distancing the law from precedent, principle and the interests of the assured. This decision has met with almost universal concern and disappointment. CTI v. Oceanus CTI entered into an insurance contract successively with A, B and Oceanus. A and B being dissatisfied with the claims experience wanted a change in the terms of cover which were not acceptable to CTI .
Hence, CTI insured with Oceanus on the basis of an account of their past claims record which, was not complete or entirely fair and accordingly Oceanus endeavoured to avoid the policy for misrepresentation and non-disclosure. Lloyd J. held that, even in the event of disclosure of all the relevant information the insurer would have made this contract on the same terms and that such information, which could be classified as belonging to type C, not being material, the contract could not be avoided.
On appeal the Court held that the undisclosed information was to be classified as type B and not type C and therefore the decision at first instance had to be reversed resulting in the avoidance of the insurance. Nevertheless, the Court also stated obiter but after hearing argument, that there is no requirement that the particular insurer should have been induced to take the risk or charge a lower premium than he would otherwise have done as a result of the non-disclosure.
The consequence of all this is that information of type C in English law is material and its concealment enables the insurer to avoid the contract of insurance, without any reservations in respect of commercial insurance and most likely in other lines too. It was hinted by Kerr L. J. that this rule might differ in respect of consumer insurance but the Law Commission has refused to countenance a special rule for consumers. Practicality.
First, despite the absence of an absolute standard, the test of materiality is that of the prudent insurer, which is an objective test controlled and applied by the court on the basis of expert evidence. This is similar to that of a reasonable man in tort. In the parlance of insurance practice this test of a prudent insurer is no more a genuine inquiry into a particular persons mind than it is in relation to the other reasonable or prudent persons who populate the rules of law to legitimise the dominant role of the judge.
Secondly, despite the objective nature of the materiality test, it is not understandable as to why it is easier and therefore more pragmatic and definite to state that a fact has some influence or is of the type C, rather than to state that it has a decisive influence or that it can be classified as type A or type B. Thirdly, if the proposer has to perforce disclose information of the type C, then there is the further objection that probable assureds will be better off by exercising caution and not taking any risks by indulging in a total disclosure.
The decision in CTI v. Oceanus does not take into cognizance the basic nature of misrepresentation and non-disclosure as connoting something that vitiates consent, in this case the consent of the insurer. It becomes to accept that the consent of the insurer was vitiated and that consequently the contract should be avoided, if the insurer would have made the same contract on the same terms, despite the lack of misrepresentation or disclosure.