Lloyd's Maritime and Commercial Law Quarterly
THE SIGNIFICANCE OF SILENCE—NON-DISCLOSURE AGAIN
St Paul v. McConell Dowell
The reader will doubtless recall that a contract of insurance can be avoided for nondisclosure only if the undisclosed matter was material; and that matter is material if it would have “influenced” the mind of a prudent notional underwriter,1 as explained by the House of Lords in 1994 in Pan Atlantic v. Pine Top.2 In that case, a majority of their Lordships held that only a mild degree of influence was required—no more than “an effect on the thought processes of the insurer in weighing up the risk”.3 But, in addition, all of their Lordships held that, although the “influence” did not have to be a decisive influence on the notional prudent underwriter, there must also have been “inducement” of the actual underwriter; and that “inducement” had to be decisive in the sense that, if the matter had been disclosed, the actual underwriter would have insisted on different terms or refused to underwrite the risk.
In this and other respects, there is a close connection, recognized by their Lordships, between the law of non-disclosure and the law of misrepresentation.4 So too, although an operative misrepresentation may be material and “affect” the mind of a representee without affecting his mind in a decisive sense,5 as an inducement to contract, the misrepresentation must, to a degree at least, have been decisive.6 We might have hoped that that was that and that dust might be allowed to gather on the law of non-disclosure for a decade or two but, of course, it is not to be. Since the first hurdle of influence has been set so low, a much higher profile has now been acquired by the second, inducement.
1. Marine Insurance Act 1906, s. 18(2), which also states the rule for non-marine insurance.
2. Pan Atlantic Ins. Co. Ltd. v. Pine Top Ins. Co. Ltd. [1994] 2 Lloyd’s Rep. 427 (also [1995] 1 A.C. 501).
3. At p. 440, per Lord Mustill; see also p. 431.
4. At pp. 431, per Lord Goff; 447 and 452, per Lord Mustill; 455 and 463, per Lord Lloyd.
5. Edgington v. Fitzmaurice (1885) 29 Ch. D. 459, 483, per Bowen, L.J.
6. Treitel, The Law of Contract, 9th edn (London, 1995), 314 and cases there cited. See also Smith v. Land & House Property Corp. (1884) 28 Ch. D. 7, 16, per Bowen, L.J.
477