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242 ALBERTA LAW REVIEW [VOL.Xlli INSURED'S DUTY OF DISCLOSURE IN CANADIAN AND ENGLISH LAW ISLAM AHMED SIDDIQUI* In law, insurance contracts are said to be subject to the doctrine of uberrima tides, i.e., they are contracts of utmost good faith obliging both the insurer and the insured to conform to a high standard of conduct, especially regarding disclosure of material facts affecting the appreciation of the risk to be covered. In theory, this doctrine applies equally to the insurer and the insured, but in practice it has came to mean that the insured is under a heavy onus of dis­ closure when he applies far insurance coverage of any type, either personally or through an insurance agent. The modem doctrines of disclosure originated in the law of marine in­ surance in 16th century England. At that time, it was not unfair to expect a very high standard of disclosure from the insured, because as the owner of the vessel or cargo to be insured, he was in a better position than the underwriter to know the nature and extent of the risk to be covered. The underwriter was at a comparative disadvantage with regard ta the accurate assessment of the risk. The situation is vastly different today, since the insurance industry is wealthy, large and supremely organized. Its expertise in matters of risk assess­ ment and its carps of trained personnel give it an undoubted advantage aver the lay consumer of insurance services. Most risks of an ordinary consumer type are highly standardized, such as automobile coverage, package home­ owner's coverage, and life insurance coverage. Despite these tremendous changes in the insurance marketplace, the insurer continues to enjoy a preferred legal position in the area of disclosure of material facts. As will be seen, the classical doctrine was enunciated by Lord Mansfield in the 18th century and has not changed substantially since then. In the face of well entrenched common law doctrines, the insurance con­ sumer must rely upon legislative intervention for the fulfillment of his reasonable expectations. However, legislative regulation of standards of dis­ closure is piecemeal and ineffective. Occasionally, members of the judiciary have lamented this situation. Far example, Fletcher Moulton L.J., of the English Court of Appeal, in the celebrated case of Joel v. Law Union & Crown Ins. Co., observed that insurers want to be doubly secure by requiring the assured to guarantee as a condition for the validity of the policy the strict ac­ curacy as well as the bona tides of answers to questions in the proposal form, even when the matters dealt with are technical in nature. The judge ended his remarks thus: "I wish I could adequately wam the public against such prac­ tices an the part of insurance offices." It is therefore proposed to study the extent of the duty of disclosure as laid down by Lord Mansfield; to trace briefl,y the various stages of its development; to analyze the present state of the doctrine in the law; and to point out its deficiencies. Finally, an attempt will be made to introduce a series of recommendations arising out of the study with a view to reforming the law. I. HISTORICAL DEVELOPMENT OF THE DOCTRINE OF UBERRIMA FIDES-UNITED KINGDOM The applicant or proposer for insurance coverage in England is under a common law duty to make, at his own initiative, full disclosure of all . material facts during the preliminary negotiations for the insurance con­ tract.1 This doctrine of uberrima fides is based on the assumption that facts material to insurance are not generally within the knowledge of the *B.Comm. (Karachi), L.L.B. (Karachi), LL.M. (Alta.). This is a portion of his Master's thesis. 1 Joel v. Law Union and Crown Insurance Co. [1908) 2 K;B, 863 at 897 (C.A.). 1975] INSURED'S DUTY OF DISCLOSURE 243 insurer, but are exclusively known to the proposer.2 As will be discussed later, while this may have been true historically, it is no longer the case when insurers know more about the subject matter of insurance than does the insured. The duty of disclosure is a positive duty to disclose material facts, and a mere omission constitutes breach of the duty3 It is therefore not only concealment but also omission which has the effect of avoiding a contract of insurance. Generally, in non-marine cases, certain stipulations are inserted in the contract which may have the effect of defining~ regulating or even limiting the needed disclosure; e.g., the in­ troduction of the "basis clause" has the effect of making the truth of the answers in the application a condition of the validity of the policy irrespective of the materiality or otherwise of the fact in question.4 Conversely, the inclusion of specific questions in the proposal forms, as a matter of interpretation of the contract, can be taken to mean that the duty of disclosure is limited to questions asked. Unless such an in­ tention to limit the duty can be clearly shown from the terms of the con­ tract, the insured is subject to the full common law duty of disclosure.5 The doctrine of uberrima fides is a broad concept from which the duty of disclosure flows as a corollary. The doctrine, as it developed, required utmost good faith of the contracting parties in contracts of insurance. If this was not observed by either party, the other party could avoid the contract irrespective of the innocence of his contractual partner. This is home out by the pronouncements of Lord Mansfield in Carter v. Boehm. 6 He made the following observations regarding the knowledge of material facts possessed by the insured: 7 The special facts, upon which the contingent chance is to be computed, lie most com­ monly in the knowledge of the insured only. The underwriter trusts to his statement, and proceeds upon confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not ex­ ist, and to induce him to estimate the risk, as if it did not exist. Discussing the effect of concealment or non-disclosure of material facts, the learned Chief Justice remarked: 8 The keeping back of such circumstance is a fraud, and therefore the policy is void. Although suppression should happen through mistake, without any fraudulent inten­ tion; yet still the underwriter is deceived, and the policy is void; because the risk run is really different from the risk understood and intended to be run, at the time of the agreement. It follows from the foregoing that at common law, under the doctrine of uberrima fides, a failure to disclose or a misstatement of fact con­ stituted a legal fraud. 9 A. Background of the Doctrine of Uberrima Fides The duty of the insured to disclose material facts in non-marine in­ surance was, at the end of the eighteenth century, a narrow one requiring the applicant for coverage to disclose only those facts exclusively within 2 London General Omnibus Co. v. Holloway (1912) 2 K.B. 72 at 85 (CA.). 3 Chalmer's Marine Insurance Act, 1960, at 29, 30 (5th ed.). 4 Dawson Ltd. v. &nnin (1922) 2 A.C. 413 (H.L.). s Ewer v. National Employer's Mutual Gen. Ins. Ass. Ltd. (1937) 2 All E.R. 193. s (1766) 3 Burr. 1905. 1 Id. at 1909. 8 Id. • Taylor v. London Ass. Corp. (1935) S.C.R. 422 at 425. 244 ALBERTA LAW REVIEW [VOL. XIII his knowledge.10. The duty of obtaining material information was placed upon the insurer. 11 What the underwriter, by fair inquiry, could learn from ordinary sources of information was not required to be disclosed.12 It was only fraudulent concealment on the part of an insured that avoid­ ed a policy.13 In marine insurance, however, the insured was required to com­ municate every material circumstance irrespective of the intention or lack of intention to deceive.14 The reason for the rule was that the sub­ ject of insurance, i.e., a ship or cargo, was not available for inspection by insurer's surveyors which necessitated .complete reliance on the descrip- tion presented by the insured. 15 • The doctrine of disclosure as propounded by Lord Mansfield in the celebrated case of Carter v. Boehm has been misconceived and mis­ applied by English judges. This resulted in a number of unnecessarily wide judicial dicta, 16 which assumed undue importance because they were followed rather slavishly in later cases. 17 As a consequence, the duty of disclosure at common law has been greatly-increased. The insured is now required to communicate, without being asked, every material circumstance 18 known or which ought to be known by him whether he thought it to be material or not. 19 Even with regard to marine insurance, the eighteenth century doctrine did not go so far. 20 On the other hand, if the insurer has instituted inquiries, such as those soliciting information on the application for coverage, it may be said to be in a position to dis­ cover the facts, but is not obliged to do so.21 The law in Canada requires a written application form,22 but the questions on the form do not necessarily exhaust the applicant's duty to disclose facts material to the risk. Since the source of the duty of dis­ closure is the common law, the courts may legitimately hoJd that although a specific question on a particular issue has not been asked in the application for insurance, the insured must disclose material facts in the ordinary discharge of his duty.

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