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PATNA

Project Topic:

REPUDIATION OF INSURANCE
CONTRACT
Law of insurance
Project submitted to: Dr. Shaiwal Satyarthi
[ Associate professor(law) ]

Project submitted by:


POORNIMA SINGH

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Roll no:575

TABLE OF CONTENTS

1) ACKNOWLEDGEMEN T.................................................................3
2) RESEARCH METHODLOGY.........................................................4
3) INTRODUCTION...5-6
4) AUDIT ....7-9
Development of auditing
Definition
Basic principles of auditing
Audit committee
5) ACCOUNT.................................10-26

Books of account
Maintenance of books of account in electronic
Financial statement
Consolidated financial statement
Accounting standard
Authentication of account
Revision of account
Filing of account
Inspection of account

6) CONCLUSION.27
7) BIBLIOGRAPHY.....28

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ACKNOWLEDGEMENT

I feel highly delighted, as it gives me incredible pleasure to present a research work on


Repudiation of insurance contract. I would like to enlighten my readers regarding this
topic and I hope I have tried my best to pave the way for bringing more luminosity to this
topic.
I am grateful to my faculty Dr Shaiwal Satyarthi who has given me an idea and encourage
me to venture this project. I would like to thank librarian of CNLU for their interest in
providing me a good back up material.
And finally yet importantly I would like to thank my parents for their support and
almighty god who helps me in all my endeavours.

POORNIMA SINGH
8th semester, 4th year

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RESEARCH METHODOLOGY
Aims and Objectives:
The aim of the project is to present a detailed study of Repudiation of insurance contract and to
study the various aspects of insurance contracts and reasons for its repudiation by insurer.

Scope and Limitations:


The four point on which special emphasis has been given in this research are:

Meaning of ubirimma fidie


Meaning of repudiation
Wrongful repudiation
Remedy for wrongful repudiation

Sources of Data:
The following secondary sources of data have been used in the project1. Articles
2. Books
3. Websites

Method of Writing:
The method of writing followed in the course of this research paper is primarily analytical.

Mode of Citation:
The researcher has followed a uniform mode of citation throughout the course of this research
paper.

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CHAPTER 1
INTRODUCTION
In an ideal world, well all enter into a contractual relationship with another party and
experience no issues, and the contract will come to an end when all parties fulfil their
performance obligations. Unfortunately, we dont live in a perfect world, and problems can
sometimes arise if one party acts in a manner that can be seen to be as a repudiation of the
contractual relationship.1
A policy of insurance is a contract of utmost good faith uberrimae fidei. The reason for
this is that contracts of insurance are generally based on facts which are known only by the
insured at the time of formation of the contract. Only the insured knows what modifications
have been made to his car, how many miles he is going to drive it every year and the
purposes for which he is going to drive the car.2 The insurer has to rely on the information
provided by the insured in assessing the risk and determining the appropriate premium.
The obligation to observe utmost good faith gives rise to 2 duties on the party proposing
insurance:
(a) a duty to disclose all material facts to the insurer;
(b) a duty not to misrepresent material facts to the insurer.
What is a material fact? The test of materiality is not what the insured considers material,
nor what a reasonable insured would consider reasonable, but whether the fact would be
taken into account by a prudent insurer when assessing the risk and determining an
appropriate premium. Material non-disclosure or misrepresentation entitles the insurer
repudiate the contract or to avoid the contract ab initio if the insurer was induced to enter
into the insurance contract by the non-disclosure or misrepresentation.
In order to establish materiality and inducement, it is necessary for an insurer to adduce
evidence from underwriters that the non-disclosure or misrepresentation was material and did
..............................................................................................................................................
1.

"FDI Limit in Insurance sector increased from 26% to 49%". IANS. news.biharprabha.com.
Retrieved 10 July 2014.

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2.

Sovereign guarantee for all policies issued by LIC will continue.

induce the contract. The insurer must show at least that, but for the non-disclosure or
misrepresentation, the policy would not have been concluded on the same terms. It is not
necessary, however, to show that that it was the sole effective cause.3 The issue is one of fact.
Frequently, expert evidence will also be called on the issue of materiality.Sometimes there
may be even wrongful repudiation of an insurance contract by the insurer.4 Wrongful
repudiation of an insurance policy is the illegal action by an insurance company of cancelling
a health, life, automobile, or property insurance policy. Most states allow you to sue an
insurance company if the company has wrongfully repudiated your insurance policy. The
majority of lawsuits for wrongful repudiation of an insurance policy are based largely
on breach of contract law.

............................................................................................................................................................................
3.

The Oriental Insurance Company Ltd was incorporated at Bombay on 12 September 1947
"http://www.orientalinsurance.org.in/about-oriental-insurance.jsp"

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4. http://www.irdaindia.org/regulations/TheInsuranceAct1938er126042004.doc

CHAPTER 2-REPUDIATION OF INSURANCE


CONTRACT AND UBERRIMAE FIDEI
Uberrima fides (sometimes seen in its genitive form uberrimae fidei) is a Latin phrase
meaning "utmost good faith" (literally, "most abundant faith"). It is the name of a legal
doctrine which governs insurance contracts. This means that all parties to an insurance
contract must deal in good faith, making a full declaration of all material facts in the
insurance proposal. This contrasts with the legal doctrine caveat emptor (let the buyer
beware).
Contracts, in general, are subject to the doctrine of caveat emptor (let the buyer beware). This
means that each party must ask questions to ensure that they have all the information they
need before signing the contract. Statutes such as the Sale of Goods Act 1979 and the Unfair
Contract Terms Act 1977 affect what must be supplied. Also, there must be no
misrepresentation or fraud. Insurance contracts are not based on the principle of caveat
emptor. Those involved in negotiations for an insurance contract must disclose all relevant
information to all the other parties in the negotiation. This is particularly important because
relevant information will typically only be known to one party to the contract, that is, the
proposer or Policyholder. This is the principle of uberrima fides or utmost good faith.
Thus the insured must reveal the exact nature and potential of the risks that he transfers to the
insurer, while at the same time the insurer must make sure that the potential contract fits the
needs of, and benefits, the insured.
A higher duty is expected from parties to an insurance contract than from parties to most
other contracts in order to ensure the disclosure of all material facts so that the contract may
accurately reflect the actual risk being undertaken. The principles underlying this rule were
stated by Lord Mansfield in the leading and often quoted case of Carter v Boehm (1766) 97
ER 1162, 1164,
"Insurance is a contract of speculation... The special facts, upon which the contingent chance
is to be computed, lie most commonly in the knowledge of the insured only: the under-writer
.........................................................................................................................................................................

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5.

GOI. "IRDA ACT 1999". GOI. Retrieved 19 June 2012.

6.

GOI. "IRDA ACT 1999" (PDF). Department of Financial Services, GOI. Retrieved 19 June 2012.

trusts to his representation, and proceeds upon confidence that he does not
keep back any circumstances in his knowledge, to mislead the under-writer
into a belief that the circumstance does not exist... Good faith forbids either
party by concealing what he privately knows, to draw the other into a bargain
from his ignorance of that fact, and his believing the contrary.

Reinsurance contracts (between reinsurers and insurers/cedents) require the highest level of
utmost good faith, and such utmost good faith is considered the foundation of reinsurance. In
order to make reinsurance affordable, a reinsurer cannot duplicate costly insurer underwriting
and claim handling costs, and must rely on an insurers absolute transparency and candor. In
return, a reinsurer must appropriately investigate and reimburse an insurers good faith claim
payments, following the fortunes of the cedent.
Mere non-disclosure of fact, material or not, does not ordinarily amount to misrepresentation,
and the general rule is that in order to be actionable a representation must take an active form.
"But in certain cases a stricter rule is enforced.
The most important of these are the contracts uberrimae fidei, in which knowledge of the
material facts generally lies with one party alone; that party is under a duty to make a full
disclosure of these facts, and failure to do so makes the contract voidable.... The duty varies
in its extent from one type of contract to another.7
Contracts of insurance of every kind form the main group of contracts uberrimae fidei.Other
examples generally included, though these are probably not all uberrimae fidei in the strict
sense, are contracts to subscribe for shares in a company, family settlements, contracts for the
sale of land, contracts of suretyship, and partnerships.
"Contracts of service are not uberrimae fidei, nor are contracts of sale of goods."
In Jowitt's 1977 Dictionary, the term was described as follows:
"A contract is said to be uberrimae fidei when the promisee is bound to communicate to the
promisor every fact and circumstance which may influence him in deciding whether to enter
into the conract or not.8

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"Contracts which require uberrimae fidei are those entered into between persons in a
particular relationship, as guardian and ward, solicitor and client and insurer and insured."
...............................................................................................................................................................................
7.

Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L.Ed. 357 (1869).

8.

Eugene R. Anderson, Jordan S. Stanzler, & Lorelie S. Masters, Insurance Coverage


Litigation (New York: Aspen Publishers, 2009 supp.), 11.04 at 11-13 to 11-16.

In Coronation Insurance v Taku Air, Canada's Supreme Court wrote:


"The uberrima fides doctrine is a longstanding tenet of insurance law which holds parties to
an insurance contract to a standard of utmost good faith in their dealing. It places a heavy
burden on those seeking insurance coverage to make full and complete disclosure of all
relevant information when applying for a policy.9
In a Canadian case, Gabriel v. Hamilton Tiger-Cat Football Club, Justice O'Leary used these
words:
"There is a limited class of contracts in which one of the parties is presumed to have means of
knowledge which are not accessible to the other and is, therefore, bound to tell him
everything which may be supposed likely to affect his judgment. They are known as
contracts uberrimae fidei, and may be avoided on the ground of non-disclosure of material
facts.10
"Contracts of insurance of every kind are in this class. There are other contracts, though not
contracts uberrimae fidei in the same sense, which impose a duty of full disclosure of all
material facts by the parties entering into them. Contracts for family settlements and
arrangements fall into this category.11
The House of Lords in Bell v Lever Bros. Ltd. refused to extend the duty of disclosing
material facts to contracts for service.
In the context of maritime law, Justice McKeown of the United States Court of Appeals , 9th
Circuit, used these words in the February 2008 decision of Certain Underwriters at Lloyd's v
Inlet Fisheries Ltd.:
"This case involves the interplay between an ancient legal doctrine and
contemporary vessel pollution insurance. Historically, all insurance policies were

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contracts uberrimae fidei, meaning that both parties were held to the highest standard of good
faith in the transaction.12
..............................................................................................................................................................................................................................

9.

http://online.ceb.com/CalCases/C2/50C2d654.htm

10. http://online.ceb.com/CalCases/C3/9C3d566.htm
11. Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809.
12. Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489 (9th Cir. 1988).

"The doctrine of uberrimae fidei was grounded both in morality and efficiency; insureds were
considered morally obligated to disclose all information material to the risk the insurer was
asked to shoulder, but such a principle was also an economic necessity where insurers had no
reasonable means of obtaining this information efficiently, without the ubiquity of telephones,
email, digital photography, and air travel.13
The reasons which brought into being the strict marine insurance law doctrine as to
disclosures, go far back into the early days of marine insurance, when sailing ships in
faraway seas were insured in London by underwriters who could get no information except
from the ship owners.14
The contract of insurance, is one of mutual good faith; and the principles which govern it, are
those of an enlightened moral policy.
Today, uberrimae fidei has been displaced in most insurance contexts. Nevertheless, the
doctrine enjoys continuing vitality in the world of marine insurance.

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...................................................................................................................................................................
13. Buss v. Superior Court, 16 Cal. 4th 35 (1997).
14. GuideOne Elite v. Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006).

CHAPTER 3-LEGAL PROVISIONS RELATING TO


UBIREMMAE FIDEI
The principles of what must be disclosed were established in the case of Carter v Boehm
(1766): The proposer must disclose all material facts Material facts are those that would
influence an underwriter as to whether he should or should not accept the risk .The proposer
does not need to disclose what the underwriter ought to know The proposer is not required to
disclose things he could not know. These have been codified in the Marine Insurance Act
1906:
Clause 17 - A contract of marine insurance is a contract based upon the utmost good faith,
and, if the utmost good faith being not observed by either party, the contract may be avoided
by the other party.
Clause 18(1) - Subject to the provisions of this section, the assured must disclose to the
insurer, before the contract is concluded, every material circumstance which is known to the
assured, and the assured is deemed to know every circumstance which, in the ordinary course
of business, ought to be known by him. If the assured fails to make such disclosure, the
insurer may avoid the contract.
Clause 18(2) - Every circumstance is material which would influence the judgment of a
prudent insurer in fixing the premium, or determining whether he will take the risk.
Clause 18(3) - In the absence of inquiry the following circumstances need not be disclosed,
namely:
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(a) Any circumstance which diminishes the risk;


(b) Any circumstance which is known or presumed to be known to the insurer. The insurer is
presumed to know matters of common notoriety or knowledge, and matters which an insurer
in the ordinary course of his business, as such, ought to know; 15
(c) Any circumstance as to which information is waived by the insurer;
(d) Any circumstance which it is superfluous to disclose by reason of any express or implied
warranty.
Clause 18(4) - Whether any particular circumstance, which is not disclosed, be material or
not is, in each case, a question of fact
Clause 18(5) - The term circumstance includes any communication made to, or information
received, by the assured.
How Utmost Good Faith is Applied in Practice
Examples of facts which need NOT be disclosed by the Insured or Insurer:
1) Facts of law Facts which the Insurer should know (eg common knowledge, current
affairs)
2) Facts which lessen the risk (security fittings, sprinklers, alarms)
3) Facts which the Insurer should have noticed from other information given (eg if the
proposer has referred to other records)
4) Facts related to the Insurers survey
5) Facts covered by policy conditions
6) Facts which the proposer could not reasonably be expected to know 16
Facts which must be disclosed:
1) Facts which make a risk greater than usual
2) Facts which would increase the possibility of a loss.
3) Previous claims or losses Facts which reduce an Insurers subrogation rights
4) The existence of other Policies
5) Facts relating to and descriptions of the subject matter of the insurance.
[ For example- there is a restaurant policy which provides cover for contents, fixtures and
fittings, and stock.The following facts must the restaurateur disclose to his Insurers:
1. The neighbouring properties are a hardware shop and a Post Office
2. The restaurant suffered a fire 2 years ago.
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3. A sprinkler system was installed after the fire


.........................................................................................................................................
15. Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287 (1993).
16. Fitzpatrick v. American Honda Co., 78 N.Y.2d 61 (1991).

4. The value of the wines and spirits held on the premises


5. Agency waiting staff are used on a regular basis.]

UK Legal Cases continue to confirm the Principles


In Lambert v Cooperative Insurance Society (1975), it was confirmed that the prudent
insurer test in Section 18 of the Marine Insurance Act 1906 not only applies in connection
with non-marine matters, but is still the relevant test.

Utmost Good Faith at the Claims Stage:


There is a limited duty of utmost good faith at the claims stage. It is effectively confined to a
duty not to make a fraudulent claim. [Orakpo v Barclays Insurance Services Co Ltd (1996)
and Galloway v Guardian Royal Exchange (1997).]

Impact of Proposal Forms


If information is waived, for example by insurers asking only certain questions in their
proposal form, there may be no duty on the proposer to volunteer additional information
(unless there is a general question asking if there is anything else that should be disclosed)17

Utmost Good Faith applies to Insurers


Other case law, notably Banque Financiere de la Cite SA v Westgate Insurance Company
Ltd (1988) confirmed that the duty of disclosure is mutual. Both proposer (or policyholder if
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there is a change in risk during the currency of the policy or at renewal) and insurer must
disclose all material facts.
....................................................................................................................................................................................
17. Cassim v. Allstate Ins. Co., 33 Cal. 4th 780 (2004).

CHAPTER 4-GOOD FAITH EXPECTED FROM


BOTH PARTIESGood faith is expected from the insured or assured as well as the insurer. It is the buyer's
duty to disclose all facts related to the risk to be covered. Similarly, it is the insurer's duty to
inform the insured of all the terms of the contract. However, it is generally the assured person
on whom there is a bigger duty to disclose. 18 This is primarily because very often the insurer
has to depend upon what details the insured mentions in his form. If the insured gives wrong
details or details of goods which are actually not in existence, the insurer may end up paying
for the wrong claims in the future. The insurer faces a lot of problems trying to verify all such
details, even though the advent of technology has made the task comparatively easier now a
days. Wrong information given not only affects the insurer but also the other people involved
in the insurance pool whose premiums may be wrongly utilized to satisfy the claims. It is
therefore an implied condition or principle of insurance that the Assured be required to make
a full disclosure of all material particulars within his knowledge about the risk. 19 Further,
considering the increase in new businesses in which insurance is being taken, it becomes
mandatory for the assured to inform the insurer if there are any alterations or changes to the
business which increases the risk during the validity of the policy and get his permission. 20 If
no disclosure is made, the insurer has every right to avoid the contract.

CASES:
1 . United India Insurance Co. Ltd. v. MKJ Corpn., (1998) 92 Comp Cases 331 (333)

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Just as the insured has a duty to disclose, it is the duty of the insurers and their agents, to
disclose, all material facts within their knowledge, since obligation of good faith applies to
them equally with the assured.

2. Banque Finaciere de la Cite v. Westgate Insurance Co. Ltd., (1989) 2 All ER 982
In this case, the plaintiff bank had agreed to lend some 30 million pounds securities in the
form of some gemstones and some credit insurance policies. The gemstones when valued did
........................................................................................................................................................................
18. Fitzpatrick v. American Honda Co., 78 N.Y.2d 61 (1991).
19. Cassim v. Allstate Ins. Co., 33 Cal. 4th 780 (2004).
20. Essex Ins. Co. v. Five Star Dye House, Inc., 38 Cal. 4th 1252 (2006).

not prove to be worth much. So, the bank sought to rely on the insurance policies. The
policies had been brokered by a major firm of brokers who resorted to a series of false covers
due to inability to obtain full cover.21 On making claims under the policies, the bank
discovered severe shortage in cover. It was held that the insurers were under an obligation to
disclose the same. It was also held that the only remedy available to the insured is to rescind
the policy and claim the premium. No other damages may be awarded.22

3. Joel v. Law Union, 77 LJKB 1108


The duty to show good faith falls on the insured as well as the insurer to an equal degree in
all types of insurance contracts.

4. Anstey v. British Natural


The insurer must inform the insured about the terms and conditions of the policy that is going
to be issued to him and must strictly conform to the statements in the prospectus if any.

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.........................................................................................................................................................................
21. Watson v. Employers Liability Assurance Corp., 348 U.S.66 (1954).
22. State Farm Mutual Auto. Ins. Co. v. Campbell, 538 U.S.408 (2003).

CHAPTER 5-MATERIALITY OF FACT

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Another problem arises as to the definition of the term material fact. What may be material
for one may be immaterial for the other and vice-versa. But, generally speaking, a material
fact is one which affects the judgmental capacity of a person. It must be such that a different
consequence would have occurred had it not been disclosed. The following cases illustrate
the different theories evolved by the judiciary regards this.

CASES:
1. Marine Life Insurance Co. v. Ontario Metal Products, 94 LJPC 60
The test of materiality is the judgment of the prudent insurer and it is not what is material in
the opinion of a reasonable assured.

2. Reynolds v. Phoenix Assurance Co. (1978) 2 Lloyds Rep 440


The test is whether the circumstance in question would influence the prudent insurer and not
whether it might influence him.

3. Lindenau v. Desborough, (1828) 8 B & C 586


The question is whether any particular circumstance is infact material and not whether the
proposer believed it to be so.

4. St. Paul Fire and Marine Insurance Co. (UK) Ltd. v. Mc Connell Dowell Constructors
Ltd, 45 Con LR 89
Two major questions were decided in this case. The first was the test of materiality
according to which the fact in question must have been of interest to a prudent insurer.
Secondly, as regards the presumption of inducement, it was held that the test would be

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satisfied if the insurer could show that he was influenced in whole or in part by the assureds
misleading presentation of the risk.

The Prudent insurer test has been adopted in S.149(6) of Indian MV Act,1988 and S. 149(5)
of English Road Traffic Act, 1972.

FACTS WHICH NEED TO BE DISCLOSED AND FACTS WHICH NEED NOT BE


DISCLOSEDFacts required to be disclosed1. A fact which is earlier immaterial but becomes material later on must be disclosed if it has
been expressly mentioned in the terms and conditions of the policy. Eg. Fire insurance of
ones house. Earlier, vacant plot located nearby. Later on a petrol pump is constructed on such
plot.23
2. A fact which increases the risk must be disclosed in all circumstances. E.g. incase of theft
insurance, if a person lives alone in an isolated place, the same needs to be compulsorily
disclosed as it increases the risk.
3. Previous losses incurred and claims under previous policies needs to be disclosed. This is
mainly in case of double insurance where it needs to be ascertained as to whether the
subsequent insurance company is willing to insure and to what extent.
4. Special terms and conditions under previous policies if any.
5. Fact of existence of non-indemnity is to be disclosed. This relates to any charge or
encumberance on the policy in the form of a loan security or otherwise.
6. The description of the subject matter must be stated properly. This is mainly to locate the
property if it is immovable and to recognize it if it is movable.
7. Facts which suggest any special motive to take the insurance.

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8. Facts which suggest the existence of any moral hazards which relate to the moral integrity
of the proposer, etc.

CASES:
1. Economides v. Commercial Union Assurance Co. plc, (1997) 3 All ER 636
It was held that the duty of the assured to disclose all material facts required an assured only
...................................................................................................................................................................................
24. Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L.Ed. 357 (1869).

to disclose facts known to him. There is no obligation on the assured to make enquiries as to
the factual basis of his belief.
Facts which need not be disclosed 1. Fact lessening the risk need not be disclosed.25
2. Public knowledge. E.g. facts regarding govt. policies, taxes, subsidies, etc. which are
expected to be known to all.
3. Fact of law like rules, regulations, etc. which have already been made available to all by
way of the notification in the official gazette.26
4. Superfluous facts or such information which is not logical.
5. Facts which are inferred information.
6. Fact waived by the insurer himself.
7. Facts governed by the policy itself.

CASES:

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1. LIC v. Shakunthalabai, AIR 1975 AP 68


In this case, the insured had failed to disclose that he suffered from indigestion for a few days
and took chooram from an ayurvedic doctor. He died within that year due to jaundice. The
insurer repudiated the claim on this account. The court did not approve of the repudiation as
the insurer did not establish by clear and cogent evidence that the question was properly
explained to the insured and that he was told that illness included such casual disturbances to
health and medicines included tablets that could be purchased at the nearest coffee store.

2. Bhagwani Bai v. LIC of India, AIR 1984 MP 126(130)


The insurer cannot avoid or repudiate an insurance policy on the ground of non-disclosure of
lapsed policies by the assured which had no bearing on the risk taken by the insurer.
.....................................................................................................................................................................

25. Walsh v. Nicholls [2004] NBJ No. 281.


26. 26. State Insurance Ltd v. Cedenco Foods Ltd (CA 216/97, 6 August 1998), p. 7.

CHAPTER 6-REPUDIATION OF INSURANCE


CONTRACT

The remedy for non-disclosure of a material fact is that the Policy is voidable (in other
words it can be affirmed or rescinded) at the option of the aggrieved party.27 As the nondisclosure is usually on the part of the proposer/Policyholder, the initiative is with the Insurer.
If the Policy is avoided, the Policy is treated as if it had never come into effect and any claims
paid should be refunded to the Insurer and the premium returned to the Policyholder.28
The strict legal position in the UK is amended by the ABI Statement of General
Insurance Practice, in relation to persons insuring in their private capacity. Under this
agreement, members of the ABI will not repudiate liability to indemnify a Policyholder on
grounds of non-disclosure of a material fact which a policyholder could not reasonably be
expected to have disclosed, or on grounds of misrepresentation unless it is a deliberate or
negligent misrepresentation of a material fact.29 The Rehabilitation of Offenders Act 1974 is
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also relevant. The Act provides that, when the rehabilitation period has expired, certain
convictions need not be disclosed. The rehabilitated person can then truthfully answer no to
any question relating to his criminal history or, if no specific question is asked, he has no
need to volunteer his criminal record.

.................................................................................................................................................................
27. Hartwig RP, Wilkinson C. (2003). Mold and Insurance. Insurance Issue Series.
28. Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 SCR 595.
29. Walsh v. Nicholls [2004] NBJ No. 281.

CHAPTER 7-WRONGFUL REPUDIATION OF AN


INSURANCE POLICY
Wrongful repudiation of an insurance policy is the illegal action by an insurance company of
canceling a health, life, automobile, or property insurance policy.30 Aside from completely
canceling an insurance policy, an insurance company has also wrongfully repudiated an
insurance policy if they:

Deny the existence of the policy,

Refuse to comply with the terms of the policy,

Seek to change to terms of the insurance policy without your consent,

Intend not to perform their obligations under the policy,

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Fail to adhere to the established customs as related to the insurance policy, or

Fail to renew the policy without providing a reason for doing so.
REMEDY FOR WRONGFUL REPUDIATION
Most states allow you to sue an insurance company if the company has wrongfully
repudiated your insurance policy.31 The majority of lawsuits for wrongful repudiation of an
insurance policy are based largely on breach of contract law.32 There are generally three
different approaches that a victim of a wrongful repudiated insurance policy can take:

1.

Treat the insurance policy as terminated, or rescinded, and sue for any appropriate
damages,

2.

Sue the insurance company to enforce the existing policy, or

3.

Wait until the terms of the insurance policy have matured and sue the insurance
company for damages.
A few states even allow you to rescind an insurance policy and sue for damages if the
insurance company has not yet actually wrongfully repudiated on the policy, but you have
reason to believe that they will do so in the future. This action is called an anticipatory
repudiation.33 You should take extreme caution in this area because it could end up that you
.................................................................................................................................................................
30. Watson v. Employers Liability Assurance Corp., 348 U.S.66 (1954).
31. State Farm Mutual Auto. Ins. Co. v. Campbell, 538 U.S.408 (2003).
32. Hartwig RP, Wilkinson C. (2003). Mold and Insurance. Insurance Issue Series.
33. Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 SCR 595.

are the one in breach, and the insurance company could sue you.
WHAT DOES ONE RECOVER IN SUCH CASES?
Even though a lawsuit for the wrongful repudiation of an insurance policy is very similar to
a breach of contract case, the damages available in a wrongful repudiation lawsuit are slightly
different that those available for a breach of contract case.34 In most cases, damages for a
wrongful repudiation lawsuit can include:
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Any damages you suffered during the time you were covered by the insurance policy,
including monetary loss and pain and suffering,35

Punitive damages against the insurance company36,

Damages prescribed by a statute, and

The benefits you have forthcoming under the policy minus the premiums you paid, or

Recovery of all the premiums you paid, but none of the benefits you are owed.37

..........................................................................................................................................................................
34. Banque Keyser Ullmann SA v. Skandia (UK) Insurance Co Ltd. [1990] 1 QB 665.
35. Banque Financiere de la Cite SA v. Westgate Insurance Co. Ltd. [1991] 2 AC 249, 280.
36. Buss v. Superior Court, 16 Cal. 4th 35 (1997).
37. GuideOne Elite v. Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006).

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CHAPTER 8-CONCLUSION
Thus, this principle forms an integral part of insurance law. It gives a fair chance of risk
assessment to the insurer and also ensures that the assured fully understands all the terms and
conditions of the contract.38 But, this principle is more favourable to the insurer as it is the
assured who has to generally make all the disclosures. This is primarily because when this
doctrine was evolved in the 18th century, the insurance market was in its infancy and thus
required protection.39 However, the enactment of the English Unfair Contract Terms Act,
1977 has considerably alleviated the position of the assured who is now protected against
unfair contractual terms. Further, the Insurance Act lays down that an insurance policy cannot
be called in question two years after it has been in force. This was done to obviate the
hardships of the insured when the insurance company tried to avoid a policy, which has been
in force for a long time, on the ground of misrepresentation. 40 However, this provision is not
applicable when the statement was made fraudulently. Nevertheless, technological
advancements have further made it possible for both parties to see to it that their interest is
taken care of. But, there are several other grey areas to this doctrine as well. There is still no
clear cut distinction between as to what is material or immaterial and the same is largely
dependent on the whims of the insurers and the terms of the contract. 41 It is still very easy for
an insurer to repudiate the contract on the slightest point of non-disclosure by treating them
as warranties, thereby putting the assured in an even more difficult position. Another problem
is with regards to as to what duration does the disclosure need to be made. Common law
cases may somewhat seem to have settled this point but the Indian Marine Insurance Act still
shows a confusion regards the same as it says that duty of disclosure shall end with the
conclusion of the contract.42 Thus, all these problems need to be taken care of and an effective
solution must be provided considering the principle of utmost good faith is one of the most
fundamental principles associated with insurance law. Hence in cases of breach of utmost
good faith one has the remedy to repudiate the contract.

.........................................................................................................................................................................
38. Sprung v. Royal Insurance (UK) Ltd [1999] 1 Lloyd's Rep. 111.

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39. CGU Workers Compensation (NSW) Limited (CAN 003 181 002) v. Garcia [2007] NSWCA 193.
40. http://online.ceb.com/CalCases/C3/9C3d566.htm
41. Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809.
42. Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489 (9th Cir. 1988).

CHAPTER 9-BIBLIOGRAPHY
WEBSITES:

www.irmi.com
www.businessdictionary.com
www.investopedi .com
en.wikipedia.org
www.lawhandbook.org

BOOKS:

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