Commentary

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Section 1: Duty of disclosure of the person effecting the insurance

  • Clause 3-1. Scope of the duty of disclosure

    The provision corresponds to Cl. 24 of the 1964 Plan and the relevant Nordic Insurance Contracts Acts (Nordic ICAs). The Commentary was amended in the 2010 version.

    Sub-clause 1 imposes on the assured a duty to disclose all information which is material to the insurer. Accordingly, the person effecting the insurance has an independent duty to take active steps to provide information; it is not enough for the person effecting the insurance to simply answer the questions asked by the insurer. The relevant Nordic ICAs, by contrast, have introduced a mere duty to respond as the basic rule and an active duty to provide information as the exception. In marine insurance, however, it is most appropriate to retain the Plan’s approach with the active duty to disclose information. The person effecting the insurance is usually a professional and will, accordingly, have knowledge about what kind of information the insurer requires.

    The approach of the 1964 Plan, namely that the scope of the duty of disclosure in Cl. 24 is to be determined using objective criteria, that is, irrespective of whether the person effecting the insurance knew of a certain fact or whether the person effecting the insurance ought to have realised that such fact would be of relevance to the insurer, has also been retained. Subjective knowledge is thus of no direct significance to the scope of the duty of disclosure, but is relevant to the nature of the sanction that the insurer may invoke in the event of breach of the duty of disclosure. The provisions of Cl. 3-2 and Cl. 3-3 which allow the insurer to limit his liability in the event of breach thus assume that the person effecting the insurance is in some way to blame for the breach of the duty of disclosure. The significance of having a duty of disclosure that is ascertained by objective criteria becomes evident in relation to the rules regarding the insurer’s right to cancel the insurance contract, cf. Cl. 3-4. If the insurer has not received information material to him, the insurer is entitled to cancel the contract, even though the person effecting the insurance cannot be blamed for the fact that the information is incomplete. The Plan follows the relevant Nordic ICAs on this point. In practice, there has also been discussion regarding the question of the duty of disclosure in relation to building contracts entered into by the shipowner if the contract contains an unusual waiver of claim for damages. The problem is related to Cl. 5-14 regarding the assured’s waiver of a claim for damages against a third party. However, it is uncertain whether this provision applies to an unusual waiver of the right to file a claim in accordance with the guarantee in a building contract, cf. the wording “in the trade in question”. On the other hand, it is clear that if the person effecting the insurance enters into or takes over a building contract containing such an unusual waiver of liability, he has a duty to inform the insurer about this under Cl. 3-1.

    When determining whether the insurer has received incomplete information, thus entitling him to cancel the insurance contract under Cl. 3-4, what the insurer in question maintains would have been material to him at the time the contract was concluded cannot be given decisive weight, as the insurer’s view can have been influenced by subsequent developments. The deciding factor must be which information an insurer usually can and will demand prior to accepting an insurance risk of the type in question. The need for information will vary from one type of insurance to another, and it would not be feasible to provide a comprehensive enumeration. One particular situation which has been the subject of discussion in legal theory is the extent to which the person effecting the insurance should be obliged to disclose past criminal matters: see Brækhus/Rein: Håndbok i Kaskoforsikring (Handbook of Hull Insurance), p. 123, and Selmer: Lov, dom og bok (Statute, Judgment and Book), p. 467 et seq., in particular pp. 471-472.

    If the insurance contract is entered into through a broker, it becomes the broker’s task, as the agent of the person effecting the insurance, to diligently pass on all the information given by the person effecting the insurance. A mistake made by the broker which results in the insurer receiving erroneous or incomplete information would be the risk/at the peril of the person effecting the insurance. Similarly, if the person effecting the insurance is in good faith, but the broker knows that the information from the person effecting the insurance is incomplete or incorrect, a failure by the broker to correct the information would be the risk/at the peril of the person effecting the insurance. This means that the broker has an independent duty vis-à-vis the insurer to correct or supplement the information given by the person effecting the insurance. If the broker negligently breaches this duty, the insurer may invoke Cl. 3-3 against the person effecting the insurance.

    The duty of disclosure applies "at the time the contract is concluded". Subsequent changes must be assessed according to the rules concerning alteration of risk, cf. Cl. 3-8 et seq. The difference is illustrated in the case ND 1978.31 Sandefjord ORMLUND, where a Norwegian second engineer with a dispensation to sail as a chief engineer was, after the insurance contract was entered into, replaced by another Norwegian who did not have a valid certificate or any type of dispensation. The court treated the change as an issue of breach of the duty of disclosure; the correct approach must, however, be to treat it as an alteration of the risk: see Bull: Sjøforsikringsrett (Marine Insurance Law), pp. 103-104, and Brækhus/Rein: Håndbok i Kaskoforsikring (Handbook of Hull Insurance), pp. 120-121.

    On the other hand, the person effecting the insurance will also have a duty of disclosure when the contract is being renewed. The insurer can, however, be expected to retain the information given earlier, so there can be no new duty of disclosure as regards information that was previously conveyed. On the other hand, the person effecting the insurance must give information relating to any new matters, e.g. changes in the nationality of the crew or in the ship’s trading areas.

    The information is to be given to "the insurer". This includes both the leading insurer and the individual co-insurers. In principle, the person effecting the insurance is entering into separate agreements with each individual co-insurer, and the consequence must therefore be that all of them may invoke any breach of the duty of disclosure. As a result, it is the responsibility of the person effecting the insurance to ensure that all co-insurers receive correct information. If, however, the leading insurer makes independent inquiries about the person effecting the insurance and obtains incorrect information which is then passed on to the other insurers, this will not be the risk of/at the peril of the person effecting the insurance. This does not, however, apply if the person effecting the insurance knows that the insurer is relying on incorrect, material information.

    Sub-clause 2 corresponds to the relevant Nordic ICAs, and has been somewhat reformulated from the previous wording to concord with the Nordic ICAs. The rule will apply in situations where, e.g., the person effecting the insurance becomes aware, during the insurance period, that the vessel is considerably older than what was stated at the time the insurance contract was concluded. The duty to correct information will, however, only apply to circumstances which existed at the time the contract was entered into. Circumstances arising later must be assessed according to the rules on alteration of the risk.

    When the person effecting the insurance subsequently corrects the information about the risk, this may entitle the insurer to cancel the insurance contract pursuant to Cl. 3-4. If the person effecting the insurance later becomes aware of certain facts and fails to report them, the insurer’s liability will be limited according to Cl. 3-3, sub-clause 2, second sentence.

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    Clause 3-1. Scope of the duty of disclosure

    The person effecting the insurance shall, at the time the contract is concluded, make full and correct disclosure of all circumstances that are material to the insurer when deciding whether and on what conditions he is prepared to accept the insurance. If the person effecting the insurance...

  • Clause 3-2. Fraudulent misrepresentation

    This Clause corresponds to Cl. 25 of the 1964 Plan and the relevant Nordic Insurance Contracts Acts (Nordic ICAs).

    The provision governs fraudulent misrepresentation. The corresponding rule in Cl. 25 of the 1964 Plan applied to both fraudulent and negligent misrepresentation. The relevant Nordic ICAs apply only to fraudulent misrepresentation, while negligent misrepresentation is covered by that part of the same provision which pertains to negligent breach of the duty of disclosure. The Plan follows the Nordic ICAs approach on this point. In keeping with the relevant Nordic ICAs, however, a rule on cancellation in the event of fraudulent misrepresentation has been introduced which is more onerous on the person effecting the insurance than the current rule.

    The consequence of fraudulent misrepresentation on the part of the person effecting the insurance is that the contract is not binding. This is in accordance with general principles concerning voidable contracts. At the same time, it is important that the insurer reacts in such a way that the person effecting the insurance is informed unequivocally that there is no insurance coverage. The insurer’s duty to give notice pursuant to Cl. 3-6 of the Plan has therefore been expanded and, in the event of his failure to give notice, cover will continue, cf. below. The relevant Nordic ICAs have opted for a somewhat different wording, but the result is, in practice, largely the same.

    It does not matter, for the purposes of Cl. 3-2 of the Plan, what significance the information in question would have had for the insurer’s acceptance of the risk. The issue of whether it is reasonable that incomplete or incorrect information about a factor of lesser importance should void the contract was considered, see Brækhus/Rein: Håndbok i Kaskoforsikring (Handbook of Hull Insurance), p. 125. The relevant Nordic ICAs, for their part, do not take into account what the fraudulent misrepresentation was about. Since the contract does not become void in the event of negligent misrepresentation, the need for a differentiated sanction structure is reduced, and the absolute sanction has therefore been maintained.

    Sub-clause 2 is new, and gives the insurer the right, where there has been fraudulent misrepresentation, to cancel other contracts with the person effecting the insurance on giving 14 days’ notice. The provision corresponds to the relevant Nordic ICAs, except that under the Nordic ICAs the insurer may cancel with immediate effect. The Committee found it appropriate to follow the Nordic ICAs in allowing the insurer to cut all ties with a client who has acted fraudulently. The period of notice in the Nordic ICAs is, however, too short for marine insurance relations, and so has been set at 14 days, in keeping with other notice periods in the Plan.

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    Clause 3-2. Fraudulent misrepresentation

    If the person effecting the insurance has fraudulently failed to fulfil his duty of disclosure, the contract is not binding on the insurer. The insurer may also cancel other insurance contracts he has with the person effecting the insurance by giving fourteen days' notice.

  • Clause 3-3. Other failure to fulfil the duty of disclosure

    This Clause corresponds to Cl. 26 of the 1964 Plan and the relevant Nordic Insurance Contracts Acts (Nordic ICAs).

    Both the threshold for invoking/triggering sanctions and the criteria for the type of sanctions triggered/invoked in the Nordic ICAs differ from the Plan's provision regarding other breaches of the duty of disclosure; the sanction threshold is higher in the Nordic ICAs and the sanction structure is more differentiated. There is no reason, however, to raise the sanction threshold to "more than just a little blame attaching" in marine insurance. Moreover, in marine insurance, the basic principle for the sanction threshold in the event of misleading information should be that the insurer be put in the same position as he would have been in had he been given correct information. A discretionary reduction in compensation of the kind found in the Nordic ICAs is therefore not recommendable in marine insurance.

    Sub-clause 1 applies when the person effecting the insurance has "in any other way failed to fulfil his duty of disclosure", i.e. there has been culpable conduct which  cannot be characterised as fraudulent. Under the amendment to Cl. 3-2, the provision will encompass any case of negligent breach of the duty of disclosure, viz. from situations of ordinary negligence to situations of gross negligence qualifying as unfair conduct.

    If the insurer would not have accepted the risk if the person effecting the insurance had provided the information which should have been given, the contract is "not binding". Under the 1964 Plan, the sanction was that the insurer was "free from liability". The amendment corresponds to the approach adopted for fraudulent misrepresentation, cf. Cl. 3-2 of the Plan. The reality in both cases is that the insurer is not liable to pay when an insurance event has occurred, and it is therefore better to be consistent as regards the wording used. Moreover, the wording "not binding" seems more consistent with the rules concerning the insurer’s right to cancel and duty to give notice. Under Cl. 29 of the 1964 Plan the insurer was required to give notice of his intention to invoke Cl. 26, first sub-clause, but it was not clear if the insurer had to cancel the contract to be free from liability for future losses. The wording to the effect that the contract is not binding makes it perfectly clear that there is no need to cancel, while at the same time Cl. 3-6 of the Plan requires the insurer to give notice of his intention to deny coverage.

    Since the contract is not binding if the insurer would not have entered into it if correct information had been given, the insurer is put in the same position as he would have been in had correct information originally been given. The insurer has the burden of proving that he would in no way have entered into any contract, but it is sufficient for him to demonstrate, on a balance of probabilities, that he would not have accepted the risk; what other insurers might be expected to have done is irrelevant.

    If the insurer would have accepted the risk, but on different terms, then sub-clause 2 allows the insurer to avoid liability where there is a causal connection between the casualty and the matter that should have been disclosed. The word "terms" refers to both the contract with the person effecting the insurance and any other arrangements the insurer would have made with full knowledge of the facts. If the insurer would have taken out higher reinsurance, for example, the insurer will not be liable if the casualty is due to a circumstance about which he was not informed. If it is clear that the person effecting the insurance has acted negligently, either at the time the contract was concluded or subsequently, the person effecting the insurance will have the burden of proving that the undisclosed risk factor was not material to the casualty, or that it occurred before he was in a position to correct the information supplied.

    It could be said that the Plan’s sanction structure is not sufficiently differentiated for situations in which an insurer with correct information would have, for example, introduced a safety provision or charged a higher premium. An absolute exemption from liability for the insurer in such cases could seem unreasonable. However, since the rules on the duty of disclosure are not frequently used in practice, it appears unnecessarily complicated to introduce a new sanction structure.

    If the casualty is due to a combination of risk factors about which the insurer knew, and factors about which the person effecting the insurance has failed to give information, liability must be limited according to the general rule on apportionment in Cl. 2-13. The apportionment rule opens the door to attaining results close to those which would have been obtained under the rule regarding discretionary reduction of compensation in the relevant Nordic ICAs, whereby the indemnity is reduced depending on how much the undisclosed factors have influenced the course of events.

    Even though the insurer is protected by the principle of causation, he may have an interest in being released from the insurance relationship, among other things, because the evidence for the cause of a casualty may be unclear. Under sub-clause 3, the insurer may therefore cancel the insurance contract by giving 14 days’ notice. As elsewhere in the Plan, "notice" here refers to the period of notice for cancellation. Also as elsewhere, the notice period referred to here starts to run from the time the person effecting the insurance has received the notice.

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    Clause 3-3. Other failure to fulfil the duty of disclosure

    If the person effecting the insurance has, at the time the contract is concluded, in any other way failed to fulfil his duty of disclosure, and it must be assumed that the insurer would not have accepted the insurance if the person effecting the insurance had made such disclosure as it was his du...

  • Clause 3-4. Innocent breach of the duty of disclosure

    This Clause is identical to Cl. 27 of the 1964 Plan and corresponds to the relevant Nordic Insurance Contracts Acts.

    If information about the risk is incorrect or incomplete, and the person effecting the insurance is not to blame for this, the insurer is liable according to the terms of the contract, but may cancel the insurance contract by giving 14 days’ notice. Under Cl. 117, sub-clause 1 of the 1964 Plan, the insurer could, in these situations, also charge an additional premium for the period during which he had borne the risk. This provision was of no practical significance, and has therefore been deleted. Moreover, according to general principles of contract law, the insurer in this type of situation is entitled to an additional premium corresponding to the additional risk which must be borne when the risk is different from what is assumed in the contract.

    The question of when information must be considered incomplete is discussed above under Cl. 3-1, where the relationship between Cl. 3-1 and Cl. 3-4 is also discussed.

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    Clause 3-4. Innocent breach of the duty of disclosure

    If the person effecting the insurance has given incorrect or incomplete information without any blame attaching to him, the insurer is liable as if correct information had been given, but he may cancel the insurance by giving fourteen days’ notice.

  • Clause 3-5. Cases where the insurer may not invoke breach of the duty of disclosure

    This Clause corresponds to Cl. 28 of the 1964 Plan and the relevant Nordic Insurance Contracts Acts (Nordic ICAs).

    The first sentence states that the insurer loses the right to invoke incorrect or incomplete information if he knew or ought to have known the true facts at the time the contract was entered into. The wording "ought to have known" is new, and is taken from the Norwegian ICA Section 4-4, first sentence. This approach also fits in well with the rules of the Plan: when Cl. 3-1 imposes a strict duty of disclosure on the person effecting the insurance, it is natural that Cl. 3-5 should impose on the insurer a duty to show due diligence with respect to the information he has received. Therefore, if the person effecting the insurance gives certain information about which the insurer might wish to have greater detail, then he must request it.

    The rule also applies in the event of fraudulent misrepresentation. There is little reason to give the insurer the opportunity to speculate at the expense of the person effecting the insurance if the insurer, at the time the contract is concluded, knows that the person effecting the insurance is fraudulently giving incorrect information, but nonetheless accepts the risk.

    As regards the point in time that is relevant when considering the insurer’s knowledge, there are minor differences in the rules: the relevant point in time in Nordic ICAs is when the insurer receives the erroneous information, while the Plan refers to the time when the information should have been given. The Plan thus allows the person effecting the insurance to invoke the knowledge of the insurer right up to the time when the person effecting the insurance should have corrected the information pursuant to Cl. 3-1, sub-clause 2.

    Under the second sentence, the insurer may not invoke incomplete information about facts which are no longer material to him, unless there has been fraudulent misrepresentation. This is in accordance with the approach of the 1964 Plan, while the Norwegian ICA Section 4-4 does not allow the insurer to invoke this type of fact, even in the event of fraudulent misrepresentation. However, once the insurer has become aware of such fraudulent misrepresentation on the part of the person effecting the insurance, he should react within a reasonable time, so that the person effecting the insurance may take out new insurance. A different approach might also give the insurer the possibility of keeping the question open so as to see what is most advantageous to him, cf. the comments on the first sentence of the Clause.

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    Clause 3-5. Cases where the insurer may not invoke breach of the duty of disclosure

    The insurer may not plead that incorrect or incomplete information has been given if, at the time when the information should have been given, he knew or ought to have known of the matter. Nor may he invoke Cl. 3-3 and Cl. 3-4 if the circumstances about which incorrect or incomplete information w...

  • Clause 3-6. Duty of the insurer to give notice

    This Clause corresponds to Cl. 29 of the 1964 Plan and the relevant Nordic Insurance Contracts Acts (Nordic ICAs).

    The provision imposes on the insurer an obligation to inform the person effecting the insurance if he intends to invoke a breach of the duty of disclosure. In the corresponding provision in the 1964 Plan, the insurer had no duty to give notice in the event of fraudulent misrepresentation. However, the Norwegian ICA Section 4-14 imposes a duty to give notice even in the event of fraudulent misrepresentation, and a corresponding rule has been introduced in the Plan.

    Under the 1964 Plan, the insurer’s duty to notify was not subject to any specific requirements as to form. The Nordic ICAs requires the notice to be in writing, and this requirement has been included in the new Plan.

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    Clause 3-6. Duty of the insurer to give notice

    If the insurer becomes aware of the fact that incorrect or incomplete information has been given, he shall, without undue delay and in writing, notify the person effecting the insurance of the extent to which he intends to invoke Cl. 3-2, Cl. 3-3 and Cl. 3-4. If he fails to do so, he forfeits his...

  • Clause 3-7. Right of the insurer to obtain particulars from the ship's classification society, etc.

    The provision corresponds to Cl. 30 of the 1964 Plan and Cefor I.19 and PIC Cl. 5, no. 4.

    In shipowners’ insurance, the information held by the vessel's classification society will be of crucial importance. This is true at the time the contract is concluded and also during the period of insurance, e.g., if the insurer is considering exercising its right to cancel the contract pursuant to Clause 3-27.

    Sub-clause 1 imposes on the person effecting the insurance a duty to obtain for the insurer all information which the classification society may at any time have regarding the condition of the ship. The duty to obtain information assumes that the insurer has requested it. In practice, this duty will usually be fulfilled by the shipowner giving the insurer written permission to obtain the information, to the extent that the classification society requires such prior permission. The Plan cannot, of course, require the classification society to release information which it otherwise could withhold; this is indicated by the requirement that the particulars must be "available".

    Refusal by the shipowner to assist the insurer in obtaining the particulars he wants from the classification society will constitute a material breach of the insurance contract. Such breach would presumably allow the insurer to cancel the contract even without an express provision, but to avoid any uncertainty in that respect the right to cancel the contract has been explicitly set out in sub-clause 2. The notice period is 14 days, but the insurance does not in any event lapse until the ship has reached the closest safe port according to the insurer’s instructions. "Port" is understood to mean the closest geographical place of call, not the destination of the ship. If the assured does not agree with the insurer's instructions regarding a safe port, it must be decided, based on an objective assessment, whether the port is safe for the ship in question.

    If the insurer wishes to obtain information from the classification society in connection with settlement of a claim following a casualty, in order, e.g., to support an assertion that that he had not received complete information concerning the risk or that the assured knew the ship was not seaworthy, Cl. 5-1, sub-clause 2, will apply.

    Sub-clause 3 is new, and gives the insurer authority to obtain particulars referred to in sub-clause 1 directly from the classification society and from relevant government authorities in the country where the ship is registered or has undergone Port-State control. The provision is taken from the insurance conditions, cf. Cefor I.19 and PIC Cl. 5, no. 4. It has been reformulated somewhat, but the substantive content is largely the same. The person effecting the insurance is to be informed no later than when the particulars are obtained.

    Sub-clauses 1 and 2 may appear superfluous when sub-clause 3 allows the insurer to go straight to the classification society. This is correct insofar as the classification society accepts the rule in the third sub-clause. But because one cannot be sure that this will always be the case, there is still a need for the rules in sub-clauses 1 and 2 as a supplement to sub-clause 3.

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    Clause 3-7. Right of the insurer to obtain particulars from the ship’s classification society, etc.

    The person effecting the insurance shall, at the insurer's request, provide him with all available particulars from the classification society concerning the condition of the ship before and during the insurance period. If the person effecting the insurance fails to fulfil his duty under sub-clau...