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The Insurance Contracts Act 1984 (the Act) replaced the common law of disclosure, misrepresentations and incorrect statements with a statutory code.
Duty to disclose liability when completing insurance applications
Part IV of the Act provides that an insured is required to disclose all matters relevant to the insurer's decision to accept the risk (s 21). This duty to disclose relevant risks is balanced by exceptions, such as not having to disclose matters that are common knowledge. If there is an obvious failure to disclose, or an obviously incomplete answer, then the insurer is deemed to have waived its right to full disclosure by the insured in relation to the particular matter.
Section 26 of the Act reduces the circumstances within which an incorrect disclosure will be held to be a misrepresentation by the insured. Where a person who would not have reasonably known the correct answer, innocently and incorrectly makes a statement, it will not be misrepresentation.
However, section 28 provides that, where it can be established that a misrepresentation was made fraudulently, or the failure to disclose was fraudulent, the insurer may avoid the contract. If the failure to disclose was an omission, but not fraudulent, the insurer cannot avoid the contract, but the liability of the insurer will be reduced by the amount that would place the insurer in the position they would have been in, if not for the failure to disclose or the misrepresentation.
Development of the law
The courts have held that in relation to joint insurance, as in insurance of a business entity, a reference to the 'insured' is a reference to each of the insured, and the duty contained within section 21 of the Act to disclose relevant matters extends to each owner. Therefore if one owner fails to disclose, either fraudulently or not, the insurer may avoid liability.
In relation to what is determined to be a relevant matter, and therefore requires disclosure, the High Court has held that it has to be a matter relevant to the risk, and that the risk related to the insured risk, rather than some broad definition which encompassed commercial risk, such as whether an insured would consider renewing its contract or not.
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