By: BANKOLE CLIFFORD EKUNDAYO MORGAN ESQ
LL.M in International Maritime Law
Master in Governance and Leadership
Defence Counsel, Legal Aid Board of Sierra Leone
Human Rights Advocate
THE EXPLORATION OF MARINE INSURANCE LAW
This article continues the exploration of marine insurance law by focusing on the consequences of non-disclosure and misrepresentation in marine insurance contracts. Central to this analysis is the doctrine of utmost good faith, codified in the Marine Insurance Act 1906, and its subsequent reform under the Insurance Act 2015. The discussion assesses the legal duties imposed on parties, the effects of non-compliance, and the distinctions between the two legislative frameworks.
CONSEQUENCES OF FAILURE BY PARTIES IN MARINE INSURANCE CONTRACT
The marine insurance contracts are based on the principle of “Utmost Good Faith” (uberrimae fidei), requiring both parties, especially the assured, to disclose all material facts relevant to the risk. A failure to disclose or a misrepresentation of such facts constitutes a breach of the duty and may entitle the insurer to avoid the contract from inception. The consequences are serious, often resulting in the denial of claims or termination of coverage. For instance, if an assured fails to disclose that a vessel previously sustained structural damage, this omission may materially influence the underwriter’s decision to accept the risk. In such circumstances, the insurer is legally entitled to treat the policy as void.
NON-DISCLOSURE
A significant consequence of failure by parties can be by non-disclosure. Non-disclosure refers to the failure to reveal a material circumstance that a prudent insurer would want to know when assessing the risk. According to section 17 of the Marine Insurance Act 1906, such omission gives the insurer the right to avoid the policy. It is very crucial for the assured not to misrepresent the insurer as it may lead to avoidance of the contract by the insurer. In essence if the assured fails to make full and frank disclosure or made a misrepresentation, the insurer may avoid the contract from the time of inception of the contract. It is further, important to note that due to the characteristics of the insurance market, it behooves the assured to disclose material facts to the insurer, otherwise the insurer will have the option to rescind the contract.
DUTY TO DISCLOSE ALL FACTS TO THE OTHER PARTY
At common law, and as codified in the Marine Insurance Act 1906, the assured must disclose every material fact known or presumed to be known to him. A material fact is one that would influence the judgment of a prudent insurer in fixing the premium or determining whether to accept the risk.
The principle of disclosure of material facts to the other party was exemplified in the locus classicus case of: CARTER v BOEHM (1766). In CARTER v BOEHM (1766), Lord Mansfield established that insurance is a contract based on speculation, requiring the utmost honesty between parties. The failure to disclose material facts gives the insurer the option to rescind the contract. The duty of disclosure applies at the time of contract formation and continues until the risk is accepted.
COMPARISON BETWEEN THE 1906 MIA AND THE INSURANCE ACT, 2015
The Marine Insurance Act (MIA) 1906 remains a cornerstone of marine insurance law. It provides comprehensive provisions on disclosure (Section 18 and 19), misrepresentation (Sections 17 to 20), warranties (Sections 41), and remedies (Section 67(1)). However, the Insurance Act 2015 introduced substantial reforms, primarily aimed at non-marine business insurance, though some reforms are applicable unless excluded by agreement.
THE REQUIREMENT OF THE ASSURED TO DISCLOSE EVERY MATERIAL CIRCUMSTANCE
One of the most significant changes under the Insurance Act 2015 is the replacement of the absolute duty of disclosure with a duty of fair presentation, as provided in Section 3. This requires the assured to disclose every material circumstance known or to provide enough information to prompt further enquiry by the insurer. The Act also introduces proportionate remedies, allowing courts to respond to breaches of duty in a measured way, based on whether the breach was deliberate, reckless, or innocent, marking a departure from the Marine Insurance Act 1906, which only permitted the remedy of avoidance.
The 2015 Act further abolishes “basis of the contract” clauses under Section 9 and refines the treatment of warranties. Under the new framework, a breach of warranty does not automatically discharge the insurer from liability unless the breach is connected to the loss.
Finally, Section 14 of the Insurance Act 2015 abolishes the automatic remedy of avoidance for breach of utmost good faith. This shift represents a more balanced and policyholder-friendly approach to contractual breaches. Collectively, these reforms enhance fairness and proportionality in the insurance relationship while preserving commercial certainty.
THE PRINCIPLE OF GOOD FAITH PROHIBIT CONCEALING OF VITAL INFORMATION
The principle of utmost good faith remains a foundational concept in maritime insurance. Section 17 of the MIA, 1906 allows a contract to be avoided if either party fails to observe this principle. However, the Insurance Act 2015 has reformulated the approach by introducing the duty of fair presentation, particularly in non-marine contexts.
In marine insurance, unless expressly excluded, the MIA 1906 still governs many contracts. Therefore, the prohibition on concealing material information remains binding. The shift under the 2015 Act allows courts to tailor remedies based on the nature and severity of the breach, ensuring a more balanced approach.
CONCLUSION
This article has analyzed the consequences of non-disclosure in marine insurance contracts and the legal implications of breaching the duty of utmost good faith. The Marine Insurance Act 1906 establishes strict obligations for disclosure, which, if not observed, allow the insurer to avoid the contract. The Insurance Act 2015, by contrast, introduces a fairer and more flexible regime through the duty of fair presentation and proportionate remedies. Together, these statutes provide a comprehensive framework for understanding the evolving duties and consequences in marine insurance law.
