An insurance contract is made on the basis of the principle of utmost good faith or uberrimae fidei. The insured, therefore, is under a duty to disclose any relevant facts which would be material to the insurer's assessment of risk in relation to the insurance policy.
On 8 March 1997, Lam Charn Yung applied for an insurance policy with National Mutual Insurance Company (Bermuda) Limited with life coverage as well as supplementary benefits should Lam suffer from a major illness. Prior to the approval of the insurance policy, Lam underwent a required medical examination performed by the appointed doctor, during which Lam claimed in the standard medical form not to be experiencing any medical condition which "may impair her health or require an operation" and not to be suffering from "any disorder of the breast..." Lam was subsequently diagnosed with breast cancer and underwent mastectomy. She sought to claim the supplementary benefits under the insurance policy; however, her claim was rejected by the Court on the basis of material non-disclosure and misrepresentation, either of which constituted a sufficient ground for the insurer to repudiate the insurance contract.
Material Non-Disclosure And Misrepresentation
What Lam did not disclose were her two visits to the Family Planning Association of Hong Kong ("FPA"), prior to the insurance application, in respect of her occasional right breast pain. Upon her second visit, the FPA suggested that Lam have a mammogram performed, the advice of which was subsequently declined. Notwithstanding the uncertainty over Lam's medical condition, the court considered the non-disclosure of these events at the pre-contractual stage of the insurance policy as material on the ground the insurance company would have made a different risk assessment in light of her complaints about breast pain and her visits to the FPA.
The court reiterated that as a general rule, a contract of insurance is made on the basis of good faith or uberrimae fidei and hence the insured has the duty to disclose all relevant material information. Furthermore, such duty remains even if the insurance company fails to prove that there has been fraud or negligence or that the insured knows of the materiality of the information. What amounts to materiality is a question of fact and it hinges on whether the information would have had an influence in risk assessment on the part of the insurer; the insured's perception of the information has no relevance in the consideration of materiality.
In the present case, it was also held that there had been obvious materiality. Lam's history of breast pain, her two visits to the FPA, the diagnosis of mild tenderness of breast and the recommendation of a mammogram during her second visit coupled with the uncertainty over any right breast lump amounted to factors so obvious as to influence the risk appraisal of the insurance company.
Further, the Court found that Lam's 'No' response to the question in the standard medical form as to whether she was suffering from any condition which "may impair her health" was held to be a misleading statement.
The Defendant insurer had to establish that it had been induced by the material non-disclosure or misrepresentation, to successfully repudiate the insurance contract. It had to prove that it would not have entered into the insurance contract on the same terms if there had been disclosure of the material or misrepresented information by Lam.
As there was obvious materiality in this case, the Court adopted the evidential presumption of inducement and found the Defendant had been induced to enter into the insurance contract. Lam was unable to rebut the presumption of inducement and hence, her action against the insurance company failed.
It is relevant to note in this case that there were inconsistencies in the Plaintiff's statements and discrepancies between her case and the contemporaneous medical documents. She claimed that the doctors at the FPA told her she did not have a problem and sought to explain the inconsistencies by saying that she was mistaken. The Court however found that her evidence was self-serving and unreliable.
Although it is a case that turns on its facts, the decision is a useful reminder of the duty of disclosure imposed upon insured persons to disclose all relevant material information in the context of life and personal insurance policies.
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