Bs gave loans to Cs and L was to arrange insurance in case of failed repayment, but L failed to disclose fully to Bs that there were significant gaps in the insurance cover because it was in L’s financial interest to make the deal go through ASAP. When the companies collapsed and Bs were unable to get insurance payments due to the gaps left by L, Bs sued insurance companies in tort, alleging that they had a duty to disclose the gaps left by L’s deceit. CA held that the bank could rescind the contract and demand the return of the premiums paid to the insurers, but could not claim for damages, since it was neither a tort nor a breach of contract or of fiduciary duty.
CA: Insurance contracts are contracts requiring the utmost good faith and insurer and insured owed each other reciprocal, absolute, duties of pre-contractual disclosure to make the contract enforceable. The insurer’s duty extended at least to disclosing all facts known to him which were material either to the nature of the risk or to the recoverability of a claim under the contract, which a prudent insured would take into account in deciding whether to place the risk with the insurer. By not disclosing L’s deceit they had breached this. However, non-disclosure could not be construed as misrepresentation and, even if it did, such a disclosure would not come within the Misrepresentation Act since it was not a misrepresentation made by one party to another.
Slade LJ: “The common features of contracts which are classified by the law as contracts uberrimae fidei is that by their very nature one party is likely to have the command of means of knowledge not available to the other”. Special relationships are exceptions to the general rule that disclosure is not required.