Carter v. Boehm

It is the fountainhead of the doctrine of uberrima fides. Every later statement of the duty of disclosure — including s. 19 and s. 20 of the Marine Insurance Act 1963 — is a codification of what Lord Mansfield said here. It is also the case students most often get backwards, because the assured won.

Carter was the governor of Fort Marlborough, a settlement on Sumatra. He took out a policy insuring the fort against the loss of its being captured by a foreign enemy. The French invaded and captured the fort. Carter claimed under the policy.

The underwriter resisted the claim on two grounds of non-disclosure: first, that the weakness of the fort had not been disclosed; second, that the probability of a French attack had not been disclosed.

Was the policy avoidable for non-disclosure of those two matters?

Insurance is a contract upon speculation. The special facts on which the contingent chance is to be computed lie generally in the knowledge of the assured alone; the underwriter trusts to his representation and proceeds on the confidence that he does not keep back any circumstance in his knowledge which might mislead the underwriter into a belief that the circumstance does not exist. The formula that carries the idea is that the underwriter knows nothing and the assured knows everything.

A fact is material if it would affect the mind of a prudent insurer in deciding whether to accept the risk and at what premium — and it is material even though the assured himself did not appreciate its materiality. That is exactly the test s. 20(2) of the Marine Insurance Act 1963 now states in statutory language.

For the assured. The two matters relied on were not material in the relevant sense, because they were matters which an underwriter writing that class of risk was himself in a position to know. The duty does not require the assured to tell the insurer what the insurer knows or ought in the ordinary course of his business to know — the qualification which s. 20(3) of the Marine Insurance Act now preserves, exempting from disclosure any circumstance which is known or presumed to be known to the insurer.

1. As the source of the duty. Cite it for the proposition that insurance reverses caveat emptor, and give the reason: the essence of the contract is the risk it covers, and if there is non-disclosure the risk intended is not the risk that actually runs.
2. As the source of the limit. The best marks come from explaining why Carter won. A candidate who cites the case for the duty and then assumes the insurer succeeded has not read it.
3. As the ancestor of the statutory scheme. Section 19 (the duty), s. 20(1) (what must be disclosed), s. 20(2) (the prudent-insurer test), s. 20(3) (the four exemptions) and s. 20(4) (materiality as a question of fact) are all traceable to this judgment.
4. On remedy. The duty is not contractual; breach gives avoidance, not damages — the point confirmed in Banque Financiere v. Westgate Insurance.