Economides v Commercial Assurance Co Plc

For household insurance, a representation expressly made to the best of the insured's knowledge and belief is true if made honestly. It need not rest on objectively reasonable grounds. There must nevertheless be some basis for the belief, and an apparent statement of belief may on analysis assert a specific fact.

A private insured must disclose material circumstances actually known to them. Constructive knowledge and a mere failure to enquire are insufficient. Deliberately shutting one's eyes to the truth is equivalent to actual knowledge. Insurers wishing to require particular enquiries or objective justification for valuations should state that requirement in the proposal form.

The appellant held a household contents policy covering property belonging to him and members of his household. After his parents moved into his flat with jewellery and silverware, he increased the sum insured to £16,000 on his father's advice. Following a burglary, the replacement value proved to be about £40,000, including nearly £30,000 in valuables.

The Central London County Court dismissed his claim. The Recorder held that the insurers could avoid the policy because the appellant lacked reasonable grounds for his valuation and had failed to enquire into and disclose the true value of the additional property.

The central issues were whether an honest representation of belief also implied objectively reasonable grounds, and whether a private insured was subject to constructive knowledge for non-disclosure.

1. Disposition. The Court of Appeal unanimously allowed the appeal. Judgment was entered for the appellant for £7,815.38, with agreed interest of £3,594.72 and costs here and below.
2. Representation of belief. Simon Brown LJ and Peter Gibson LJ held that section 20(5) of the Marine Insurance Act 1906 supplied the conclusive test. A representation concerning expectation or belief is true when made in good faith. The insured's obligation was therefore one of honesty, not a duty to establish objectively reasonable grounds. Some basis for the belief remained necessary, and an absence of reasonable grounds could provide evidence of bad faith.
3. A statement framed as opinion or belief may, on analysis, assert a specific fact. Such a statement falls within sections 20(3) and 20(4), rather than section 20(5). The authorities relied upon by the insurers involved either implied factual assertions, statements contrary to the representor's experience, or professional speakers whose position implied an informed basis. They did not establish a general duty on a lay household insured to make objectively reasonable enquiries.
4. If insurers require householders to obtain valuations, undertake specified enquiries or provide objective justification for estimates, they must spell out those requirements in the proposal form. Otherwise, an uncertain and potentially extensive enquiry obligation would expose household policies to avoidance without a clear contractual standard.
5. Non-disclosure. All three members of the court agreed that section 18(1) of the Marine Insurance Act 1906 required a private insured to disclose material circumstances actually known to them. Constructive knowledge was irrelevant. Deliberately shutting one's eyes to the truth was equivalent to actual knowledge, but mere failure to make further enquiries was insufficient. The Recorder's finding of wilful blindness was inconsistent with the accepted honesty of the appellant's valuation.
6. Separate concurrence. Sir Iain Glidewell considered that a statement of belief could imply that a reasonable person possessing the representor's knowledge could honestly have held it. He found that test satisfied because the young appellant reasonably relied on his father's estimate. He reserved his position on whether section 20(5) excluded an objective reasonable-grounds requirement.

1. Court of Appeal: The appeal was allowed unanimously. The Recorder's dismissal was set aside and judgment was entered for the appellant for £7,815.38, plus agreed interest and costs.
2. Central London County Court: On 2 April 1996, Mr Recorder Stephen Hockman QC dismissed the insurance claim, accepting the defences of misrepresentation and non-disclosure.