AuthorDenis Boivin
Insurance contracts a re said to be uberrima f‌ides — that is, they require
utmost good faith from both part ies. The law imposes a duty on the
insurer and the in sured to act in good faith during negotiations a nd
during performance. The implications of this duty are manifold. From
the perspective of the insurer, the duty is ex perienced primar ily dur-
ing the settlement process, a fter the contract is signed and a loss ha s
been sustained by t he policyholder. This is when insureds are vulner-
able in relation to insurers. They have suffered losses and require in-
demnif‌ication to get on with their live s. Insurers have the resources to
meet their needs and have accepted premiums on this basis. The law
commands good faith on their part to ensure that cla ims are processed
expeditiously and wit h fairness. In th is context, bad faith occurs when
an insurer introduces i mproper considerations into the claims process
or handles the insured’s claim in an overwhelmingly in adequate man-
ner.1 This m anifestation of uberrima f‌ides w ill be addressed in Chapter 9,
which deals with t he settlement of insurance claim s.
From the perspective of the policyholder, the implications of the
duty are different. Good faith i n this case is experienced mostly during
1 This def‌init ion of insurer bad faith was for mulated by McLachlin CJC and
Abella J in Fidle r v Sun Life Assurance Co of Canada, 2006 SCC 30 at par a 71.
This decision i s discussed in Chapte r 9, Sections C(2) and (3).
contract negotiations, before any agreement is reached and before any
expectations are created. Insurers, not the insured s, are the vulnerable
ones at this stage. The former require inform ation in order to evaluate
the nature and extent of the risks involved. The underwriting proces s,
upon which the insurance indust ry is based, ca nnot function without
regular and reliable input. Some of thi s data is readily acces sible, via
common knowledge or information databases sh ared between insurers.
However, many of the facts that are required by underwriters lie w ithin
the exclusive knowledge of those who apply for insurance. Hence, in
this context, good faith t akes the form of mandatory disclosure, and
bad faith takes t he form of omissions and misrepresent ations. Like the
requirement of an insurable interest, d isclosure is a prerequisite of in-
surance law. Prospective insureds have a duty to share with the poten-
tial insurer a ll material inform ation regarding the risks t hey intend
to transfer. Lack of disclosure const itutes grounds for nullifyi ng an
insurance contract.
Generally speak ing, when an insurer alleges a failure to d isclose,
four questions must be addressed. Fir st, did the insured have a duty
to disclose the inform ation that constitutes the subject matter of the
insurer’s complaint? Second, did the insured breach this duty by mis-
representing materi al facts or by omitting any of them? Third, was the
insurer induced into signing the contract on the basis of this material
misrepresentation or omis sion? Fourth, what are the remedies avai lable
to the insurer? The caselaw does not always di scuss these quest ions
under separate headings bec ause they are interrelated — especially t he
f‌irst three. However, it is useful to treat these questions separately for
analytical purposes, that is, to organ ize the many legal issues raised by
mandatory disclosure.
1) R a tio na l e
Mandatory disclosure is the exception in commercial and consumer
transactions. The law presumes that most legal entities, whether cor-
porate or otherwise, are c apable of looking after their personal intere sts
during contract negotiations. They are free to make their own inquir-
ies and to share information with the other party to the ag reement. If
they choose to speak, t hey must be honest — they cannot make any
Disclosure 131
fraudulent representations to one another.2 In some relationships, they
must also exercise rea sonable care during pre-contractual discussions.3
But silence is not a typical concern of the common law, at least not in
the absence of actionable fraud or negligence. One party may w ithhold
a piece of information from the other, no matter how relevant this in-
formation is to the decision-maki ng process. As a result, silence may
give one party a strategic advant age over the other. Silence may even
deceive the other party. Still, the common law’s response is the same:
caveat emptor, or let the buyer beware!4
What makes the purcha se of insurance different from most trans-
actions? The rationale for mandatory disclosure ha s been expressed on
many occasions and in va rious ways.5 One of the earliest expla nations
is also one of the best. It comes from the judgment of Lord Mansf‌ield in
Carter v Boehm.6 The facts are unique by today’s standa rds, but the legal
analysis ha s endured 250 years of caselaw and legislation. It is a case
worth reviewing in con siderable detail.
a) Carter v Boehm
In Carter v Boehm, the insured was the governor of Fort Marlborough,
a trade settlement that was bui lt by the East India Company between
1714 and 1719 in a city that is now known as B engkulu, located in the
Republic of Indonesia. On 22 September 1759, the governor applied
for insurance with a London underw riter, located more than 11,000
kilometres away. In due course, a policy was issued covering Fort Marl-
borough against many peril s, including the settlement’s capture or de-
struction by any European enemy. Alas, on 1 April 1760, during the
term of the policy, a group of sixty-four French soldiers attacked Fort
2 A contract may be re scinded in the event of fraud: Ab ram SS Co v Westville Ship-
ping Co, [1923] AC 773 (HL). In addition, there is the tor t of deceit: Derry v Peek
(1889), 14 App Cas 337 (HL).
3 Hedley Byrne & Co Ltd v Heller & Part ners Ltd, [1964] AC 465 (HL) [Hedley
Byrne]; BG Ch eco International Ltd v Brit ish Columbia Hydro & Power Authority,
[1993] 1 SCR 12; Queen v Cognos Inc, [1993] 1 SCR 87. For an application of the
Hedley Byrne doct rine in the insura nce context, see Fletcher v Manitoba Public
Insurance Corp, [1990] 3 SCR 191 [Fletch er]. Fle tcher is discus sed in Section B(4),
below in thi s chapter.
4 For an excellent academ ic review of how the common law treat s silence in the
marketplace, s ee Kim Lane Scheppele, Legal Secrets: Eq uality and Eff‌iciency in
the Common Law (Chicago: Universit y of Chicago Press, 1988).
5 See, for example, Greenhill v Federal Insurance Co, [1927] 1 KB 65 at 76 (CA),
Scrutt on LJ.
6 (1766), 97 ER 1162 (KB).

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