Author: Samarth Sharma, 2nd Year student at Bennett University.
CITATION: (1766) 3 Burr 1905, 97 E.R. 1162
DATE OF DECISION: N/A
BENCH: Mansfield
ORIGINAL COPY: View
BACKGROUND OF CASE:
- Fort Marlborough, which was built by the East India Company on the island of Sumatra in Indonesia, was under the authority of Governor Carter who is the defendant.
- There was a possibility of the fort of likely being under attack so Carter wanted to insure the fort, hence he came into a contract with Mr. Boehm, who is the plaintiff, agreed on insuring the fort, were the contingency was the fort will be taken by a European enemy between October 1758 – October 1760, the policy was given its signature of approval in May 1760.
- It was further seen that the fort had already been a subject of attack in April 1760 by the French. The matter was tried by Lord Mansfield before a jury consisting of merchants in April 1776, where a verdict was in favour of Carter. Lord Mansfield’s celebrated judgement was the result of a motion for a retrial.
- The essence of the application was in circulation with the fact that there was commission of fraud and concealment of facts viz. the frailness of the fort and the possibility of it being under attack by the French.
ISSUE IN QUESTION:
- Whether there has been fraud, through concealment of facts from the insured to the insurer?
DECISION:
- Lord Mansfield held that Carter was not responsible to follow his duty with utmost good faith and was responsible for the disclosure of important information which would have in general decided the outcome of the insurance policy to come into existence. He stated that “insurance is a contract of speculation”.
- Here, the actual information about the entire fort is known to the insured, meaning the ability of it to withstand an attack to its strength as a unified structure. The insurer on the other hand, is under reliance and trust with the facts and information given to him by the insured himself. It is the duty of the insured not to keep the insurer in the dark, with regards to the facts concerning the insurance policy of the fort. So, hence the concealment of facts or not telling them to the insurer makes the policy void, it is because due to the concealment of vital information in the course of the contract, the risk which is run is different with the risk which is understood with the intention of it being run. This duty is to be followed by both the individual parties for the performance of the contract. The principle is having its applicability towards all forms of dealings and contracts.
- The principle of good faith is responsible to forbid a party from disclosing information which is already aware of to the individual to whom the contract is being undertaken with, this disclosure is for drawing the other individual into a bargain from his ignorance of fact and his belief towards the contrary.
- The insurer need not be knowing all the general information, but should be equipped with the vitals regarding the essence of the contract, in this case the structure and strength of the fort and the possibility of an attack from an enemy with which the fort’s foundation is not fit to withstand.
- Where an insurance is given to a private ships of war, the insurer needs to be given the information regarding the enterprises to whom they are destined upon, as from the nature he knows that some information must be in view and depending upon the very nature of the contract, information is waived.
- There was an acceptance of the general rule of insurance that the insured is only required to discover facts, not notions or guesses which he would entertain, based on such information, which was from the counsel for Governor Carter.
- The reason for the specific rule is for the parties for not disclosing vital facts which would be responsible for the prevention of fraud and for encouraging good faith.
- The nature of the contract is a subject to be varied upon the disclosure of such facts which an individual only knows privately, where the other is under ignorance of that fact and further does not have a valid reason for suspecting.
- Therefore, it all comes down to the fact that whether there was a fair representation during the time the policy was undertaken or there was concealment of vital information.
ANALYSIS
- The general understanding circulates regarding the notion of distribution of information. It is to be seen that in this particular case, concealment of vital information on which the entire policy is revolving around.
- What is included as vital information in this scenario, the strength and structure of the fort, the fact that the fort was already not in a state to be maintained under attack, the ability of the fort to withstand a foreign attack from the French will also be taken into account, as the fact that the fort could withstand the force of local enemies but the impact of a foreign enemy will render the fort damaged.
- Disclosure of information should not be undertaken as it will contradict the fact of the contract being undertaken in the first place. Keeping back such information will only render the insurer not aware about the entire situation of the contract and the policies concerning the said contract. The insurer was not having the idea of insuring the fort being a subject to attack of the French troops but from local enemies.
- Taking the example where, a broker is responsible for selling a share of property, and does not disclose the vital facts pertaining to the property, like for instance the water supply, and misleading the buyer into believing that the property is equipped with a healthy water supply, which would in turn make the buyer buy the house without knowing the actual problem, making a mistake in his judgement.
- The concealment of facts will come under fraud and the insurance policy will be rendered void. This case was responsible for the introduction of the doctrine of good faith. This is valid and is applicable for both parties entering a contract. Lord Mansfield even stated that the guiding concept of “good faith” applies to “all contracts and dealings.”