What is Material Fact?
A material fact is a fact which will affect the judgement of a prudent insurer in considering whether to accept or to reject a risk and if accepted, at what rate of premium and under what terms and conditions. This fact is to be disclosed at the time of giving a proposal for insurance by the insured.
Material facts to be disclosed
The following are the Material Facts to be disclosed in insurance.
1. Facts that show that the particular risk being is greater because of individual, internal factors that would be expected from its nature or class;
2. Similarly if external factors make the risk greater than normal;
3. Facts that would make the likely amount of loss greater than the normally expected;
4. Previous losses and claims under other policies;
5. Previous refusal to insure or adverse terms imposed on previous proposals by other insurers;
6. Facts restricting subrogation rights, due to the insured relieving third parties of liabilities they would otherwise have;
7. Existence of other non-indemnity policies such as life and accident;
8. Full facts relating to the description of the subject matter of insurance.
Examples of material facts requiring disclosure
1. Fire insurance: The construction of the building, the nature of its use, fire detection and fire fighting equipment. Life Insurance: Age, previous medical history, occupation and smoking / drinking habits.
2. Marine Insurance: Cargo insurance — the terms of sale, mode of carriage whether containerized.
3. Motor Insurance: The type of car, whether it has been specially adapted, details of regular drivers and the model.
4. Theft Insurance: The nature of stock, its value and other nature of security precautions.
5. Personal Accident Insurance: Age, height, weight, previous medical history and occupation.
Material Facts not to be disclosed
In certain circumstance, the insured is not required to disclose certain facts, even if they are material. Such facts do not affect judgement of the insurer. They are as follows:
1. Facts of Law: Everyone is deemed to know the law.
2. Facts that an insurer is deemed to know: Facts of common knowledge, such as the existence of a state of war or facts which should be known to the insurer in the ordinary course of his business as for instance, that cars used by commercial travelers are as a rule costlier to insure than those used for private pleasure purposes only. Under this heading comes general topics of speculation e.g. the possibility of a bad season.
3. Facts that lessen the risk: The existence of an alarm system in a theft risk or sprinklers in a fire risk.
4. Facts covered by policy conditions: A fact that it is superfluous to disclose by reason of any expressed or implied warranty, for example, that burglar alarms are regularly maintained.
5. Facts that the insurer s survey should have noted: Material facts that are clearly visible or which any reasonable surveyor would enquire about. On the other hand the proposer is not permitted to conceal material matters from the surveyor.
6. Facts about which the insurer has been put on enquiry: The most common example is where the proposer has referred the insurer to the claims record under a previous policy or with a previous insurer, and the insurer does not follow up this line of enquiry. The insurer will be regarded as having waived his right to the full information.
7. Facts that the proposer does not know: One cannot be expected to disclose what is outside one’s knowledge, but if it should have been within that knowledge, their duty is to disclose it.