Insights

In the recent case Malcolm Vassallo (the “Plaintiff”) vs. Citadel Insurance p.l.c (the “Defendant”) decided on the 1 March 2023, the Honourable Judge Lawrence Mintoff was requested to determine and examine what constitutes a “material fact” and the “non-disclosure of a material fact” when purchasing an insurance policy. The case was decided before the Court of Appeal (sitting in its inferior jurisdiction) (the “Court”).

Background

By way of background, back in 2015 the Plaintiff suffered major damages to his car due to a fire which broke out in a complex of garages in which the Plaintiff used to keep his car. The Plaintiff, a customer of the Defendant, requested that he be paid the amount of €35,000 (being the value of the car, prior to the fire), from the Defendant. This request was made based on the fully comprehensive insurance policy which the Plaintiff had with the Defendant.

Upon receipt of such claim, the Defendant stated that the insurance policy which had initially been taken out by the Plaintiff was null and refused to pay the €35,000 which was being requested. The Defendants claimed that upon entering into the insurance contract with the Plaintiff, the Plaintiff had provided incorrect information, which information was to be treated as constituting a material fact.

The Plaintiff brought an action before the Tribunal for Arbitration whereby he requested that the Defendant pays him the €35,000 damages which he suffered as a result of the fire which broke out.

The Defendant rebutted the Plaintiffs claim and stated that the insurance policy should have been declared null ab initio due to the fact that (as claimed by the Defendants), the Plaintiff provided the insurance company with incorrect information when taking out the insurance policy.

Tribunal for arbitration

The arbitrator referred to the case of Carter vs. Boehm (1766), whereby Lord Mansfield stated that:

“Insurance is a contract based upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as if it did not exist. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.”

The Doctrine of good faith

The arbitrator went on to refer to the doctrine of good faith and stated that the obligation is on the person requesting the issuance of the insurance policy to ensure that a full disclosure of all material facts is made, at the point of such request.

Material facts     

The arbitrator stated that unlike other laws, Maltese law does not outright state that which is to be considered as a material fact.  Many a time it is the arbitrator/judge who would have to make such an assessment, and one would do so by “stepping into the shoes” of the insurance company, and assessing whether, on the basis of the “missing information”, the insurance company would have onboarded the insured as a client.

The arbitrators decision        

After having assessed a number of factors vis-à-vis the relationship between the Plaintiff and the Defendant, the arbitrator ruled that the Defendant would have nonetheless onboarded the Plaintiff as a client, regardless of whether or not such facts (which the Defendant is claiming to be material) would have been disclosed at time of onboarding.

The Defendants stated that had they known the Plaintiff was previously involved in a fight and had previously been found guilty of causing grievous injuries to a third party, they would not have onboarded the client, and would not have issued the insurance policy (the “Non-Disclosed Fact”)

The arbitrator claimed that the Defendants failed to prove sufficient reasons to justify why the Non-Disclosed Fact amounted to a material fact and hence decided in favour of the Plaintiff and requested the Defendant company to pay the sum of €34,500 to the Plaintiff.

The appeal

The Defendant felt aggrieved with the above decision and proceed with the appeal in question. The Defendant requested the Court to revoke the decision taken by the arbitrator (as detailed above), and put forward the following claims:

• That the proposal form entered into between the Plaintiff and the Defendant constituted the “law” between the parties;
• That the information gathered through the proposal form contained crucial information, on which the Defendant relied upon when determining whether or not to issue the insurance policy; and
• The incorrect information provided by the Plaintiff should result in the invalidity of the insurance policy.

The Plaintiff claimed that the appeal being brough by the Defendant was invalid, given that in accordance with Article 69A (2) and Articles 70A and 70B of the Arbitration Act (Chapter 387 of the Laws of Malta), recourse from an arbitration award must be appealed on a point of law, or on both points of fact and points of law.

The Courts decision

The Court agreed with the Plaintiff and abstained from deciding the appeal. The Court thus confirmed the decision which was taking by the arbitration tribunal.

The article was first published in The Malta Independent (15 March 2023).