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In Pan-Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 WLR 677 the House of Lords restated the law as to the test of materiality of facts which are required to be disclosed by a proponent and in doing so overruled in part the decision of the English Court of Appeal in Container Transport International Inc v Oceanus Mutual Underwriting Assoc (Bermuda) Ltd [1984] 1 Lloyd's Rep 476 (Oceanus). The case concerned a contract of reinsurance of certain liability insurance risks underwritten by Pan-Atlantic, the re-insurance being effected with Pine Top to the extent of 50 per cent of excess of loss above a certain figure. Disastrous losses on the direct insurance were suffered by Pan-Atlantic and Pine Top sought to avoid liability on the treaty of re-insurance on the ground that the broker who negotiated the cover on behalf of Pan-Atlantic had failed to disclose the true loss suffered by his principal as direct insurer in the previous five years. That loss record was so bad that no prudent insurer would have entered into the contract of re-insurance on the terms agreed by Pine Top. A further ground relied upon by Pine Top as a basis for denying liability was misrepresentation associated with the non-disclosure.
It was accepted by their Lordships that, although the issues arose under a policy of non-marine insurance, it was appropriate to state them by reference to the Marine Insurance Act 1906 (UK) since the authorities established that in relevant aspects the common law relating to the two types of insurance was the same and the Act embodied a partial codification of the common law: see Lord Mustill at 683 and 705. The relevant sections of the Act were ss 17, 18(1)and(2), 20(1)and(2) and 91(2) (ss 23, 24(1) and (2), 26(1), (2) and (4), of the Marine Insurance Act 1909 (Cth)) dealing respectively with the obligation of the utmost good faith, the duty to disclose every material circumstance known to the assured, the test of materiality (namely, every circumstance which would influence the judgment of a prudent insurer in fixing the premium or determining whether he or she would take the risk), the obligation not to make a material misrepresentation and the continued application of the...