The First Hall of the Civil Court, presided over by Mr Justice Mark Chetcuti in the case “Middlesea Insurance plc v Emanuel Ciantar and others” held, among other things, that the non-disclosure of a material fact and a false representation on the proposal form entitled the insurance company to cancel the policy.

The facts in this case were as follows.

Middlesea Insurance insured three cars belonging to Emanuel Ciantar: a Hyundai Tuscan, a Nissan and a Peugeot Partner, in terms of chapter 104 of the Laws of Malta. One policy was comprehensive, and the other two, covered third-party risks. The policies were last renewed on April 22, 2010, March 1, 2010, and September 1, 2009, respectively.

Later, Middlesea discovered that at the time the proposal forms were completed, Ciantar failed to disclose a material fact, in violation of the utmost good faith principle, applicable to contracts of insurance. It was stated that he made a false declaration.

The Peugeot car was involved in a serious traffic incident in Attard, where minor twins were run over, by his son. Ciantar did not inform the insurance company of his and his son’s criminal record, and that his previous insurance company, Thomas Smith Insurance refused to insure him, even though he was expressly asked this question on the proposal form.

An assured had to give a clear reply on the proposal form and was duty-bound to mention all reasonable facts which he felt, were relevant for the insurance company, even if not asked. If the assured failed to disclose all relevant information, the insurance company had a right to request the dissolution of the policy, if the omitted details would have influenced its decision in relation to the policy.

The proposal form was an integral part of the policy of the insurance and a false declaration on the form was equivalent to a false declaration on the policy. The insurance company put forward the argument that the policies taken out by Ciantar should be cancelled on grounds of non-disclosure of a material fact or by a false representation of a fact on a substantial matter.

Faced with this situation, Middlesea Insurance proceeded to take legal action in terms of sub-article (3) of article 10 of chapter 104. It deposited the premium paid by Ciantar on the last renewal in court as Ciantar refused to accept the refund of payment and requested the court:

• To declare that Ciantar had purchased the policies by non-disclosing a substantial fact or by making a false representation;

• To declare that it had a right to annul the policy in terms of article 10(3) of Chapter 104; and

• To declare that it was not obliged to pay any sum under the policies to Ciantar.

In reply, Ciantar contested the legal action against him. He pleaded that except for the Hyundai, the other two cars were owned by a company which had distinct, separate personality from him. He said that the policy of the Peugeot had already expired on September 1, 2010, and that therefore the insurance’s claims could not be accepted. In addition, as regards the Peugeot, its action was time-barred. Ciantar denied making a false declaration.

During the proceedings, the Fund for Protection and Compensation and the Motor’s Insurers Bureau, intervened and were joined into the suit as defendants. They stated, in their defence, that the insurance was obliged to pay damages to third parties even if the policy for a car was null owing to the non- disclosure of a material fact.

They maintained that the proceedings were not integral, as the injured third party in the traffic incident was not a party to these proceedings and in this respect the court should dismiss the insurance company’s requests.

The court noted that there was non-disclosure of a material fact and a false representation by Ciantar. Thomas Smith Insurance had previously insured Ciantar but they cancelled his policy in July 2009. This case was filed on the basis of article 10 (3) of chapter 104:

“(3) No sum shall be payable by an authorised insurer under the foregoing provisions of this article, if, in an action commenced before, or within three months after, the commencement of the proceedings in which the judgment was given, he has obtained a declaration that, apart from any provision contained in the policy, he is entitled to avoid it on the ground that it was obtained by the non-disclosure of a material fact or by a representation of fact which was false in some material particular, or, if he has avoided the policy on that ground, that he was entitled to do so apart from any provision contained in it:

“Provided that an authorised insurer, who has obtained such a declaration as aforesaid in an action, shall not thereby become entitled to the benefit of this sub-article as respects any judgment obtained in proceedings commenced before the commencement of that action, unless before or within seven days after the commencement of that action he has given notice thereof by means of a judicial act to the person who is the plaintiff in the said proceedings specifying the non-disclosure or false representation on which he proposes to rely, and any person to whom notice of such an action is so given shall be entitled, if he thinks fit, to be made a party thereto.”

It was a cardinal principle that contracts of insurance were regulated by the utmost good faith re: A. Cassar Galea noe v Paul Cuschieri CA dated July 31, 1996.

An assured had to act in good faith during the whole period of insurance. The proposal form was an integral part of the policy of insurance and a false declaration on the form was tantamount to a false declaration on the policy (Antonio Zammit v Joseph Micallef noe , App Kum 31/01/1952; Joseph Micallef noe v Roman Vella, PA 06/04/1973; Joseph Muscat v Joseph Gasan et noe, App 06/10/1999; Salvu Briffa v Walter Camilleri noe, App 09/02/2001). A material fact was deemed:

“A fact is material for the purposes of both non-disclosure and misrepresentation if it is one which would influence the judgment of a reasonable and prudent insurer in deciding whether or not to accept the risk or what premium to charge.

“Reasonable insurer test. Everything is material which will guide a reasonable insurer in determining whether he will take the risk and if so, at what premium and on what conditions. (March Cabaret Club and Casino Ltd v Thomas and Bryant Ltd, 1975).

“The fact that proposer has suffered losses of cars on previous occasions has been held to be material (Fire and Motor Insurance: Ivamy third edition, 1978, p.203).”

The court noted that having a criminal record, driving without a licence, possession of drugs was a material fact, which should be disclosed to an insurance company. Ciantar knew that his son would use his car but failed to report information regarding his son. The use of drugs in itself was a material fact as it affected the ability of the driver. The court maintained that the fact that Ciantar did not inform his insurance company of his previous claims, was also a material fact which could have influenced the judgment of a reasonable and prudent insurance company in deciding whether or not to accept the risk. It clearly results, observed the court, that Ciantar had made a false declaration and had failed to disclose material information. The court dismissed Ciantar’s first two pleas: in the first Ciantar was the assured, and secondly at the time of the incident, the insurance was still valid.

Middlesea Insurance had brought sufficient proof of its allegations and had a right to revoke the policies, pointed out the court

Middlesea Insurance had brought sufficient proof of its allegations and had a right to revoke the policies, pointed out the court. Article 10 (1) of chapter 104 provides: “(1) If, after a certificate of insurance has been issued under article 4(4) to the person by whom a policy has been effected, judgment in respect of any such liability as is required to be covered by a policy under article 4(1) (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then, notwithstanding that the authorised insurer may be entitled to avoid or cancel, or may have avoided or cancelled the policy, the authorised insurer shall, subject to the provisions of this article, pay to the persons entitled to the benefit of the judgment any sum payable thereunder, in respect of the liability, including any amount payable in respect of costs and any sum payable in respect of interest on that sum and that sentence shall two days after it is notified on the insurer by judicial act constitute an executive act against the insured for all purposes of the Code of Organisation and Civil Procedure, and may be enforced against him.”

The court explained that the insurance company would be responsible to pay damages caused to third parties if this provision was to apply exclusively. But article 10 (1) had to be read in the light of sub-paragraph (3) of article 10 of chapter 104. Regulation 24 (2) (b) of Legal Notice 435 of 2003 had also to be construed in this way. If the insurance company could not invoke the exception under article 10(3), according to regulation 24, it would be held to be the responsible insurance company. Article 10 (3) was an exception to article 10 (1) and regulation 24 (2) (b) of Legal Notices 435/2003. In fact there were no conflicting provisions, the court said.

It followed, therefore, that if the insurance company did not take action in terms of article 10 (3) despite non-disclosure, it remained responsible for payment to third parties and remained the responsible insurance company.

In this case, however, Middlesea Insurance took legal action under article 10 (3) and proved the requisites under this provision. It was not responsible to pay damages to third parties if it results that the policy was obtained fraudulently by the non-disclosure of a material fact. The court said that Middlesea Insurance acted according to law, as regards third parties and notified them according to article 10 (3) chapter 104. Its judicial relationship was between itself and its assured.

For these reasons, on February 17, 2014, the Court of Appeal gave judgment by dismissing the defendants’ defence pleas. It accepted Middlesea Insurance’s requests, and cancelled the policies which concerned the relations between itself and Ciantar, the assured.

Dr Karl Grech Orr is a partner at Ganado Advocates.