In a judgment in the lower court in a reinsurance non-disclosure case the judge referred to what ‘could’ have happened if certain loss statistics had been produced whereas the relevant test was what ‘would’ have happened in that situation. The appeal court held that people, including judges, do not always speak with precision in the use of modal verbs and the use of the wrong verb did not make the judgment appealable on the grounds that the court applied the wrong test.
When application was made for leave to appeal the judge in the lower court said that he had indeed applied the test of what would have happened. The appeal court proceeded on the basis that the judge was throughout referring to what would have happened and not to what could have happened and this had been clarified by the judge at the time of applying for leave to appeal. The ground of appeal that the wrong test was applied was dismissed.
There is a famous passage by the philosopher David Hume where he observes that many writers make claims about what ought to be on the basis of statements about what is. This impermissible change, he graphically says, is imperceptible but is ‘of the last consequence’.
In South Africa section 53 of the Short-term Insurance Act requires the representation or non-disclosure to be likely to have materially affected the assessment of the risk. The test of materiality is whether the information should have been disclosed so the insurer could form its own view as to the effect of the information on the assessment of the risk. There is therefore also an inducement element in SA law.
[The case is AXA Versicherung AG v Arab Insurance Group (BSC)]