On buying a new vehicle, one finds himself at the crossroads when deciding on the type of insurance cover he is willing to pay for to cover his shiny new car. Whether third-party cover is enough or whether the proud new owner of that shiny BMW X5 should opt for fully comprehensive cover is one of the most important decisions the vehicle owner must take at that juncture.

On March 1, 2023, the court of appeal in its inferior jurisdiction delivered a judgement which stemmed from an insurance claim opened in 2015 (case reference: 96/2022 LM).

Back in 2015 the claimant had fully-comprehensive insurance cover for his vehicle. On April 20, 2015 his vehicle burst into flames while in a garage complex in San Pawl il-Baħar. The claimant turned to the insurance company and filed a claim based on his fully-comprehensive insurance cover, whereby he claimed the value his vehicle had prior to the fire, being that of €35,000.

To his disappointment, the insurance turned down his claim, refused responsibly and claimed that the insurance policy he held was null from the start, since according to the same insurance company, the information the claimant had provided the insurance company in the initial proposal form presented by him was incorrect.

The claimant proceeded to arbitration and claimed that the insurance company was obliged to pay him damages and expenses suffered as a result of the accident, also considering the value of the vehicle at the time of the accident, in all amounting to €35,000.

The value claimed was the value he had purchased the car at in 2014. Prior to insuring it, no survey had been undertaken, yet the insurance company had at the time accepted the premium based on that value, even though no proof of value had been brought to it by its client. The value of the 2012 vehicle was also supported by an inquiry, as it was given an estimated value of €34,500 prior to the fire.

The insurance company, not only rebutted the claimant’s claim, but also presented a counter-claim whereby it sought a declaration that the insurance policy was null and without any effect at law due to the false declaration made by the claimant in the proposal form.

Good faith forbids a party from drawing the other into a bargain from his ignorance of what the other party privately knows, due to a fact unknown to him and his believing to the contrary.

Whereas, the insurance company argued that the policy was null because the claimant had failed to disclose the fact that there had been a criminal judgement delivered against him, the claimant denied that there was any type of insurance fraud. The arbitration process continued for seven years.

Full disclosure of all material facts

Full disclosure of all material facts is of great importance to an insurance company, as it is what leads it to decide whether to accept a risk or not. Maltese law, however, does not specifically indicate what amounts to a ‘material fact’ or otherwise, thus such is decided on a case-by-case basis.

In this case, the arbitrator had to place himself in the insurance company’s position in order to determine whether it would have accepted the risk had it known of this ‘mysterious’ fact, and such without considering the actual fact that the accident being claimed did eventually occur.

The arbitrator also gave weight to the fact that the insured did not have any prior claims with the insurance company, notwithstanding that he has several other vehicles, boats, a jet-ski and his home insured with the insurance company, and also the fact that he had been insured with the insurance company for several years. Moreover, it also considered that the criminal case the claimant had been involved with was in no way related to fraud or motor vehicle accidents, and neither was it linked to theft or fire.

It transpired that the claimant had been involved in a fight and had been found guilty of causing grievous injuries to the other party.

The insurance company claimed during proceedings that had it known it would not have assumed such a risk, as it considered that the claimant was prone to ‘ revenge attacks.

The arbitrator was not convinced of the reasons brought by the insurance to justify the reason given for the matter to be considered as a material fact.

The arbitrator considered that the insurance company would have probably still accepted to continue to insure the claimant had he disclosed his record and explained what had happened.

This reasoning led to the arbitrator to decide in favour of the claimant, and it was decided that the insurance company was not justified in deciding not to honour the claim made by the claimant.

Decision and appeal

The arbitrator awarded the claimant €34,500.

The insurance company appealed the decision in July 2022 and claimed that the proposal form was the law between the parties and that any false information given should have led to the invalidity of the insurance policy.

The claimant argued that the appeal itself was invalid since it was based on a principle of fact and not of law, which in itself precluded the court of appeal to consider this appeal.

Thus the decision delivered in arbitration was confirmed on appeal on March 1, 2023. This means that the claimant is now to finally receive the funds he claimed back in 2015 from his insurance company, together with expenses.

This decision is final and may not be appealed further.

Dr Rebecca Mercieca is Senior Associate, Azzopardi Borg & Associate.