Misrepresentation, Non-Disclosure and Breach ... - Law Commission

4.62 We stress this point, because some of those who responded to the Issues Paper
argued that any knowingly untrue statement should entitle the insurer to avoid the
policy if he relied upon the misrepresentation. According to this argument, a
proposer who knowingly makes any untrue statement disqualifies himself from
protection against avoidance of the policy. To require the insurer to prove in
addition that the proposer knew that the statement was relevant to the insurer, or
was reckless as to whether or not it was relevant, would be to impose an
unreasonable burden upon the insurer. Our provisional view, however, is that the
insurer should not have an automatic right to avoid on the ground of a deliberate
or reckless misrepresentation unless the proposer knew that the fact was, or at
least might be, relevant to the insurer. Suppose that a proposer has suffered
minor problems with asthma, but is told by her doctor that insurers are only
interested in serious asthma attacks requiring use of a nebuliser or
hospitalisation. The proposer therefore honestly believes that the minor asthma is
not material and she answers the question, “do you suffer from asthma?”, “no”. 41
On these facts, we do not think the insurer should have an automatic right to
avoid. If the proposer acted unreasonably, the insurer’s remedies should depend
on what it would have done had she answered the question correctly. 42
4.63 The same would be true if the proposer had genuinely misunderstood what a
question on the proposal form was seeking. For example, suppose the question
is, “have you suffered any uninsured losses during the last two years?” The
proposer answers “no”, although she knows perfectly well that, the week before,
her child spilled candle-wax on a carpet, which is not a loss covered by either her
existing policy or the one for which she is applying. If she genuinely thought that
the insurer was only interested in previous losses of a kind that would be covered
by the new policy, the insurer should not have the same automatic right to avoid
as if she had known that the incident was relevant and had deliberately not
mentioned it.
4.64 Of course it may not be possible to give direct proof that the proposer knew that
what they said was untrue and relevant, particularly when the proposer is no
longer alive. But in many of the examples quoted to us, the evidence is
overwhelming. If a proposer answers a clear question by saying that they have
never smoked when in fact they smoked 20 cigarettes a day, they are certainly
making the statement knowing that it is untrue. It is also difficult to believe that
someone does not know that the issue is relevant to an insurer when, first, the
insurer has asked a specific question and, secondly, the link between smoking
and health is almost universally known. 43 It is important that the definition and the
standard of proof allow insurers routinely to avoid contracts in these
circumstances.
41 See para 9.2 below.
42 See para 4.154 below.
43 A policyholder might have a possible defence if they could show they were illiterate or did
not speak English, but the onus would be on them to show how the mistake had
happened. We anticipate that this would be quite difficult. If the insured had used their own
agent, and the agent had acted dishonestly, the insurer would still be entitled to avoid (see
Part 10).
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