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

Reckless misrepresentation
4.65 In the responses to our first Issues Paper there was also some confusion over
our intentions in cases of recklessness. Some readers gained the impression that
we thought that insurers should not have an automatic right to avoid the policy for
reckless misrepresentations. Again, this was not our intention. In our view a clear
distinction should be drawn between negligence, which is just carelessness but
does not involve dishonesty, and recklessness. Making a reckless misstatement
is not honest and in our view should be treated in the same way as making a
deliberate misrepresentation, as it is for general civil fraud.
The FOS categories: deliberate or reckless rather than inadvertent
4.66 At present, the FOS states that it will allow an insurer to avoid a policy where:
(1) customers deliberately mislead the insurer by dishonestly providing
information they know to be untrue or incomplete; or
(2) customers mislead the insurer by recklessly giving answers without
caring whether those answers are true or false. 44
4.67 At first sight this definition looks very like the civil definition of fraud which we
intended to follow. In Derry v Peek, 45 Lord Bramwell was careful to distinguish a
lack of interest in whether a statement is true (which is equivalent to fraud) from a
“lack of reasonable ground for believing it to be true” (which is merely negligent).
4.68 However, the word “reckless” has the potential to confuse. Some statements by
the FOS suggest that it is using the reckless category to include gross or serious
negligence, rather than a form of dishonesty. In 2005, Ombudsman News gave
the following example:
An example of recklessness might be where a customer signs a blank
proposal form and leaves it to be filled out by someone else. The
customer has signed a declaration that ‘the above answers are true to
the best of my knowledge and belief’, but does not know what those
answers will be. 46
4.69 Signing a blank form is almost certainly careless. It may be thought to be
extremely careless. However, it is not necessarily dishonest. Clearly if someone
suspects that an agent will fill in the wrong answers, and does nothing to stop
them, this is reckless. On the other hand, if the customer has given an agent the
necessary information and trusts them to complete the form correctly, this is
foolish rather than fraudulent. 47
44 Ombudsman News (June 2005) Issue 46.
45
(1889) LR 14 App Cas 337.
46 Ombudsman News (June 2005) Issue 46.
47 As we explain in Part 10, an insurer may be able to avoid the policy on the basis of their
own agent’s dishonesty, but this will depend on the agent’s state of mind. If the agent
made a careless mistake that the insured failed to check, both have been negligent but
neither has been dishonest.
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