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

Though it brings together the two questions, we have no quarrel with this
statement. The conclusion being reached is that the policy holder knew that the
statement was incorrect and must have known that the statement might be
relevant to the insurer. We agree that in this sort of case a finding of recklessness
is justified.
4.75 However, saying that a policyholder must have known is very different to saying
merely that they ought to have known. The latter is only negligence. It is not
dishonest and in our view it should be treated differently. As we explain later, in
cases of negligence the insurer should not have an automatic right to avoid. We
think that the outcome should depend on what the insurer would have done had it
known the truth. 52 This should apply even where the negligence was more than
slight carelessness.
4.76 We have received comments in response to our Issues Paper arguing that it is
essential to allow the insurer to avoid a policy as of right when, for example, the
proposer has not revealed that they are a smoker. We think our proposals would
have this effect. A proposer who smokes knows that they do so. If in answer to a
specific question, for example “do you smoke or have you done so in the last x
years”, they answer “no” when the true answer is “yes”, the only possible
conclusion is that they were at least reckless or most probably deliberate – they
“must have known”. 53
4.77 What this shows is that there is a need for clearer guidance on the difference
between acting without the requisite degree of honesty – “deliberately or
recklessly” – and acting without the requisite degree of care.
Our definition
4.78 In our view, an insurer should be entitled to avoid the policy if the proposer has
made a deliberate or reckless misrepresentation, that is, if they make a
representation which they both:
(1) know to be untrue (or know may be untrue, and make nonetheless, not
caring whether or not it is true); and
(2) know to be relevant to the insurer (or know may be relevant and do not
care whether or not it is relevant).
There are several points to make about this definition.
Motive is not relevant
4.79 First, motive is irrelevant. It is not necessary for the insurer to show that the
proposer was attempting to get something for nothing. They may, for example,
fail to mention a previous bout of depression because they are embarrassed by it,
rather than because they wanted cheaper insurance.
52 See para 4.154 below.
53 The proposer might be able to rebut the natural presumption that they must have known by
showing that the form was so badly designed that they ticked the “no” box meaning to tick
the “yes” box, but it would take some doing. If so, the remedy is in the insurer’s hands.
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