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

4.98 We ask whether, where an insured has made a deliberate or reckless
misrepresentation, the insurer should be entitled to retain the premium.
4.99 We ask whether the statute should provide expressly that:
(1) a proposer would be presumed to know what someone in their
position would normally be expected to know; and
(2) if an insurer has asked a clear question about an issue, the
proposer would be presumed to know that the issue is relevant to
the insurer.
INNOCENT MISREPRESENTATIONS: PROTECTING THE INSURED WHO
ACTED HONESTLY AND REASONABLY
4.100 We have said that the consumer insured’s current duty of disclosure should be
replaced by a clear statement that they have a duty to be honest and careful in
ensuring that their answers to questions, and any other statements they
volunteer, are accurate and complete. Conversely, if a consumer insured has
acted both honestly and carefully (that is without negligence) in giving precontract
information, the insurer should not be entitled to refuse to pay the claim,
or to avoid the policy, on the ground that there was a misrepresentation.
4.101 This would be a change to the current law, but is no more than was required by
the ABI Statement of Practice, 59 and is currently required by both the FSA Rules 60
and expected by the FOS. 61 We propose that for consumer cases this should
also be the law, as it is in many other jurisdictions. 62
59 See para 3.5 above.
60 The FSA Rules are contained in the Investment Conduct of Business Sourcebook (ICOB)
and the Conduct of Business Source Book (COB). For the restriction of the right to avoid
for misrepresentation see ICOB Rule 7.3.6 and COB Rule 8A.2.6.
61 See para 3.22 above.
62 Norway, Insurance Contracts1989 Act § 4-2 (no remedy unless blame “more than merely
slight”); Sweden, Insurance Contracts Act 2005, Chapter 4 s 2; and, we understand, under
the proposed scheme of the European Restatement Group, save that the insurer would be
permitted to terminate for the future if it would not have concluded the contract had it
known of the information concerned. The French Code des Assurances, Art L 113-9
seems to allow a proportionate remedy for non-negligent and negligent misrepresentation.
The same is true under the proposals for reform in Germany, December 2006, VVG § 19.
(However, a French commentator has suggested that, like the duty to disclose that existed
until 1989, the duty in current French law to answer questions applies only to facts that are
known to the proposer: Lambert-Faivre, Droit des Assurances (11 th ed), Dalloz, p 245 at
para 317). The French provisions and the German proposals apply also to business
insurance. Australia also requires fault in that the test of materiality depends on the
reasonable insured and the insurer has no remedy for non-negligent misrepresentation:
Insurance Contracts Act 1984 s 26. In New York law, however, it makes no difference
whether the misrepresentation was innocent or fraudulent.
94