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

4.118 We think the test should take into account any particular circumstances of the
insured known to the insurer. This fits with the notion of “know your customer”. In
discussions the FOS supported this approach:
In so far as factors of age, infirmity, limited mental capacity, poor
command of language or limited literacy are known to the insurer then
there would seem to be a strong public policy argument for the law not
permitting the insurer to simply ignore these characteristics of their
customers.
4.119 We provisionally propose that:
(1) An insurer should not be able to rely on a misrepresentation if the
insured was acting honestly and reasonably in the circumstances
when they made the misrepresentation.
(2) In assessing reasonableness, the type of policy, the way the policy
was advertised and sold, and the normal characteristics of
consumers in the market should be taken into account.
(3) The test of whether the consumer proposer acted reasonably
should also take into account any particular characteristics or
circumstances affecting a consumer insured, so far as these were
known to the insurer. It would not take into account individual
circumstances which were not known to the insurer.
A single test of whether the consumer acted reasonably?
4.120 We have explained that a consumer may have made a misrepresentation
reasonably either because they had reasonable grounds for believing what they
said was true or because they reasonably thought that any inaccuracy or
omission was not relevant to the insurer. 67 A further question is whether any new
legislation should contain provisions dealing with the “two limbs” separately, so
that there is an explicit statement of the new “relevance” test, or should contain
simply a more general test of reasonableness. The test could state that an
insurer will not have a remedy against an honest insured if they acted in the way
a reasonable consumer would have acted in all the circumstances. However
relevance appears to be such an important question in insurance cases that we
would welcome views on whether any new Act should include, as part of the
general principle, a statement of the test of relevance along the lines indicated
earlier. 68
67 See paras 4.107 and 4.108 above.
68 The Australian Insurance Contracts Act 1984 provides interesting alternative formulations.
S 23 deals specifically with ambiguous questions and states that where
(a) a statement is made in answer to a question asked in relation to a
proposed contract of insurance…; and
(b) a reasonable person in the circumstances would have understood the
question to have the meaning that the person answering the question
apparently understood it to have;
that meaning shall, in relation to the person who made the statement, be
deemed to be the meaning of the question.
98