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

This would effectively replace the “prudent insurer” test under section 20. We do
not think it necessary to retain the “prudent insurer” test within our reformed
scheme. To do so would make it necessary for the insurer to show not only that
the consumer should have known that the inaccuracy or omission was relevant to
them, but also that the inaccuracy or omission would have been relevant to the
“prudent insurer”.
4.127 This change may help insurers, since the current “prudent insurer” test may
cause problems to innovative insurers. Some insurers may wish to develop niche
markets, by selecting which risks they underwrite on facts that seem irrelevant to
the generality of insurers. For example, an insurer may set premium rates on the
basis that all their policyholders are members of a particular profession or union.
This means that a question about occupation may be crucial to them, even if it is
irrelevant to most prudent underwriters. The insurer may ask a clear question,
which succeeds in communicating the importance of the question to a reasonable
policyholder. However, there is a danger under the current law that the insurer
might be left without a remedy. The fact will not be material because it will fail the
first limb of the Pan Atlantic test: the representation would not influence the
judgement of the hypothetical prudent insurer, as required by section 20(2).
4.128 We do not see any reason to add to an insurer’s burden by requiring that it also
show that the information would have influenced the judgement of other
hypothetical insurers in the market. Under our proposed scheme, the materiality
test, as presently understood, would no longer apply.
4.129 We provisionally propose that insurers should not be required to prove that
a misrepresentation is “material” in the sense that it would be relevant to a
“prudent insurer”.
WHERE THE POLICYHOLDER THINKS THE INSURER WILL OBTAIN THE
INFORMATION
4.130 A common reason why consumers do not fill in forms completely is because they
think the insurer already has access to the information and will check it for itself.
In one survey, the main reason consumers gave for failing to provide all the
relevant information on their medical history was that they assumed the insurer
would ask their doctor. 70 Similarly, problems may occur where the insured knows
that the insurer holds detailed information about previous claims, or is in a much
better position to check an area’s flood history. Below we summarise some of the
complaints that have been made.
Authority to receive GP reports
4.131 There have been many complaints about the confusion that may occur where
insurers ask for authority to obtain GP reports, and then do not obtain them. In
1993, Dr Julian Farrand, then Insurance Ombudsman, drew attention to the
problem:
70 Swiss Re Life and Health, The Insurance Report (2005) p 28.
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