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

...the reasonable expectation of the ordinary policyholder for life
assurance would surely be that, where the details of a doctor are asked
for, he would be approached by the assurer and would supply all
relevant details before the proposal could be accepted... Indeed, many
people wonder why assurers ask for such details if they only intend to
use them if a claim is made. By underwriting the risk without carrying out
full enquiries at the underwriting stage, the assurer lulls the policyholder
into a false sense of security that he has cover when the reality is that
he has none because as soon as a claim is made, the assurer will write
to his doctor and discover the information then said to be material. If it is
that material, it should have been investigated earlier and the risk
declined or a higher premium charged, or cover restricted. 71
Failing to check available databases
4.132 As the National Consumer Council has noted, 72 insurers may have access to
relevant information through various databases. At present there is no general
obligation on insurers to check these databases at the time of an application,
mid-term adjustment or renewal.
4.133 One example is the Claims and Underwriting Exchange, which is a database of
incidents reported to subscribing insurers and which may provide a more
accurate record of past claims and losses than policyholders can give from
memory. Another example is information about flood risks. It may not be
unreasonable for a consumer to assume that the insurer will be well-informed of
the known risk in the particular area. 73
Failing to check own files
4.134 There have also been complaints where insurers have failed to check their own
files. Professor Clarke points to the approach of other jurisdictions:
In the United States and in Canada, if insurers fail to look in their data
files, they are deemed to have waived disclosure of the information
which the files contain. So should it be in England today. 74
The general problem
4.135 In our first Issues Paper, we considered whether special rules were needed to
deal with cases of this type. The difficulty is that the law cannot be prescriptive
about what checks an insurer should carry out in any given circumstances.
71 The Insurance Ombudsman Annual Report (1993) paras 6.52 to 6.53.
72
National Consumer Council, Insurance Law Reform: the consumer case for review of
insurance law (May 1997).
73
In fact the insurer will need this information to ensure it complies with the ABI commitment
on flood cover - http://www.defra.gov.uk/corporate/ministers/statements/em051111.htm
(last visited on 22 June 2007).
74 MA Clarke, The Law of Insurance Contracts (4 th ed 2002).
101