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

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Warranties of fact in the policy 4.224 In consumer insurance it would not be adequate merely to require that the warranty must either be in the policy, or “contained in some document incorporated by reference to the policy”. 99 If all the law required were a clause in the policy that the insured warrants the truth of every statement made in another document, consumers would be no more likely to understand the effect than if the “basis of the contract” clause were in the proposal form. At the very least we think that in consumer insurance warranties of existing fact should be effective only if each fact warranted is specifically set out in the policy or in a schedule to it. However, we would go further. For reasons we explain below, we think that even warranties of specific fact in consumer policies should be of no effect. The Law Commission’s 1980 proposals: specific warranties of past or existing fact 4.225 The Law Commission’s 1980 report recommended that specific warranties as to past or existing fact should remain effective, subject to three provisos: (1) the fact warranted must be material (there would be a presumption that it was material); (2) once a claim had occurred, the insurer would not be entitled to refuse to pay the claim if the insured showed that the warranty was not intended to safeguard against the kind of event that materialised or that the breach of warranty did not increase the risk of the event occurring in the way it did; 100 (3) the insurer would not be permitted to rely on a breach of warranty unless the insured was supplied with a written statement of the warranty either at or before the contract was made, or as soon as possible thereafter. 101 4.226 It must be asked what purpose a warranty of this kind would serve. What rights would it have given the insurer over and above its rights under the Law Commission’s proposals on misrepresentation? The fact warranted would have to be material in each case. Because of the requirement for a causal connection, the right to refuse the claim (and also to cancel the policy) would be more restrictive than the right to avoid for misrepresentation. So it seems that the only advantage the insurer would get from obtaining a warranty of fact would be that the liability for breach of warranty would be strict – in other words, it might be able to avoid paying even though the insured was in no way at fault in giving the incorrect information. 4.227 We have already argued that consumers should not lose their rights when not only were they honest but they can show that they were not negligent. We have also reported the general agreement at the working seminars that this rule should be mandatory in consumer cases. It would undermine this to say that the insurer may achieve the same result by use of a warranty. 99 To use the words of the Marine Insurance Act 1906, s 35(2). 100 Draft Bill, Clause 10 (5)(a). 101 Insurance Law, Non-Disclosure and Breach of Warranty (1980) Law Com No 104. 118
Our proposals 4.228 Therefore we provisionally propose that, for consumer insurance, the legislation should adopt the approach taken by the Australian Insurance Contracts Act 1984, section 24. This provides that a statement by the insured about the existence of a current state of affairs should take effect only as a representation, not as a warranty. Where a statement is inaccurate, the insurer’s remedies should be those we have already proposed for misrepresentation (and would depend on whether the misrepresentation was deliberate or reckless, negligent or reasonable). This means that the insurer would need to show that the statement induced it to contract on those terms. It also means that an insurer could not avoid liability for a misstatement that was reasonable in all the circumstances, even if it was written into the contract as a warranty. 4.229 We provisionally propose that an insured’s statement of past or current facts made before a contract is entered into should be treated as a representation rather than a warranty. 119
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The Law Commission Consultation Pap
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THE LAW COMMISSION THE SCOTTISH LAW
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v Paragraph Page Innocent misrepres
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vii Paragraph Page Marine Insurance
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OUTLINE 1.1 This Consultation Paper
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• At present, consumers have a du
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• Any warranty should be set out
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PART 1 INTRODUCTION OUTLINE OF THE
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1.11 The 1906 Act therefore imposes
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(1) The insurer may use warranties
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1.17 When in 1980 the English Law C
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1.28 For most consumers with disput
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“Fairness” and reasonable expec
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1.50 The parties should be free to
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“Moral hazard” and the need for
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1.71 We think that consumers would
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1.80 We ask what the appropriate re
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(2) Appendix B is a report commissi
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Although the issues arise under a p
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Thus if, when a claim is made, the
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2.21 In both jurisdictions the vict
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(2) Before an insurer may avoid a c
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Subject to the provisions of this s
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Despite some contrary suggestions,
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Held covered in case of any breach
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(2) The warranty is relevant to onl
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2.61 Classification of the term is
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2.68 Such clauses elevate the answe
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These are often referred to as “c
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2.82 We accept that an exception to
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(d) readily available to any person
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2.101 If the term were not sufficie
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2.111 The law on warranties is simi
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(1) Each proposal form was required
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3.14 TCF is a valuable initiative w
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THE FINANCIAL OMBUDSMAN SERVICE 3.2
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Research project 3.32 When we start
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Case study: clear questions should
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3.43 These examples look only at th
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Warranties of fact 3.50 We did not
Page 81 and 82: (9) The FOS has more experience tha
Page 83 and 84: 3.63 There might of course be some
Page 85 and 86: The risk of legal challenge 3.72 We
Page 87 and 88: (3) BOTH HONESTLY AND CAREFULLY (OR
Page 89 and 90: 4.10 Some consultees have asked how
Page 91 and 92: 4.18 The FOS’s requirement that t
Page 93 and 94: General questions 4.21 As we have s
Page 95 and 96: 4.32 We provisionally propose that
Page 97 and 98: 4.43 We would also point out that a
Page 99 and 100: Criminal fraud 4.55 First, some ins
Page 101 and 102: 4.62 We stress this point, because
Page 103 and 104: 4.70 The issue is further confused
Page 105 and 106: Relevance 4.80 Secondly, our defini
Page 107 and 108: 4.92 However, we are not sure that
Page 109 and 110: Different ways in which policyholde
Page 111 and 112: Judging what is “reasonable” fo
Page 113 and 114: 4.121 We ask whether the legislatio
Page 115 and 116: ...the reasonable expectation of th
Page 117 and 118: 4.142 The proposer should take care
Page 119 and 120: 4.154 Few of the legal systems that
Page 121 and 122: 4.162 We accept the first argument
Page 123 and 124: No reinsurance 4.173 It may occasio
Page 125 and 126: Effect on future cover 4.183 The fo
Page 127 and 128: Reactions 4.195 This question excit
Page 129 and 130: 4.206 In Part 3 we identified one p
Page 131: 4.218 We provisionally propose that
Page 135 and 136: 5.5 We have therefore sought soluti
Page 137 and 138: (2) Similar protections would apply
Page 139 and 140: (1) The duty of disclosure has beco
Page 141 and 142: Thus if a business insured ought to
Page 143 and 144: 5.46 On the one hand, it seems righ
Page 145 and 146: 5.57 Insurance law is currently har
Page 147 and 148: 5.67 This is the same rule that we
Page 149 and 150: 5.76 We were told, for example, abo
Page 151 and 152: 5.86 We have already set out our pr
Page 153 and 154: Proving that an action was delibera
Page 155 and 156: Cancelling for the future 5.105 We
Page 157 and 158: (1) The law could allow statements
Page 159 and 160: 5.124 Is one approach better than t
Page 161 and 162: Controlling the use of standard ter
Page 163 and 164: However, the provenance of the term
Page 165 and 166: Reinsurance 5.153 Our starting poin
Page 167 and 168: 5.163 It is important to bear in mi
Page 169 and 170: 5.170 The same issues arise here. A
Page 171 and 172: PART 6 GROUP INSURANCE, CO-INSURANC
Page 173 and 174: 6.9 There may, however, be cases wh
Page 175 and 176: 6.18 We were told that whatever the
Page 177 and 178: 6.31 There is one question on which
Page 179 and 180: (1) Where a member has made a delib
Page 181 and 182: The FOS approach 6.48 In our survey
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6.59 In Part 4 we provisionally pro
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6.73 In business contracts, we prop
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(3) The policy may contain exceptio
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Statements of Insurance Practice 7.
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TREATING CUSTOMERS FAIRLY 7.22 In P
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7.31 Case 14 concerned a critical i
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7.40 Insurers have told us that the
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7.50 Large businesses are more able
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Civil law jurisdictions 7.61 The no
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PART 8 WARRANTIES AS TO THE FUTURE
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8.12 We provisionally propose that
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8.24 Although our general policy is
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8.33 It may be helpful to illustrat
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8.41 We have considered whether the
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8.51 For business insurance it is a
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8.62 These provisions require the c
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(1) The protection only applies to
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…subject to any express provision
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8.92 This means that neither the in
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Waiver and affirmation 8.101 The ch
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8.107 Scots law has not developed a
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The implied marine warranties 8.116
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Implied voyage conditions 8.127 The
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PART 9 PRE-CONTRACT INFORMATION AND
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9.6 The issue is far from new. Repo
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THE CURRENT LAW Introduction 9.16 R
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The broker as agent for the insured
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There must be every day thousands o
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(1) on the basis of a fair analysis
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9.47 The problem is particularly ac
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Transcribing information to screen
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9.61 However, the case law suggests
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However, it is not obvious that thi
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Section 19(b) 9.77 We have not rece
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It seems to me, both from a reading
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CONSUMERS - THE CURRENT POSITION In
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9.101 For these types of activity,
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(3) whether the firm has or will pr
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9.118 This was the view taken by a
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Unfortunately, the firm has contemp
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PART 10 PRE-CONTRACT INFORMATION AN
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10.9 Some intermediaries fall outsi
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10.19 We think this is a less attra
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10.25 Insurers may find it more dif
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Completion of proposal forms: the N
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Marine Insurance Act 1906, section
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10.56 The great majority of busines
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10.70 We welcome views on whether p
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Cases brought to the Financial Ombu
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11.18 When we commissioned this mod
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The overall effect 11.27 The model
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11.39 Unlike our other proposals, t
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12.9 Do consultees agree that the d
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12.22 We provisionally reject the p
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Contracting out of the default regi
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Consumer insurance: “joint lives,
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12.68 If the voyage conditions are
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ASSESSING THE COSTS AND BENEFITS OF
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THE STATEMENTS OF PRACTICE 1977 A.4
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Voluntary measures unsatisfactory A
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In such circumstances, it was also
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A.39 In 1984 the DTI put forward a
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GENERAL INSURANCE STANDARDS COUNCIL
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A.63 This report is of particular i
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In order to allow flexibility and t
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A proposed model for assessing the
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Tables & Figures Page Table 1: Illu
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Section 1 Introduction and Terms of
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Section 2 What are the primary chan
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Section 3 Economic incentives in in
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Section 4 Baseline analysis of insu
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Section 5 Identification of the pot
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Section 6 Case Study - Critical Ill
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Annex 1 References Cockburn, B. (20
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APPENDIX C THE FOS APPROACH TO ISSU
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Table 2: Consumer cases: main infor
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Table 4: Consumer cases: time of no
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C.27 The FOS has explained that in
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Have you any physical defect or inf
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The FOS approach to unclear questio
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Deliberate Customers deliberately m
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C.65 A further complication of the
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I cannot accept that the complainan
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(2) W failed to disclose an eating
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C.89 One problem with relying on om
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When does the FOS apply the consume
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The overall success rate C.107 The
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Institute of Actuaries Healthcare C
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Misrepresentation, Non-Disclosure and Breach ... - Law Commission

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