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

5.12 We also consider whether special rules are needed for MAT insurance, for
reinsurance, to protect third parties and for small businesses. Our provisional
view is to avoid special categories such as these, and to produce a law with
sufficiently flexible tests that can apply across the board. However, it is an issue
on which we welcome views.
Understanding the practical effect
5.13 We think that in some aspects the current law is so far removed from what a
business insured would normally want, and from what the unadvised business
insured would reasonably expect, that it is no longer fit for purpose. To leave it
unreformed risks undermining confidence in insurance written under UK law.
5.14 This judgement is necessarily based on our perceptions of the difficulties faced
by both insurers and insureds, and of the impact of the current law. We would
welcome information from all sides of industry on the extent to which the issues
we identify in this paper cause problems in practice. We want to know if they
have an impact on the market – and in particular whether they have a positive or
negative impact on the competitiveness of insurance policies written under
English or Scots law. We are also keen to ensure that any recommendations we
make are both workable and would represent significant improvements in the law.
Summary
5.15 This Part is in five further sections. Here we give a brief overview of our thinking.
Retaining the duty of disclosure
5.16 In the business context, our view is that the duty should be retained. 3 It is part of
the way the UK market works; it is probably necessary for unusual risks; and
where the insured is represented by an experienced broker the system generally
works well. Furthermore, abolishing the duty could lead to an empty formalism, in
which insurers go through the motions of asking general questions. However, the
duty under current law should be restricted, unless the parties agree otherwise, to
information that a reasonable insured would think would be relevant to the
insurer.
Protecting the honest and careful
5.17 We think that policyholders who act honestly and carefully deserve greater
protection. This requires two changes to the default rules.
(1) The duty to disclose should be modified. As just explained, an insured
should no longer be required to disclose everything a prudent insurer
would wish to know. Instead, the question will be looked at from the point
of view of a reasonable insured. An insured who honestly and reasonably
did not realise that a matter was relevant would be protected.
3 In Part 4 above, relating to consumer insurance, we provisionally propose abolishing the
insured’s duty to volunteer information. Instead, the onus should be on insurers to ask
questions.
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