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

(1) The duty of disclosure has become part of the way the UK business
insurance market works. For many business policies, there is no
proposal form. Instead the broker presents the risk, and the underwriter
relies on the broker and client to present that risk honestly. It would be
possible to distinguish insurance that was preceded by a proposal form
(whether a paper form or on a website) and insurance where there was
no such form, and require disclosure only in the latter. However we would
prefer not to set boundaries between types of insurance, as these always
cause problems in marginal cases.
(2) Business insurance involves a much greater variety of unusual risks than
consumer insurance. That would make it harder for the insurer to ask
questions about all relevant matters.
(3) A greater proportion of business insurance is conducted through full-time
professional intermediaries, who can advise as to what is required. This
means that the risk of an insured not realising that it has a general duty
to disclose is reduced.
(4) Requiring insurers to ask questions even when both parties are
sophisticated in insurance matters could lead to an empty formalism. If
underwriters ask a general question such as “and finally, is there
anything else that we should know about?” the duty would effectively be
restored.
5.28 We still think that it would be appropriate to expect insurers, as a matter of good
practice, to warn insureds about the duty to disclose when it is reasonable to
think that the insured may not be aware of the need, particularly on renewal. But
we doubt it is necessary to provide a legal remedy, such as preventing the
insurer from avoiding, for failure to do so.
5.29 For these reasons, we think that the duty of disclosure should be retained, but its
scope should be modified to protect those who act honestly and reasonably in all
the circumstances. We explain this below.
5.30 We provisionally propose that a duty of disclosure should continue to
apply to business insurance contracts.
PROTECTING THE HONEST AND CAREFUL INSURED
5.31 Previously in this report we have outlined a general principle: an insured who was
both honest and careful in giving pre-contract information should not have a claim
turned down on the basis that the information was incorrect or incomplete. We
think this should apply to business insurance as well as to consumers, at least in
the absence of a clear and genuine agreement to the contrary.
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