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

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ABBREVIATIONS USED IN THIS REPORT 1906 Act Marine Insurance Act 1906 ABI Association of British Insurers ALRC Australian Law Reform Commission BILA British Insurance Law Association COB Conduct of Business Sourcebook (FSA Handbook, dealing with investment insurance) DISP Dispute Resolution Sourcebook (FSA Handbook) FOS Financial Ombudsman Service FSA Financial Services Authority FSCS Financial Services Compensation Scheme FSMA Financial Services and Markets Act 2000 ICOB Insurance Conduct of Business Sourcebook (FSA Handbook) LRC Law Reform Committee (the Law Commission’s predecessor) MAT Marine, Aviation and Transport NCC National Consumer Council OFT Office of Fair Trade PRIN Principles for Businesses Sourcebook (FSA Handbook) SLIP ABI Statement of Long-Term Insurance Practice 1986, issued by the Association of British Insurers. (A copy of this can be found in Issues Paper 1, Appendix B) SGIP ABI Statement of General Insurance Practice 1986, issued by the Association of British Insurers. (A copy of this can be found in Issues Paper 1, Appendix B) UCTA Unfair Contract Terms Act 1977 UTCCR Unfair Terms in Consumer Contracts Regulations 1999, SI 1999 No 2083 xiv
PART 1 INTRODUCTION OUTLINE OF THE PROJECT 1.1 The English and Scottish Law Commissions are undertaking a joint review of insurance contract law. Our aim is to ensure that the law balances the interests of insured and insurer, reflects the needs of modern insurance practice and allows both insured and insurer to know their rights and obligations. 1.2 In January 2006 we issued a joint scoping paper, which explained that we would be considering the law of misrepresentation, non-disclosure and breach of warranty. 1 We then asked whether there were other areas in need of review. We received 118 responses from a wide variety of organisations and individuals, which indicated strong support for a wide-ranging review. 2 1.3 Given the many topics to be considered we have decided to publish two consultation papers. This first paper considers: (1) misrepresentation and non-disclosure by the insured before the contract is made; (2) warranties (including basis of the contract clauses); and (3) misrepresentation and non-disclosure before the contract is made when the contract is made through an intermediary. The remaining topics will be dealt with in a separate consultation paper in 2008. They will include post-contractual good faith, insurable interest and damages for the late payment of claims. 1.4 In order to share our thinking as it developed, we published three Issues Papers: Paper 1 on Misrepresentation and Non-Disclosure in September 2006; Paper 2 on Warranties in November 2006; and Paper 3 on Intermediaries and Pre- Contractual Information in March 2007. The papers were discussed at a series of seminars and meetings (listed in Appendix D), including two private seminars with an invited audience. 3 The feedback from these papers has been very helpful and has led us to modify our views in several respects. Although this consultation paper draws heavily on material in the Issues Papers, some proposals are explained more clearly, while others have changed. 1.5 We seek views on our provisional proposals and questions by 16 November 2007. We would be grateful if responses could be sent to the Law Commission at the addresses given at the front of this paper. 1 Law Commission and Scottish Law Commission, Insurance Contract Law: A Joint Scoping Study: see Law Commission website at http://www.lawcom.gov.uk/insurance_contract.htm. 2 Law Commission and Scottish Law Commission, Analysis of Responses and Decisions on Scope, August 2006: see website above. 3 Notes of these meetings are available on our website, above. 1
Page 1 and 2: The Law Commission Consultation Pap
Page 3 and 4: THE LAW COMMISSION THE SCOTTISH LAW
Page 5 and 6: v Paragraph Page Innocent misrepres
Page 7 and 8: vii Paragraph Page Marine Insurance
Page 9 and 10: OUTLINE 1.1 This Consultation Paper
Page 11 and 12: • At present, consumers have a du
Page 13: • Any warranty should be set out
Page 17 and 18: 1.11 The 1906 Act therefore imposes
Page 19 and 20: (1) The insurer may use warranties
Page 21 and 22: 1.17 When in 1980 the English Law C
Page 23 and 24: 1.28 For most consumers with disput
Page 25 and 26: “Fairness” and reasonable expec
Page 27 and 28: 1.50 The parties should be free to
Page 29 and 30: “Moral hazard” and the need for
Page 31 and 32: 1.71 We think that consumers would
Page 33 and 34: 1.80 We ask what the appropriate re
Page 35 and 36: (2) Appendix B is a report commissi
Page 37 and 38: Although the issues arise under a p
Page 39 and 40: Thus if, when a claim is made, the
Page 41 and 42: 2.21 In both jurisdictions the vict
Page 43 and 44: (2) Before an insurer may avoid a c
Page 45 and 46: Subject to the provisions of this s
Page 47 and 48: Despite some contrary suggestions,
Page 49 and 50: Held covered in case of any breach
Page 51 and 52: (2) The warranty is relevant to onl
Page 53 and 54: 2.61 Classification of the term is
Page 55 and 56: 2.68 Such clauses elevate the answe
Page 57 and 58: These are often referred to as “c
Page 59 and 60: 2.82 We accept that an exception to
Page 61 and 62: (d) readily available to any person
Page 63 and 64: 2.101 If the term were not sufficie
Page 65 and 66:
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
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(9) The FOS has more experience tha
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3.63 There might of course be some
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The risk of legal challenge 3.72 We
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(3) BOTH HONESTLY AND CAREFULLY (OR
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4.10 Some consultees have asked how
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4.18 The FOS’s requirement that t
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General questions 4.21 As we have s
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4.32 We provisionally propose that
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4.43 We would also point out that a
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Criminal fraud 4.55 First, some ins
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4.62 We stress this point, because
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4.70 The issue is further confused
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Relevance 4.80 Secondly, our defini
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4.92 However, we are not sure that
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Different ways in which policyholde
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Judging what is “reasonable” fo
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4.121 We ask whether the legislatio
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...the reasonable expectation of th
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4.142 The proposer should take care
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4.154 Few of the legal systems that
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4.162 We accept the first argument
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No reinsurance 4.173 It may occasio
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Effect on future cover 4.183 The fo
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Reactions 4.195 This question excit
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4.206 In Part 3 we identified one p
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Our proposals 4.228 Therefore we pr
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5.5 We have therefore sought soluti
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(2) Similar protections would apply
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(1) The duty of disclosure has beco
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Thus if a business insured ought to
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5.46 On the one hand, it seems righ
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5.57 Insurance law is currently har
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5.67 This is the same rule that we
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5.76 We were told, for example, abo
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5.86 We have already set out our pr
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Proving that an action was delibera
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Cancelling for the future 5.105 We
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(1) The law could allow statements
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5.124 Is one approach better than t
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Controlling the use of standard ter
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However, the provenance of the term
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Reinsurance 5.153 Our starting poin
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5.163 It is important to bear in mi
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5.170 The same issues arise here. A
Page 171 and 172:
PART 6 GROUP INSURANCE, CO-INSURANC
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6.9 There may, however, be cases wh
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6.18 We were told that whatever the
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6.31 There is one question on which
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(1) Where a member has made a delib
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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.
Page 191 and 192:
TREATING CUSTOMERS FAIRLY 7.22 In P
Page 193 and 194:
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
Page 203 and 204:
Page 205 and 206:
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
Page 255 and 256:
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
Page 275 and 276:
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
Page 287 and 288:
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,
Page 295 and 296:
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
Page 397 and 398:
The overall success rate C.107 The
Page 399 and 400:
Institute of Actuaries Healthcare C
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