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

1.6 When we have decided the scope of the reforms, we will consider how they
would best be implemented. One possibility would be to draft a new Insurance
Act to replace the Marine Insurance Act 1906 (1906 Act). Another would be to
replace some sections of the 1906 Act and leave others in force. Following the
second consultation paper, we will also consider whether there is a need to codify
insurance law more generally.
PROBLEMS WITH THE LAW
1.7 The two Law Commissions have a statutory duty under section 3 of the Law
Commissions Act 1965 to review the law with a view to “its simplification and
modernisation”. The Law Commissions have reached the view that the law of
misrepresentation, non-disclosure and breach of warranty in the field of insurance
is neither simple nor modern and is in urgent need of reform.
1.8 British insurance law developed during the eighteenth and nineteenth centuries. It
was largely codified in the 1906 Act, whose general provisions have been held to
be relevant to insurance of all types. The 1906 Act is an impressive piece of
work: it covers much ground and is written in clear, forthright terms. However, the
courts have found it difficult to develop the principles of the codified law or to
adapt them to changing economic conditions. Although the nature of the
insurance market has changed markedly, insurance law remains much as it was
a hundred years ago. 4
1.9 In the sections below we look first at the strict law and then consider more recent
developments in regulation and ombudsman practice which modify the legal
position.
Misrepresentation and non-disclosure by the insured before the contract is
made
1.10 Insurers need to receive information from potential policyholders about the nature
of the risk. They use this as the basis of their decisions on whether to accept
risks at all and, if so, at what price and on what terms. Some of this information
can only be obtained from would-be policyholders.
4
As Lawton LJ put it in Lambert v Cooperative Insurance Society Ltd [1975] 2 Lloyd’s Rep
485 at 492,
It was said by [Counsel], with some force, that when the law first began to develop
in the 18 th century those who sought to get the benefit of insurance cover were
really acting with the same sort of knowledge and understanding as the underwriters
from whom they were seeking cover. Nowadays when the ordinary citizen seeks to
take out insurance cover for his house and belongings he is not acting on equal
terms with the insurance companies.
He went on to say that much as he sympathised with that point of view only Parliament could
alter the law.
2