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

5.163 It is important to bear in mind the makeup of the small business sector. Many
small businesses are in fact very small: 69% of all UK enterprises have no
employees at all, 43 20% have between one and four employees, and a further 5%
have between five and nine employees. 44 The number of enterprises with no
employees (mostly sole traders) strongly points to the vulnerability and lack of
sophistication of small businesses. Moreover, even Small-and-Medium-sized
Enterprises (SMEs) (a category covering businesses with up to 250 employees)
rarely seek legal advice. Statistics published by the DTI suggest that only 3% of
SMEs sought legal advice in the previous 12 months. 45 In addition, many
entrepreneurs who run small businesses are relatively young (25% are 25 or
younger, 46% are 35 or younger). 46 Furthermore, only 64% of entrepreneurs have
vocational training or a degree: around 5% have no educational qualifications at
all. 47 These factors suggest that many small businesses are in a similar position
to consumers.
5.164 We do not think that many people running non-insurance small businesses would
understand the full extent of the duty of disclosure that the law requires. They are
unlikely to understand, for example, that they must volunteer information about
criminal offences their employees have committed, 48 or any previous rejection for
insurance. A small business is also less likely to understand the advisability of
going through a broker, and may be put off by fears (rational or not) that doing so
will add to the cost of arranging insurance.
43 They are sole proprietorships and partnerships comprising only the self-employed owner
manager(s) and companies comprising only an employee director.
44 Statistics are taken UK 2003, issued by National Statistics, and relate to 2001.
45 Small Business Service, Omnibus Survey (November 2001) p 22.
46
Small Business Service, Small Firms: Big Business, chapter 3 (Characteristics of
Entrepreneurs).
47 5.5% have no educational qualifications, 30.4% have not gone beyond secondary school,
32.6% have had some vocational training, 16.5% have a first degree and 15% have a
postgraduate degree: Small Business Service Small Firms: Big Business, ch 3
(Characteristics of Entrepreneurs).
48 See for example, Roselodge v Castle [1966] 2 Lloyd’s Rep 113, where a theft policy was
avoided because the owner did not disclose that his sales manager had been convicted of
smuggling diamonds.
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