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

6.18 We were told that whatever the contractual terms, the outcome would follow
normal industry practice. Where an individual member has provided inaccurate or
incomplete information, group insurers will seek a remedy only in respect of
payments made to that individual. Furthermore, they will not seek to refuse the
full amount of the claim. The claim will be met to the level of the “free cover”. The
policy itself will remain in force. Avoidance or cancellation of a policy is only likely
where there has been serious misrepresentation or non-disclosure by the
employer, or inaccurate or incomplete information has been provided by an
individually-underwritten member of the scheme who is a “controlling mind” of the
business.
Are special rules required for group insurance?
6.19 Most of the key principles of insurance contract law were settled at a time when
group insurance simply did not exist. There is little settled law relating to group
insurance, with only a handful of cases having been heard by the courts.
6.20 Under the approach that we have proposed elsewhere in this paper, the rules of
law that apply in any given case will depend on whether a policyholder is a
business or a consumer. Without special rules, group insurance would therefore
be subject to the business insurance regime. We are not satisfied that this is
appropriate. In particular, we have concerns relating to the individual members of
schemes and the potential impact on their cover should they fail to provide the
insurer with accurate information.
6.21 We appreciate that this is not strictly speaking an issue about pre-contractual
information. First, members are not parties to the contract. Second, information
will frequently be provided at times subsequent to the formation of the contract -
for example, when an employee becomes eligible to join the scheme, or when an
application is made for an employee's benefits to be increased. Third, the
remedies available to the insurer are those granted by contractual terms rather
than by the common law.
6.22 Nevertheless, when an insurer seeks information from a member of a scheme the
process is broadly comparable to the underwriting of an individual contract, and
similar forms are frequently used. This therefore seems a suitable point at which
to consider the matter.
6.23
Financial Ombudsman Service
The Financial Ombudsman Service (FOS) is able to consider a complaint brought
against an insurer by an employee who is or was intended to be a beneficiary
under a group insurance scheme. This jurisdiction is based on the definition of
“eligible complainant” within the FSA Rulebook. Under rule 2.4.10 of the Dispute
Resolution Sourcebook (DISP), complaints from non-policyholders are
specifically allowed in some circumstances. Under rule 2.4.12, these
circumstances include where “the complainant is a person for whose benefit a
contract of insurance was taken out or was intended to be taken out”.
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