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

6.24 In practice we understand that the FOS regards itself as able to consider
complaints unless the policy was effected to benefit purely the employer, 3 or to
meet an obligation that the employer would have to the employee in any event.
This means it looks at precisely those cases in which we are currently interested.
6.25 It appears that the FOS has had little difficulty in dealing with such cases. Where
the misrepresentation is made by a member of the scheme, the dispute is treated
in the same way as if the member were the policyholder. Thus the insurer will be
required to treat the member fairly and reasonably, applying the same standards
as we described in Part 3.
A case for reform?
6.26 Is the current situation satisfactory, or should the law be reformed? We have
already stressed how significant group insurances are within the long-term
insurance marketplace. Equally the cover can be vital to individual scheme
members. Consumers who already enjoy membership of a group insurance
scheme are less likely to purchase individual contracts. Those who have
individual contracts may cancel them or allow them to lapse if they subsequently
gain membership of a scheme.
6.27 Our starting point is that any misrepresentation made by a group member should
be treated in the same way as it would be treated if the group member were the
policyholder and had arranged the insurance directly with the insurer. If the cover
provided is such that, were the member to arrange it individually, it would be
classified as consumer insurance, the individual member’s claim would be
considered according to the tests we have proposed for consumer insurance.
6.28 This would bring the law into line with the FOS approach and accepted practice in
the market. If what we have been told about common industry practice is correct,
the impact will be limited.
6.29 It means that, in group schemes for employees, the insurer would not be entitled
to reject a claim where a member had acted honestly and reasonably. If the
member were negligent, the insurer’s rights should depend on what the insurer
would have done had it been given the correct information. If, for example, it
would have given only the minimum “free cover”, the member’s benefits should
be limited accordingly. On the other hand, if the member had made a deliberate
or reckless misrepresentation, that member’s claim could be refused and that
member could be excluded from benefits under the scheme.
6.30 The obligation will be to make a payment under the scheme, rather than
necessarily to make a payment directly to the member. If, for example, the
scheme requires money to be paid to pension trustees, the insurer’s obligation
will remain an obligation to the trustees.
3 Eg where the employer insured a key person, as described in para 6.8(2).
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