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

6.67 A claim may arise in two ways. The first is that the husband dies and the wife
makes a claim. Under current law and ombudsman practice, the insurer may
refuse the claim. Usually, the insurer will rely on a basis of the contract clause, by
which the wife has adopted the husband’s answers as her own. Under our
proposals, the result would be the same, though it would be reached using a
different legal mechanism. The husband’s misrepresentation would be treated as
if it had been made by the wife.
6.68 The second possibility is that the wife dies, and the husband makes a claim. 14 We
were told that, in practice, the insurer is unlikely to investigate or discover the
husband’s dishonesty. However, if it does, current law and ombudsman practice
would allow the insurer to avoid the policy. As a matter of strict law, the insurer is
entitled to avoid the whole policy on the grounds of the husband’s
misrepresentation. In policy terms it could also be said that the husband should
not benefit from a policy secured through his own dishonesty. Again, this would
also follow from our proposals. We would welcome views on whether consultees
agree that this is the right result.
6.69 We would also be interested in hearing views on a further matter. Where the
“guilty” party dies, the FOS may use its discretion to order the insurer to continue
the policy on the life of the innocent party. In the example given above, where the
husband dies, the FOS may permit the insurer to refuse the claim concerning the
husband’s death, but is likely to order it to continue the policy as a single life
policy, under which the wife insures her own life. This is particularly important
where other cover, such s critical illness cover, accompanies the life cover. The
insurer may be ordered to adjust the premiums accordingly. We do not see that
this can be required as a matter of law. However, we are interested in receiving
views on whether this is the right result. If so, should the courts or ombudsman
be given a discretion to adjust joint life policies in this way?
6.70 We ask whether in a “joint life, first death” policy, consultees agree that the
insurer should be entitled to refuse claims where either the deceased or the
beneficiary has made a deliberate or reckless misrepresentation.
6.71 We welcome views on whether, if a claim is refused following the death of a
guilty party, the court or ombudsman should have discretion to order the
insurer to continue the policy as a single life policy, payable on the death of
the innocent party.
Business insurance: a default rule?
6.72 Life-of-another policies may also be taken out for business reasons, as where a
business insures the life of a key employee. Here the parties may wish to make
different arrangements. For example, in some cases the policyholder may not
wish the person whose life is to be insured to be approached at all – and, if they
are approached, they may wish to come to different arrangements about how
their representations are to be treated.
14
If the policy covers both life and critical illness, and the wife makes a claim for critical
illness, the FOS would allow the wife’s claim. We think this follows from legal principles.
The critical illness element is separate, and is not a joint policy. The wife has not
misrepresented her position.
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