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

7.18 Unlike the statements, the FSA rules are binding on insurers. In the case of
repeated breaches, the FSA may bring disciplinary action against the insurer,
leading to fines or (ultimately) withdrawal of authorisation. However, a breach of
the rules does not have the simple effect that the insurer is liable to the insured.
The insured may have an action for breach of statutory duty, but that is not an
easy remedy for a consumer insured to pursue.
7.19 Moreover, the result is that the overall position is hard to understand, because of
the difference between the strict law and the regulatory requirements. It is also
incoherent in a technical sense. The COB and ICOB rules are difficult to reconcile
with the decision in The Good Luck that, following a breach of warranty, the
insurer need not take steps to repudiate a policy but is instead automatically
discharged from liability. 10 It would appear that an insurer may breach an FSA
rule by doing no more than refusing to meet a claim for which it is not liable. This
conflict between law and regulation on such a fundamental issue is unfortunate. It
risks bringing both into disrepute. We do not think that FSA rules remove the
need for reform. Rather, like the statements, they appear to be evidence that the
law is unsatisfactory and needs to be changed.
BRINGING SIGNIFICANT OR UNUSUAL TERMS TO THE CONSUMER’S ATTENTION
7.20 The FSA rules provide help where warranties and exceptions differ from what the
consumer reasonably expected. Consumer insureds must be told of “significant
or unusual exclusions or limitations”. 11 Unless the sale is by telephone or other
medium which makes it impossible, the information should be contained in a
policy summary, 12 “in a durable medium”, and the summary must be given to the
consumer before the contract is made. 13 With telephone and similar sales, the
consumer must be told of significant or unusual exclusions or limitations before
the contract is made, and a summary must be sent to them immediately
afterwards.
7.21 These provisions are valuable. As we shall see, the FOS frequently refuses to
allow an insurer to rely on a term if it took an insured unfairly by surprise.
However, the FOS approach is not necessarily well known to insureds. FSA
research reveals many instances in which insurers seek to rely on policy small
print, 14 and consumers may not know enough about FOS practice to challenge
this conduct. We think there is a need for greater clarity in this area. Clear legal
rules should support existing good practice.
10 Bank of Nova Scotia v Hellenic Mutual War Risks (“The Good Luck”) [1992] 1 AC 233.
11 ICOB 5.3.6 R and 5.5.5 R.
12 The summary must either be separate from other documents or, if in another document, be
prominent and separate from the other contents: ICOB 5.5.2 R.
13 ICOB 5.3.1 R and 5.3.6 R.
14
FSA, General Insurance and Pure Protection Products: Treating Customers Fairly (July
2006), discussed below.
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