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

7.40 Insurers have told us that they rarely apply the strict letter of the law. They would
not, for example, refuse to pay a claim because of a breach that had already
been remedied before the loss. It is difficult to know how many claims are turned
down each year for breaches of terms that are not causally connected to the loss.
Our own small survey of complaints brought to the FOS does not suggest that the
practice is widespread, though we note that the FSA reports cases where it has
occurred. 25 The case for reform does not depend on evidence of widespread
abuse. If insurers no longer think that the 1906 Act embodies fair principles, this
is itself strong evidence that the law should be brought into line with acceptable
practice.
Consumer insurance
7.41 The law applying to warranties in consumer insurance differs from that applying
to business insurance because of the UTCCR 1999. The practical position also
varies, as consumers have the protection of the Statements of Practice, the ICOB
and COB Rules and the FOS.
7.42 The UTCCR 1999 are helpful to consumer insureds but we do not think that by
themselves they are adequate. First, the Regulations are not widely understood,
and appear not to have been used to their full potential in insurance cases that
fall within the topics covered in this Issues Paper. In addition, the effect of the
Regulations is not as clear as it should be. The two Law Commissions have
already made recommendations to rewrite the Regulations in a clearer and more
accessible way, so that the implications behind the Directive are made explicit. 26
The recommendations have been accepted in principle, subject to a regulatory
impact assessment. We believe that if our draft Bill were implemented, what is
required of insurers would be made significantly clearer.
7.43 Secondly, we do not think that in practice all the problems for consumers are
solved by the Regulations. The consumer should not be required to make the
complex and difficult argument that the warranty (1) is not a core term and (2) is
unfair. We think that it is important that consumers are protected by a firm rule
that a breach of warranty should not absolve the insurer from liability if the breach
was immaterial or there was no causal connection between it and the claim.
7.44 Nor do we think that the Statements of Insurance Practice, the ICOB and COB
Rules and the FOS are a substitute for keeping the law up-to-date, any more than
they are in relation to misrepresentation and non-disclosure. The statements are
insufficient in substance, since they appear to permit the insurer to take
advantage of the technical defences of the law where there is some evidence of
fraud, even if it cannot be proved. The FSA rules do not provide ready remedies
for the individual insured. The FOS scheme is admirable but is not widely
understood. Furthermore, it makes no sense to have multiple levels of regulation
each with different requirements. 27
25
FSA, General Insurance and Pure Protection Products: Treating Customers Fairly (July
2006) p 18.
26 Unfair Terms In Contracts (2005) Law Com No 292; Scot Law Com No 199.
27 See paras 1.31 to 1.33 above.
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