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

Case study: poor advice from an intermediary
Mrs A took out a critical illness policy. A sales agent took her through an
application form, which asked a series of questions about her health including:
“have you ever had asthma, bronchitis or other respiratory disorder”. The agent
recorded a “no” against this question, and Mrs A then signed the form to say
the answers were correct.
Five years later, Mrs A was diagnosed with cancer and made a claim under the
policy. The insurer refused the claim and attempted to avoid the policy because
she had a medical history of asthma.
Mrs A complained to the Financial Ombudsman Service on the grounds that
the agent had told her that her asthma was irrelevant. Her account of events
was that she had told the representative about her asthma and explained that it
was mild and fully controlled by an inhaler. The agent then asked if she had
ever been hospitalised for it or used a nebuliser and she said no. On this basis,
the agent told her that it was “run of the mill”, and the form was only asking
about serious matters. The agent, however, denied the conversation and said
he would never tell a consumer not to disclose a health matter, however trivial.
9.3 This is not untypical of many cases reaching the Financial Ombudsman Service
(FOS). In our survey of 190 consumer cases involving non-disclosure or
misrepresentation, 25 (13%) involved allegations about what an intermediary said
or did during the sales process.
9.4 Cases such as these pose several difficulties for ombudsmen and the courts. In
addition to the practical problem of deciding where the true facts lie, the
ombudsman must also decide whether the agent was acting for the insurer or for
the insured. This depends upon the status of the agent: a broker is presumptively
the agent of the insured; an employee of the insurers acts for them; and the
position of a third party (such as a bank or building society) is uncertain.
However, even if the agent was acting for the insurer, there remain difficult
questions about how far the insured should be held to the form they have signed.
9.5 There are several variations on these facts. The intermediary may complete the
form asking questions over the phone, so that the proposer does not see the form
or sign it before it is submitted. In some cases it may be signed in blank by the
insured. Alternatively the insured may complete the form herself but omit
information, or give an incomplete answer, because the agent has told her that
the information is not relevant. Another variation is that the proposer reveals
information to the intermediary who simply fails to pass it on to the insurer.
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