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

9.47 The problem is particularly acute when a consumer has already established a
good relationship with an adviser in another context (for example, in applying for
a mortgage). If the adviser then gives them a leaflet about associated insurance
products, the consumer may well ask questions about the insurance, and it may
be tempting for the adviser to say more than they should. They may for example
(wrongly) attempt to reassure a worried client that mortgage protection insurance
will not involve long and intrusive questioning, and that the consumer does not
have to give details about a period of depression more than three years ago. If
the insurer later avoids the policy for misrepresentation, difficult questions arise.
Is the insurer responsible for the advice given by the adviser or does the
consumer have a separate cause of action against the adviser for negligent
professional advice?
9.48 There is no very clear answer to this question. The adviser does not have actual
authority to act on behalf of the insurer by giving advice. However, this may not
be apparent to the consumer. One could perhaps argue that the insurer has
granted the High Street name apparent authority to deal with queries by
permitting publicity material that deliberately gives the impression that the High
Street name is underwriting the policy.
Selling the products of one insurer, but with no authority to “bind cover”
9.49 In some cases, the intermediary may only offer the insurer’s product, even
though it does not brand it as its own. The intermediary may well not be the
insurer’s appointed representative: it may, for example, be independently
authorised or the appointed representative of another insurance intermediary. We
have considered the case where the joint arrangement between intermediary and
insurer allows the intermediary to talk the consumer through the questions. If the
intermediary then has binding authority to issue cover on the insurer’s behalf, we
think the law is fairly clear. A court would almost certainly hold that the
intermediary is acting as an agent of the insurer for disclosure purposes. 28
However, the law is much less clear where the intermediary merely submits the
completed and signed form to the insurer for a decision.
9.50 It is possible for this arrangement to occur in a variety of settings. The
intermediary may be engaged in another business. For example, a car distributor
may offer its customers insurance at the point of sale. The intermediary may be a
well known financial provider, as where a building society offers income
protection through a named insurer, and authorises its financial consultants to
talk customers through the form. Alternatively, the intermediary may be a small
business, selling insurance under some sort of franchise arrangement.
28 See Woolcott v Excess Insurance Co Ltd [1978] 2 Lloyd’s Rep 430, where it was assumed
before the Court of Appeal that where an agent had authority to bind the insurer, the
agent’s knowledge was attributed to the insurer. Therefore, if the agent was aware of the
insured’s criminal history, this had effectively been disclosed to the insurer. See also
Stockton v Mason [1978] 2 Lloyd’s Rep 430, where an agent had authority to issue
temporary cover notes. The court found that the insurer was bound by the representations
the agent had made about the nature of the policy.
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