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

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9.51 Again, the law in this area is far from clear, and there is potential for confusion. Selling the product of a limited number of insurers 9.52 If the position in relation to intermediaries who offer only a single insurer’s product is doubtful, the situation in relation to those who offer a limited number of insurers' products is completely unclear. We have to assume that under current law they do not act as agent for the insurer unless some special arrangement has been made. 9.53 Agents of this sort are often described as “multi-tied”. However, the phrase is used loosely and does not have a clear meaning. Initially, it was taken to mean that an agent was the appointed representative of several insurers. However, such formal arrangements are not necessary. Increasingly, intermediaries simply join a limited number of “panels”, involving flexible arrangements between the insurer and the intermediary. 9.54 Our study of FOS cases showed that the greatest problems over misrepresentation relate to health issues, especially in critical illness, income protection and term insurance. We were therefore interested to see research sponsored by Scottish Re in 2005 about how such products were sold. 29 It concluded that most intermediaries selling these forms of protection insurance remained independent and searched the market (or at least had an independent arm to their business). However, 15% of intermediaries were said to have “multities”, usually in addition to their independent function, and this included one very large intermediary. The report said that “multi-ties” were likely to increase in the future. The report highlighted the variety of arrangements between insurers and intermediaries, pointing out that there was no clear distinction between “panels” and “ties”. It commented: Currently, we are seeing a grey area where panels and multi-tied packages appear to offer very similar benefits… The customer must be very confused. Indeed, we ourselves struggle to distinguish certain panels from multi-ties. 30 29 CWC Research, The Protection Report 2005 (Clive Waller Consulting in association with Peter Le Beau, Le Beau Visage). 30 Above, p 8. 228
Transcribing information to screen 9.55 We were also interested to note another development in the protection market. Despite the increased use of tele-sales and websites, most protection insurance is still sold face to face, using a paper form. 31 Insurers are increasingly paying intermediaries additional commission to transcribe the information from paper to an electronic medium, so that it can then be submitted to the insurer electronically. Intermediaries complain that some transcription processes are time-consuming and painful, with opportunity for error. 32 9.56 We are not clear who bears responsibility for any errors that occur when an intermediary transcribes information to screen at the insurer’s behest. The courts may well maintain the current rule that independent intermediaries should be considered to be the agent of the insured. However, it could be argued that if an insurer is paying an intermediary to transcribe information in a specific way using the insurer’s system, then the intermediary completes this particular task as the insurer’s agent. The insured will not know that the task is taking place, or have any control over the process. Why does it matter? 9.57 We will see later that in some ways the issues relate to procedure rather than substance. If the insurer succeeds in avoiding the policy because the intermediary is negligent, the consumer would have a good claim against the agent for negligence. The claim may be brought either through the courts or the FOS. However, no-one’s interests are served if the consumer pursues a long complaint against the insurer and is then told to start all over again against a different firm. The complainant suffers unnecessary stress and delay; the FOS has two complaints instead of one; and the industry may experience significant damage to its reputation. There is an obvious need for clarity in this area. We explore this further below. 31 Above, p 4. 32 Above, pp 5-6. 229
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The Law Commission Consultation Pap
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THE LAW COMMISSION THE SCOTTISH LAW
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v Paragraph Page Innocent misrepres
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vii Paragraph Page Marine Insurance
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OUTLINE 1.1 This Consultation Paper
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• At present, consumers have a du
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• Any warranty should be set out
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PART 1 INTRODUCTION OUTLINE OF THE
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1.11 The 1906 Act therefore imposes
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(1) The insurer may use warranties
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1.17 When in 1980 the English Law C
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1.28 For most consumers with disput
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“Fairness” and reasonable expec
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1.50 The parties should be free to
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“Moral hazard” and the need for
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1.71 We think that consumers would
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1.80 We ask what the appropriate re
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(2) Appendix B is a report commissi
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Although the issues arise under a p
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Thus if, when a claim is made, the
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2.21 In both jurisdictions the vict
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(2) Before an insurer may avoid a c
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Subject to the provisions of this s
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Despite some contrary suggestions,
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Held covered in case of any breach
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(2) The warranty is relevant to onl
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2.61 Classification of the term is
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2.68 Such clauses elevate the answe
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These are often referred to as “c
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2.82 We accept that an exception to
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(d) readily available to any person
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2.101 If the term were not sufficie
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2.111 The law on warranties is simi
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(1) Each proposal form was required
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3.14 TCF is a valuable initiative w
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THE FINANCIAL OMBUDSMAN SERVICE 3.2
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Research project 3.32 When we start
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Case study: clear questions should
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3.43 These examples look only at th
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Warranties of fact 3.50 We did not
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(9) The FOS has more experience tha
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3.63 There might of course be some
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The risk of legal challenge 3.72 We
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(3) BOTH HONESTLY AND CAREFULLY (OR
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4.10 Some consultees have asked how
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4.18 The FOS’s requirement that t
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General questions 4.21 As we have s
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4.32 We provisionally propose that
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4.43 We would also point out that a
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Criminal fraud 4.55 First, some ins
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4.62 We stress this point, because
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4.70 The issue is further confused
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Relevance 4.80 Secondly, our defini
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4.92 However, we are not sure that
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Different ways in which policyholde
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Judging what is “reasonable” fo
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4.121 We ask whether the legislatio
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...the reasonable expectation of th
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4.142 The proposer should take care
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4.154 Few of the legal systems that
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4.162 We accept the first argument
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No reinsurance 4.173 It may occasio
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Effect on future cover 4.183 The fo
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Reactions 4.195 This question excit
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4.206 In Part 3 we identified one p
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4.218 We provisionally propose that
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Our proposals 4.228 Therefore we pr
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5.5 We have therefore sought soluti
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(2) Similar protections would apply
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(1) The duty of disclosure has beco
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Thus if a business insured ought to
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5.46 On the one hand, it seems righ
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5.57 Insurance law is currently har
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5.67 This is the same rule that we
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5.76 We were told, for example, abo
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5.86 We have already set out our pr
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Proving that an action was delibera
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Cancelling for the future 5.105 We
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(1) The law could allow statements
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5.124 Is one approach better than t
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Controlling the use of standard ter
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However, the provenance of the term
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Reinsurance 5.153 Our starting poin
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5.163 It is important to bear in mi
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5.170 The same issues arise here. A
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PART 6 GROUP INSURANCE, CO-INSURANC
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6.9 There may, however, be cases wh
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6.18 We were told that whatever the
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6.31 There is one question on which
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(1) Where a member has made a delib
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The FOS approach 6.48 In our survey
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6.59 In Part 4 we provisionally pro
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6.73 In business contracts, we prop
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(3) The policy may contain exceptio
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Statements of Insurance Practice 7.
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Page 201 and 202: PART 8 WARRANTIES AS TO THE FUTURE
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Page 205 and 206: 8.24 Although our general policy is
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Page 217 and 218: …subject to any express provision
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Page 221 and 222: Waiver and affirmation 8.101 The ch
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Page 229 and 230: PART 9 PRE-CONTRACT INFORMATION AND
Page 231 and 232: 9.6 The issue is far from new. Repo
Page 233 and 234: THE CURRENT LAW Introduction 9.16 R
Page 235 and 236: The broker as agent for the insured
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Page 239 and 240: (1) on the basis of a fair analysis
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Page 255 and 256: 9.101 For these types of activity,
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Page 259 and 260: 9.118 This was the view taken by a
Page 261 and 262: Unfortunately, the firm has contemp
Page 263 and 264: PART 10 PRE-CONTRACT INFORMATION AN
Page 265 and 266: 10.9 Some intermediaries fall outsi
Page 267 and 268: 10.19 We think this is a less attra
Page 269 and 270: 10.25 Insurers may find it more dif
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Page 273 and 274: Marine Insurance Act 1906, section
Page 275 and 276: 10.56 The great majority of busines
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Page 279 and 280: Cases brought to the Financial Ombu
Page 281 and 282: 11.18 When we commissioned this mod
Page 283 and 284: The overall effect 11.27 The model
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Page 287 and 288: 12.9 Do consultees agree that the d
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Consumer insurance: “joint lives,
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12.68 If the voyage conditions are
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ASSESSING THE COSTS AND BENEFITS OF
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THE STATEMENTS OF PRACTICE 1977 A.4
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Voluntary measures unsatisfactory A
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In such circumstances, it was also
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A.39 In 1984 the DTI put forward a
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GENERAL INSURANCE STANDARDS COUNCIL
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A.63 This report is of particular i
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In order to allow flexibility and t
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A proposed model for assessing the
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Tables & Figures Page Table 1: Illu
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Section 1 Introduction and Terms of
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Section 2 What are the primary chan
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Section 3 Economic incentives in in
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Section 4 Baseline analysis of insu
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Section 5 Identification of the pot
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Section 6 Case Study - Critical Ill
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Annex 1 References Cockburn, B. (20
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APPENDIX C THE FOS APPROACH TO ISSU
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Table 2: Consumer cases: main infor
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Table 4: Consumer cases: time of no
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C.27 The FOS has explained that in
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Have you any physical defect or inf
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The FOS approach to unclear questio
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Deliberate Customers deliberately m
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C.65 A further complication of the
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I cannot accept that the complainan
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(2) W failed to disclose an eating
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C.89 One problem with relying on om
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When does the FOS apply the consume
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The overall success rate C.107 The
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Institute of Actuaries Healthcare C
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