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

However, it is not obvious that this approach will be applied beyond cases in
which the applicant is blind or illiterate, 42 or where (as in Stone) the agent was
authorised by the insurer to collect the information and complete the form, and for
this reason remained the agent of the insurer when doing so. 43
Criticisms of the Newsholme rule
9.68 The Newsholme rule appears to rest on two arguments: that the agent ceases to
act for the insurer as soon as he commits a fraud by entering information which
he knows to be untrue; and that the insured must be bound by their signature.
Both arguments may be criticised.
9.69 First, it is undoubtedly true that the insurer should not be bound by a contract
where the insured and the agent have committed a fraud together. The insured’s
fraud must taint the contract. It cannot be excused by the agent’s participation
because the agent has neither actual nor apparent authority to participate in a
fraud. However, the situation may be different where the agent has committed a
fraud on his own initiative (because, for example, he was anxious to gain his
commission). If a sales representative is employed by the insurer as the insurer’s
agent, it might be thought that the insurer should carry greater responsibility for
the fraud than the insured.
9.70 As far as the signature is concerned, this may be decisive in a legal regime which
makes the insured strictly liable for all misstatements, however caused. In
Newsholme, for example, the proposal form contained a basis of the contract
clause whereby the plaintiffs warranted the strict accuracy of everything they had
signed. Such a rule, however, makes less sense under the reforms we have
provisionally proposed, where the insurer’s remedy for misrepresentation
depends on the insured’s state of mind and where (in consumer cases)
warranties of past or existing fact will not give the insurer additional rights. An
insured may sign a form with a misstatement fraudulently, or negligently without
checking, or completely innocently, because they reasonably believed what the
agent has told them. The signature should not necessarily determine the issue.
9.71 In Part 10 we propose reforms to this rule.
42 th
See J Birds and N Legh-Jones, MacGillivray on Insurance Law (10 ed 2003) at para 18-
42.
43 Above at para 18-44.
233