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

Section 19(b)
9.77 We have not received any criticism of this provision, which requires the agent to
disclose every fact that the applicant is bound to disclose. At first sight, this
seems reasonable. However, where an agent breaches the duty, the insurer’s
only remedy is to avoid the policy. Where an insured has failed to disclose
something it should have disclosed, the insurer already has a right to avoid.
Section 19(b) appears to add little to an insurer’s existing remedies for nondisclosure.
Section 19(a)
9.78 This provision is problematic - partly because of the consequences of a breach
and partly because of uncertainties regarding its scope.
WHAT ARE THE CONSEQUENCES OF BREACH?
9.79 Section 19 does not set out the consequences if an agent to insure breaches the
obligations it imposes. This is in contrast to sections 18 and 20 which state
respectively that pre-contractual non-disclosure by a policyholder or
misrepresentation by the policyholder or the policyholder's agent give the insurer
the right to avoid the policy.
9.80 Nevertheless, it is well established that a breach of section 19(a) does give the
insurer the right to avoid. 45 This seems odd, as the burden falls on the insured
who, by definition, will be ignorant of the matter: if the circumstances were also
known to the insured the case would fall within section 19(b).
9.81 This leaves the question of whether such a breach also gives the insurer a right
in damages against either the agent to insure or against the policyholder. In HIH
Casualty and General Insurance Co v Chase Manhattan Bank, the court found
that breach of section 19 did not give rise to damages as such. 46 The agent could
be liable to the insurer in damages but only where the agent’s conduct amounted
to a negligent or fraudulent misrepresentation, assuming that the necessary
common law requirements for such an action could be established. The agent to
insure would not be liable for pure non-disclosure, even though the duty to
disclose was imposed upon him by section 19(a).
WHO IS AN “AGENT TO INSURE”?
9.82 The section only applies to “an agent to insure”, who “effects” the insurance for
the insured. There is some uncertainty over the definition of an agent to insure.
45 R Merkin, Colinvaux’s Law of Insurance (8 th ed 2006), p164 [6-43].
46
[2003] 2 Lloyd’s Rep 61, [2003] UKHL 6.
235