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

Neither consumers nor ordinary businessmen who are not in the
insurance market have the knowledge or experience to identify all
facts which may be material to insurers. Both are therefore to this
extent in need of protection and both may properly be regarded as
consumers vis-à-vis insurers. 27
Lord Justice Longmore also stressed this point: a fishmonger insuring business
premises is in as much need of protection as a lawyer insuring his home. 28
1.46 It is true that business insurance is often arranged through a broker who will
advise the business. However, many types of business insurance are sold
directly to the business, or through an intermediary who does not offer detailed
advice. Businesses may not realise they need independent advice, or may not be
able to afford it, or may take the view that the chances of a problem occurring are
low enough that it is not worth spending time or money on advisers.
1.47 Even for large commercial risks, where policyholders do understand the law, the
insurance market is built on trust and generally accepted standards of market
practice. Policyholders therefore often expect the insurer to deal with their case in
accordance with good market practice. Unfortunately, there is a wide divergence
between the rules laid down in the 1906 Act and accepted practice.
1.48 If the law permits insurers to avoid for an innocent misrepresentation, it is
inevitable that some insurers will rely on their strict legal rights. When we asked
one firm whether insurers would ever attempt to avoid a policy for an innocent
non-disclosure, this is the answer we received:
Some would, especially in a climate where money is tight… Yes…
With the big commercial [risks]… they’re subscribed to by three,
five, twenty different insurers. And you could have three or four
who are perhaps looking at insolvency problems or whatever and
will in truth seize on any opportunity they can. So… to take comfort
in the thought that the market as a whole will not take the point on
innocent disclosure – you might be surprised really. There would
be a risk that some parts of it would. 29
1.49 We think that the law should generally follow accepted practice, in the absence of
an agreement to the contrary. Not every term is thought about or negotiated in
advance. Currently the law imposes a default regime that undercuts, rather than
supports, accepted market practice. In so doing, it risks defeating the reasonable
expectations of the insured.
27
Insurance Law, Non-disclosure and Breach of Warranty (1980) Law Com No 104, para
4.36.
28 ”An Insurance Contracts Act for a new Century?”, Pat Saxton Memorial Lecture, 5 March
2001 (set out in Appendix A of BILA, Insurance Contract law Reform (2002)), para 42.
29 Interview with an insurance lawyer, carried out for this project.
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