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

Marine Insurance Act 1906, section 19
10.45 As we have indicated, we are not aware of any reported case where section 19
has been applied to consumer insurance. However, it clearly applies to nonmarine
insurance as well as marine insurance. We therefore think that as a
matter of technical law the section applies equally to consumer and to business
insurance.
Section 19(b)
10.46 At first sight, the obligation under section 19(b) seems reasonable. After all, the
insured’s agent should be required to disclose those matters that the insured is
obliged to disclose. However, a breach of the section does not give the insurer a
right to damages against the intermediary. The insurer’s only remedy lies in
avoiding the policy against the insured, which it would be able to do in any event.
10.47 Where an agent acts for a consumer, the agent’s failure to answer questions
honestly and carefully becomes the consumer’s failure. In these circumstances,
we do not think that section 19(b) gives the insurer any additional protection.
Although it would be possible to preserve section 19(b) within the proposed new
regime, to do so seems otiose. The only reason for preserving it would be if it
gave the insurer a right in damages against the intermediary. We ask whether a
right to damages against an intermediary would be a useful additional protection
to insurers.
10.48 We welcome views on whether there are any reasons to preserve section
19(b) for consumer insurance. If so, should a breach grant the insurer a
right in damages against the intermediary?
Section 19(a)
10.49 Substantial criticisms can be made of section 19(a) in relation to consumer
insurance. If it is needed at all, we think it requires substantial reform. In
particular:
(1) It seems wrong that insurers should be entitled to avoid policies with
insureds because of a fault that lies exclusively with a third party. As we
explained in Part 9, this could undermine the purpose of product
insurance where the retailer is aware of defects in the product.
(2) The extent of the duty is unclear, and is difficult to reconcile with an
obligation of confidentiality. Suppose, for example, an agent arranges
critical illness cover first for a mother and then some time later, with a
different insurer, for her daughter. The agent knows that the mother has
a hereditary condition, of which the daughter is unaware. Should it be
disclosed by the agent? At the very least, we do not think that the duty
should extend to information provided in confidence by a third party.
(3) How far does the knowledge extend? Would agents to insure be obliged
to make internal enquiries or search their records? If it is a national firm,
what are they required to do about information held at other branches?
On balance, we do not think such a duty should extend beyond the
relevant transaction.
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