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

10.56 The great majority of business will be placed through independent brokers
negotiating in the London market. For these types of insurance we propose no
change. Here policyholders are much more likely to be sophisticated repeat
players. They can exercise market discipline themselves, without the need to
attribute the mistakes of intermediaries to insurers.
10.57 Moreover, we think that in some cases to do that would be positively unfair to
insurers. We understand that many insurance arrangements are in effect
conceived and set up by brokers, who then have to sell the idea to underwriters
as much as they do to insureds. In such a case it may be the broker who takes a
judgement about what is material to the underwriter. It would not be right to visit
their mistakes on the insurer.
10.58 We think the question of intermediaries who deal with larger businesses is best
left to the development of common law, allowing judges to apply principles of
agency law to the facts in hand. This means that for most commercial insurance,
we are not proposing a change in the current law.
10.59 We provisionally propose that, in a business context, an intermediary
should be regarded as acting for an insurer for the purposes of obtaining
pre-contract information, if it deals with only a limited number of insurers
and does not search the market on the insured’s behalf.
10.60 For businesses using other intermediaries, the issue of whom the
intermediary is acting for in respect of disclosure issues should be left to
the common law.
The Newsholme rule
10.61 Some of the completed form cases – indeed, Newsholme itself – were business
insurance cases. We think the proposal to abolish the “transferred agency” rule
made in relation to consumer insurance should apply equally to business
insurance cases.
10.62 We provisionally propose that in the business context, an intermediary who
would normally be regarded as acting for the insurer in obtaining precontract
information remains the insurer’s agent while completing a
proposal form.
10.63 The observations we make on the effect of a signature in relation to consumers
are also relevant to business insureds. The proposer’s signature should not be
conclusive evidence that the proposer knew of or adopted what was written on
the form. However in business insurance there is one important caveat. In a
business context it would be permissible for the insurer to seek warranties of
specific facts. Thus if the insured signed a warranty to state that a fact was
correct, this would give the insurer additional rights to refuse claims. The
warranty will be enough to put the proposer on warning that they should check
the form carefully. The warranty should be binding on the proposer just like any
other term. It would however be subject to the controls we have proposed in
Parts 5 and 8 to prevent standard form contracts from defeating reasonable
expectations.
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