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

10.64 We provisionally propose that a business insured’s signature on a proposal
form that has been completed incorrectly by a third person should not be
regarded as conclusive evidence that the insured knew of or adopted what
was written on the form. However, this should not reduce the effect of a
warranty of fact given by a business insured.
Marine Insurance Act 1906, section 19(a)
10.65 Earlier we suggested three potential problems with the agent’s independent duty
to disclose under section 19(a):
(1) The remedy for non-disclosure by the agent is avoidance of the policy
rather than damages against the agent;
(2) Where there is a “chain” of intermediaries, the duty appears to apply only
to the agent who deals directly with the insurer, not any other agent in the
chain; and
(3) It is not clear whether the duty is to disclose any information the agent
has, or only that gained in its capacity as agent for the particular insured.
Remedy
10.66 The subsection only bites when the information is known to the agent but not to
the insured (and is not information that the insured ought to be aware of in the
ordinary course of business.) By definition, therefore, the insured is not at fault.
Our provisional proposal is that in these circumstances it is contrary to the
insured’s reasonable expectation that it should lose its rights under the policy and
bear the burden of seeking recovery from the agent. It seems better to replace
the insurer’s right to avoid by a right to claim damages from the agent.
10.67 This would be a significant change in the law, as section 19 does not currently
provide insurers with a right to damages. Such responses as we have received to
date from both insurers and brokers suggest that this would produce fairer or
more satisfactory outcomes.
10.68 We would welcome views on whether the right to damages should apply to all
contracts of insurance placed within the UK, or only to those governed by the law
of a part of the UK.
Chains
10.69 An intermediary may well have material information that is not known to either the
insured or the final intermediary who deals with the insurer. Under the current law
there is no incentive on the middle intermediary to reveal the information. In fact,
it would seem open to the parties to reach an express agreement that the
information does not have to be communicated up the chain.
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