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

THE STATEMENTS OF PRACTICE 1977
A.4 In 1977 the British Insurance Association (predecessor to the ABI) and Lloyd's
issued a Statement of General Insurance Practice (SGIP). This was followed later
in the same year by a Statement of Long-Term Insurance Practice (SLIP) issued
by the Life Offices' Association (now part of the ABI) and the Associated Scottish
Life Offices.
A.5 It appears that these Statements were introduced as part of an agreement with
the Government, under which insurance contracts were exempted from key
provisions of the Unfair Contract Terms Act 1977. 5 We are told that the title
“Statement” was chosen in preference to “Code” to make it clear that in the
industry’s view the provisions merely confirmed current practice.
A.6 It was intended that the Statements would address some of the harsher aspects
of the law for consumers. Both Statements required proposal forms to contain
warnings regarding the duty of disclosure and the consequences of any breach.
In addition, insurers were required to ask clear questions about matters which
were generally found to be material.
A.7 The Statements did not directly change the test of materiality. Nor did they
explicitly refer to avoidance. They did, however, restrict the right of an insurer to
repudiate liability for a claim – and such repudiation could only take place after
the policy had been avoided. The Statements did not address the situation where
no claim had been made. Whilst many allegations of misrepresentation or nondisclosure
are undoubtedly raised after a claim, these issues can arise in other
circumstances.
A.8 SGIP provided that in cases of fraud, deception or negligence, an insurer's right
to repudiate a claim remained unchanged. Otherwise - presumably in cases
where a misrepresentation or non-disclosure was innocent - insurers should not:
unreasonably repudiate liability to indemnify a policyholder:-
on the grounds of non-disclosure or misrepresentation of a material
fact where knowledge of the fact would not materially have influenced
the insurer's judgment in the acceptance or assessment of the
insurance.
A.9 This effectively anticipated the Pan Atlantic decision by requiring actual
inducement.
A.10 SLIP was less clear:
An insurer will not unreasonably reject a claim. (However, fraud or
deception will, and negligence or non-disclosure or misrepresentation
of a material fact may, result in adjustment or constitute grounds for
rejection). In particular, an insurer will not reject a claim on grounds of
non-disclosure or misrepresentation of a matter that was outside the
knowledge of the proposer.
5 Unfair Contract Terms Act 1977, schedule 1, para 1(2)(1)(a).
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