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

1.67 In 1980, the Law Commission rejected this argument forcefully, as it effectively
allows the insurer to be “judge and jury in its own cause”. 33 We also reject the
argument. We think the use of technical defences is counter-productive and likely
to bring both the law and the insurance industry into disrepute. We say this for
three reasons:
(1) Some policyholders will be suspected wrongly, and will suffer real
injustice as a result.
(2) The public perceives insurers to be nit-picking over irrelevancies. This
may even encourage less scrupulous policyholders to “get their
retaliation in first” by, for example, over-valuing claims.
(3) If cases are disposed of on spurious technical grounds, genuine
allegations of dishonest behaviour are not pursued.
1.68 This paper proposes to remove technical and unmeritorious defences. Instead,
allegations of dishonesty should be dealt with on their own terms. We will
consider fraudulent claims in the second consultation paper, but in general we
accept that the standard of proof required for dishonesty must not be set too high.
Our proposals on fraud at the pre-contract stage are designed to allow insurers to
establish dishonesty where it is more probable than not.
The cost of cover
Transferring risks to the pool
1.69 The insurance market is highly competitive, and policyholders generally get what
they pay for. This means that any increase in the number of claims paid will lead
to an increase in premiums. The proposals we make to increase policyholders’
rights are made because we think that, if policyholders were fully aware of the
issue, they would be happy to pay a small increase in premiums for the additional
cover it would provide.
1.70 For example, in Part 4 we provisionally propose that the law should be changed
to prevent insurers from avoiding the policy where a consumer was both honest
and careful in giving information. In Part 5 we propose the same rule for
businesses, in the absence of an agreement to the contrary. We are not
suggesting that the cost of the change should be borne by the insurer or its
shareholders. Rather it is a judgement that it would be better for the risk to be
met by the pool of premiums paid by policyholders. If a policyholder is genuinely
and reasonably unaware of a fact, the risk of making an inaccurate statement is
outside their control. And policyholders normally wish to transfer risks outside
their control to the pool. That is why they are buying insurance.
33
Insurance Law, Non-Disclosure and Breach of Warranty (1980) Law Com No 104 at para
6.10 when it made this explicit condemnation of the provisions on warranties.
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