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

A.11 The word "or" between negligence and non-disclosure suggests that these are
separate grounds for rejection of a claim. If this is correct, the only obligation on
the insurer in respect of misrepresentation or non-disclosure is not to
"unreasonably" reject a claim.
A.12 The weak nature of the protections offered by the Statements led one academic
to describe them as “a rather pointless exercise”. 6
A.13 Detailed criticisms of the Statements were also made in the English Law
Commission's Report of 1980. 7
ENGLISH LAW COMMISSION REPORT 1980
A.14 In 1975, a draft European Directive called for the harmonisation of the essential
provisions of insurance contract law. By 1978 there was a separate draft
Directive modelled on French law and aimed at achieving a measure of
harmonisation. In 1978, against this background, the Lord Chancellor referred
insurance contract law to the Commission.
The central problem
A.15 The report concluded that the current duty of disclosure is far too stringent. It
argued that a duty of disclosure based on what a "prudent insurer" thinks is
material is inherently unreasonable:
It requires every insured to disclose any fact which a prudent insurer
would consider to be material, and entitles the insurer to repudiate the
policy and to reject any claim in the event of any breach of this duty.
However, an honest and reasonable insured may be quite unaware of
the existence and extent of this duty, and even if he is aware of it, he
may have great difficulty in forming any view as to what facts a
prudent insurer would consider to be material.” 8
A.16 As a result, a policyholder may act honestly and reasonably and still find that the
insurer is entitled to avoid the policy. Furthermore, the duty of disclosure can
operate as a trap in relation to proposal and renewal forms. A reasonable insured
may think that it is sufficient to answer the questions presented, and find that they
are later deprived of the cover they thought they had bought.
6 See J Birds, “The Statement of Insurance Practice — A Measure of Regulation of the
Insurance Contract” (1977) 40 Modern Law Review 677.
7
Insurance Law Non-Disclosure and Breach of Warranty (1980) Law Com No 104, paras
3.24 to 3.30.
8 As above, at para 9.3(i).
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