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

Voluntary measures unsatisfactory
A.17 The insurance industry did not attempt to defend the law in its present form.
Instead, they argued that any faults had been cured through the 1977 Statements
of Practice. However, the Law Commission thought that the statements “are
themselves evidence that the law is unsatisfactory and needs to be changed”. 9
It gave three reasons:
(1) The Statements left insurers as the sole judge of whether rejection of a
claim was reasonable.
(2) The Statements did not have the force of law and, indeed, the liquidator
of an insurance company would be bound to disregard them.
(3) The Statements were restricted to policyholders effecting policies in their
private capacity - but the mischiefs in the law also affected businesses.
A.18 The Commission was particularly scathing about the suggestion that insurers
should have discretion “to repudiate a policy on technical grounds if they suspect
fraud but are unable to prove it”. 10 This placed insurers in the position of judge in
their own cause.
Modifying the duty of disclosure
A.19 The Commission considered that the duty of disclosure should be modified rather
than abolished. It thought that insurers still relied on information volunteered by
policyholders. Without it, insurers would be less able to differentiate between
good and bad quality risks, leading to higher premiums for honest and
reasonable policyholders.
A.20 This approach applied to both consumers and businesses. The Commission
thought that abolition would enable "sharp practice" by consumers. 11 It would
also hamper the granting of temporary cover prior to a proposal form being
completed. Indeed, any division between consumers and business was thought
by the Commission to be artificial; it felt the dividing line should really be between
“professionals" and "non-professionals". Special rules for consumers would lead
to complex law, as there would then be three categories:
(1) Consumers.
(2) Businesses.
(3) Marine, Aviation and Transport risks.
So far as businesses were concerned, most other systems of law imposed such a
duty and abolition might cause the British insurance industry to lose international
competitiveness. Instead, the Commission attempted to draw a better balance
between the interests of the insurer and those of the policyholder.
9 As above, at para 3.28.
10
As above, at para 6.10, when it made this explicit condemnation of the provisions on
warranties.
11 As above, at paras 4.34 to 4.42 and 10.8.
287