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

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1.85 Most of those to whom we have spoken regard harmonisation of insurance contract law as a distant prospect. Certainly European legislation is not so imminent to be a reason to delay this review. However the possibility of European initiatives is a good reason for the review to take place now. Several of those to whom we have spoken commented that there would be more chance of influencing the outcome of harmonisation if domestic reform had already taken place. The reason given was that our current insurance contract law is perceived as being both unfair and unusual, so that any suggestion that it should form the basis of a harmonised regime is unlikely to be successful. If it had recently been reviewed and brought up-to-date, it would be easier to sell as the basis of a European regime. STRUCTURE OF THE PAPER 1.86 In Part 2 we give an overview of the law of misrepresentation, non-disclosure and breach of warranty. 1.87 Parts 3, 4, 5 and 6 consider pre-contract information from the insured. This involves considering the law not only of non-disclosure and misrepresentation but also of warranties of past or present fact. As we have seen, the law allows insurers to use such warranties to provide additional remedies for inaccurate statements. Part 3 considers the present position for consumers, looking in detail at FSA rules and ombudsman practice. Part 4 sets out our proposals for the reform of consumer law (that is insurance taken out by individuals acting outside their business or profession). Part 5 sets out reform proposals affecting business insurance. Finally, Part 6 considers some particular problems concerning precontract information that arise in group insurance, co-insurance and insurance on the life of another. 1.88 Parts 7 and 8 look at warranties for the future and similar terms. Part 7 analyses the problems, and Part 8 sets out proposals for reform. 1.89 Parts 9 and 10 then deal with pre-contract information and intermediaries. Problems arise where an intermediary has failed to pass on pre-contract information to the insurer, or has given the policyholder misleading advice about what they should tell the insurer. In some circumstances the law also imposes an obligation on intermediaries to give insurers information known to them in some other way. Part 9 considers the law, regulation and problems, while Part 10 sets out proposals for reform. 1.90 Part 11 considers how one might measure the costs and benefits of our proposals, while Part 12 lists the provisional proposals and questions for consultation. 1.91 Finally the report includes four appendices: (1) Appendix A is a chronological account of the previous reports and the self and statutory regulation introduced in response to the criticisms that have been made. 20
(2) Appendix B is a report commissioned from London Economics to develop a methodology for exploring the economic impact of our reforms. It is the first stage towards assessing the costs and benefits of our proposals, and includes a draft case study of the critical illness market. We welcome comments on the methods used to develop this case study, and would be grateful for help in gaining access to further data in this area. (3) Appendix C describes the survey we undertook of Financial Ombudsman Service decisions on issues of misrepresentation and non-disclosure. (4) Appendix D is a list of meetings held and written responses received in relation to our three Issues Papers. ACKNOWLEDGEMENTS 1.92 We have received very valuable help from a group of advisors to the project: Professor John Birds, Warren Copp, Ken Davidson, Professor Angelo Forte, Teresa Fritz, Alison Green, Chris Hannant, Martin Hill, Peter Hinchliffe, Christopher Jones, Gerard L'Aimable, Robert Purves, Sarah Wolffe and Geraldine Wright. We thank them warmly. We also give particular thanks to Professor Robert Merkin, who acted as an adviser and carried out a detailed study of Australian insurance contract law; 38 to Dr Giesela Ruehl of the Max- Planck Institute in Hamburg for her help with comparative developments; and to Peter Tyldesley, who has acted as consultant to the project since he left the Law Commission in early 2007. 38 See http://www.lawcom.gov.uk/docs/merkin_report.pdf. 21
Page 1 and 2: The Law Commission Consultation Pap
Page 3 and 4: THE LAW COMMISSION THE SCOTTISH LAW
Page 5 and 6: v Paragraph Page Innocent misrepres
Page 7 and 8: vii Paragraph Page Marine Insurance
Page 9 and 10: OUTLINE 1.1 This Consultation Paper
Page 11 and 12: • At present, consumers have a du
Page 13 and 14: • Any warranty should be set out
Page 15 and 16: PART 1 INTRODUCTION OUTLINE OF THE
Page 17 and 18: 1.11 The 1906 Act therefore imposes
Page 19 and 20: (1) The insurer may use warranties
Page 21 and 22: 1.17 When in 1980 the English Law C
Page 23 and 24: 1.28 For most consumers with disput
Page 25 and 26: “Fairness” and reasonable expec
Page 27 and 28: 1.50 The parties should be free to
Page 29 and 30: “Moral hazard” and the need for
Page 31 and 32: 1.71 We think that consumers would
Page 33: 1.80 We ask what the appropriate re
Page 37 and 38: Although the issues arise under a p
Page 39 and 40: Thus if, when a claim is made, the
Page 41 and 42: 2.21 In both jurisdictions the vict
Page 43 and 44: (2) Before an insurer may avoid a c
Page 45 and 46: Subject to the provisions of this s
Page 47 and 48: Despite some contrary suggestions,
Page 49 and 50: Held covered in case of any breach
Page 51 and 52: (2) The warranty is relevant to onl
Page 53 and 54: 2.61 Classification of the term is
Page 55 and 56: 2.68 Such clauses elevate the answe
Page 57 and 58: These are often referred to as “c
Page 59 and 60: 2.82 We accept that an exception to
Page 61 and 62: (d) readily available to any person
Page 63 and 64: 2.101 If the term were not sufficie
Page 65 and 66: 2.111 The law on warranties is simi
Page 67 and 68: (1) Each proposal form was required
Page 69 and 70: 3.14 TCF is a valuable initiative w
Page 71 and 72: THE FINANCIAL OMBUDSMAN SERVICE 3.2
Page 73 and 74: Research project 3.32 When we start
Page 75 and 76: Case study: clear questions should
Page 77 and 78: 3.43 These examples look only at th
Page 79 and 80: Warranties of fact 3.50 We did not
Page 81 and 82: (9) The FOS has more experience tha
Page 83 and 84: 3.63 There might of course be some
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The risk of legal challenge 3.72 We
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(3) BOTH HONESTLY AND CAREFULLY (OR
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4.10 Some consultees have asked how
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4.18 The FOS’s requirement that t
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General questions 4.21 As we have s
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4.32 We provisionally propose that
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4.43 We would also point out that a
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Criminal fraud 4.55 First, some ins
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4.62 We stress this point, because
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4.70 The issue is further confused
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Relevance 4.80 Secondly, our defini
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4.92 However, we are not sure that
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Different ways in which policyholde
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Judging what is “reasonable” fo
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4.121 We ask whether the legislatio
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...the reasonable expectation of th
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4.142 The proposer should take care
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4.154 Few of the legal systems that
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4.162 We accept the first argument
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No reinsurance 4.173 It may occasio
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Effect on future cover 4.183 The fo
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Reactions 4.195 This question excit
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4.206 In Part 3 we identified one p
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Our proposals 4.228 Therefore we pr
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5.5 We have therefore sought soluti
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(2) Similar protections would apply
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(1) The duty of disclosure has beco
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Thus if a business insured ought to
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5.46 On the one hand, it seems righ
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5.57 Insurance law is currently har
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5.67 This is the same rule that we
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5.76 We were told, for example, abo
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5.86 We have already set out our pr
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Proving that an action was delibera
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Cancelling for the future 5.105 We
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(1) The law could allow statements
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5.124 Is one approach better than t
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Controlling the use of standard ter
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However, the provenance of the term
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Reinsurance 5.153 Our starting poin
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5.163 It is important to bear in mi
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5.170 The same issues arise here. A
Page 171 and 172:
PART 6 GROUP INSURANCE, CO-INSURANC
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6.9 There may, however, be cases wh
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6.18 We were told that whatever the
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6.31 There is one question on which
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(1) Where a member has made a delib
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The FOS approach 6.48 In our survey
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6.59 In Part 4 we provisionally pro
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6.73 In business contracts, we prop
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(3) The policy may contain exceptio
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Statements of Insurance Practice 7.
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TREATING CUSTOMERS FAIRLY 7.22 In P
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7.31 Case 14 concerned a critical i
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7.40 Insurers have told us that the
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7.50 Large businesses are more able
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Civil law jurisdictions 7.61 The no
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PART 8 WARRANTIES AS TO THE FUTURE
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8.24 Although our general policy is
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8.33 It may be helpful to illustrat
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8.41 We have considered whether the
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8.51 For business insurance it is a
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8.62 These provisions require the c
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(1) The protection only applies to
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…subject to any express provision
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8.92 This means that neither the in
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Waiver and affirmation 8.101 The ch
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8.107 Scots law has not developed a
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The implied marine warranties 8.116
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Implied voyage conditions 8.127 The
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PART 9 PRE-CONTRACT INFORMATION AND
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9.6 The issue is far from new. Repo
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THE CURRENT LAW Introduction 9.16 R
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The broker as agent for the insured
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There must be every day thousands o
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(1) on the basis of a fair analysis
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9.47 The problem is particularly ac
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Transcribing information to screen
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9.61 However, the case law suggests
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However, it is not obvious that thi
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Section 19(b) 9.77 We have not rece
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It seems to me, both from a reading
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CONSUMERS - THE CURRENT POSITION In
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9.101 For these types of activity,
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(3) whether the firm has or will pr
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9.118 This was the view taken by a
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Unfortunately, the firm has contemp
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PART 10 PRE-CONTRACT INFORMATION AN
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10.9 Some intermediaries fall outsi
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10.19 We think this is a less attra
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10.25 Insurers may find it more dif
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Completion of proposal forms: the N
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Marine Insurance Act 1906, section
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10.56 The great majority of busines
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10.70 We welcome views on whether p
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Cases brought to the Financial Ombu
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11.18 When we commissioned this mod
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The overall effect 11.27 The model
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11.39 Unlike our other proposals, t
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12.9 Do consultees agree that the d
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12.22 We provisionally reject the p
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Contracting out of the default regi
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Consumer insurance: “joint lives,
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12.68 If the voyage conditions are
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ASSESSING THE COSTS AND BENEFITS OF
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THE STATEMENTS OF PRACTICE 1977 A.4
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Voluntary measures unsatisfactory A
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In such circumstances, it was also
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A.39 In 1984 the DTI put forward a
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GENERAL INSURANCE STANDARDS COUNCIL
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A.63 This report is of particular i
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In order to allow flexibility and t
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A proposed model for assessing the
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Tables & Figures Page Table 1: Illu
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Section 1 Introduction and Terms of
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Section 2 What are the primary chan
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Section 3 Economic incentives in in
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Section 4 Baseline analysis of insu
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Section 5 Identification of the pot
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Section 6 Case Study - Critical Ill
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Annex 1 References Cockburn, B. (20
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APPENDIX C THE FOS APPROACH TO ISSU
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Table 2: Consumer cases: main infor
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Table 4: Consumer cases: time of no
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C.27 The FOS has explained that in
Page 381 and 382:
Have you any physical defect or inf
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The FOS approach to unclear questio
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Deliberate Customers deliberately m
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C.65 A further complication of the
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I cannot accept that the complainan
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(2) W failed to disclose an eating
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C.89 One problem with relying on om
Page 395 and 396:
When does the FOS apply the consume
Page 397 and 398:
The overall success rate C.107 The
Page 399 and 400:
Institute of Actuaries Healthcare C
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