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

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Section 6 Case Study - Critical Illness Cover Of the claims that have not been paid out, non-disclosure accounts for between 3% and 17% of non-payment. In all the evidence from insurers that we have been able to gather, there has been no differentiation between nondisclosure and misrepresentation. Therefore, any reference in the commercial literature relating to ‘non-disclosure’ appears to cover both non-disclosure and misrepresentation. The average probability of declining payment on a claim for reasons of non-disclosure (including misrepresentation) is approximately 12% 18. This suggests that there are approximately 3,535 claims 19 that are declined annually, of which 2,127 are declined for reasons of non-disclosure (including misrepresentation). The remaining claims are refused due to the insured failing to meet the definitions contained within the policy (1,407). 6.2 The effect of the proposals on non-disclosure and misrepresentation Even though we have assumed that 93% of the market for CIC is through Type 1 firms, we have made the assumption that Type 2 firms are four times more likely to decline a claim for reasons of non-disclosure or innocent or negligent misrepresentation compared to a Type 1 firm. We assume that Type 1 firms refuse 10% of claims for misrepresentation while Type 2 firms refuse 40% of claims for non-disclosure or misrepresentation. This implies that Type 1 firms refuse 1,635 claims annually while Type 2 firms refuse 492 claims 20. We would ask consultees to comment on these specific assumptions relating to the relative likelihood of refusing a claim for reasons of non-disclosure or misrepresentation. 18 The actual percentage used in this analysis is 12.1% 19 Rounded to the nearest whole number 20 We assume that Type 1 firms receive 93% of claims in line with their market share, which equates to 16,354 annually. Assuming that 10% of claims are refused for reasons of non-disclosure or misrepresentation, this equates to 1,635 claims annually (rounded to nearest whole number).. We assume that Type 2 firms receive 7% of claims and refuse 40% for reasons of non-disclosure or misrepresentation – equating to 492. London Economics June 2007 43
Section 6 Case Study - Critical Illness Cover We have assumed that, at present, of the claims unpaid (either in full or in part) for reasons of misrepresentation by Type 1 firms, 11% are negligent and 89% are deliberate or reckless 21. We have assumed that for Type 2 firms, 10% of rejected claims are refused for non disclosure, 10% of rejected claims are refused for innocent misrepresentation, 20% are refused for negligent misrepresentation and the remaining 60% are refused for deliberate or reckless misrepresentation 22. This information is presented in Table 16 overleaf along with the corresponding numbers of claims by classification. Again, we would ask consultees to comment on these specific assumptions. Table 16: Baseline Assumptions 23 All firms Type 1 firms Type 2 firms Number of new policies written 511,984 (100%) 476,145 (93%) 35,839 (7%) Average annual premium (per policy) £244.58 £232.35 Total gross premiums (£m) £116.4m £8.3m Number of claims 17,585 16,354 1,231 Existing number of claims paid 14,050 13,410 640 Currently unpaid (total) 3,535 (20%) 2,944 (18%) 591 (48%) Currently unpaid (non-disclosure and misrepresentation) 24 2,127 Non-disclosure (a) 49 Innocent misrepresentation (b) 49 Inadvertent misrepresentation (c) 278 Deliberate/Reckless misrepresentation (d) 1,751 1,635 492 (100%) (100%) 0 49 (0%) (10%) 0 49 (0%) (10%) 180 98 (11%) (20%) 1,456 295 (89%) (60%) 21 The proportion of cases avoided as a result of deliberate and reckless behaviour corresponds with the Law Commission’s survey of Ombudsman cases. However, it appears relatively high and the Law Commission would welcome input from consultees on these figures. 22 These proportions are more speculative than the proportions for Type 1 firms. It is, however, based on conversations that the Law Commission has had with insurers. Again, it would welcome further input from consultees on these figures. 23 Note that some of the estimates presented in the Table are rounded to the nearest whole number 24 Numbers may not add to exact aggregate due to rounding London Economics June 2007 44
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The Law Commission Consultation Pap
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THE LAW COMMISSION THE SCOTTISH LAW
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v Paragraph Page Innocent misrepres
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vii Paragraph Page Marine Insurance
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OUTLINE 1.1 This Consultation Paper
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• At present, consumers have a du
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• Any warranty should be set out
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PART 1 INTRODUCTION OUTLINE OF THE
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1.11 The 1906 Act therefore imposes
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(1) The insurer may use warranties
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1.17 When in 1980 the English Law C
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1.28 For most consumers with disput
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“Fairness” and reasonable expec
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1.50 The parties should be free to
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“Moral hazard” and the need for
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1.71 We think that consumers would
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1.80 We ask what the appropriate re
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(2) Appendix B is a report commissi
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Although the issues arise under a p
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Thus if, when a claim is made, the
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2.21 In both jurisdictions the vict
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(2) Before an insurer may avoid a c
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Subject to the provisions of this s
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Despite some contrary suggestions,
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Held covered in case of any breach
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(2) The warranty is relevant to onl
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2.61 Classification of the term is
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2.68 Such clauses elevate the answe
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These are often referred to as “c
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2.82 We accept that an exception to
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(d) readily available to any person
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2.101 If the term were not sufficie
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2.111 The law on warranties is simi
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(1) Each proposal form was required
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3.14 TCF is a valuable initiative w
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THE FINANCIAL OMBUDSMAN SERVICE 3.2
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Research project 3.32 When we start
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Case study: clear questions should
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3.43 These examples look only at th
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Warranties of fact 3.50 We did not
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(9) The FOS has more experience tha
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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
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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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Page 307 and 308: GENERAL INSURANCE STANDARDS COUNCIL
Page 309 and 310: A.63 This report is of particular i
Page 311 and 312: In order to allow flexibility and t
Page 313 and 314: A proposed model for assessing the
Page 315 and 316: Tables & Figures Page Table 1: Illu
Page 317 and 318: Section 1 Introduction and Terms of
Page 319 and 320: Section 2 What are the primary chan
Page 321 and 322: Section 3 Economic incentives in in
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Page 345 and 346: Section 5 Identification of the pot
Page 353 and 354: Section 6 Case Study - Critical Ill
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Page 371 and 372: Annex 1 References Cockburn, B. (20
Page 373 and 374: APPENDIX C THE FOS APPROACH TO ISSU
Page 375 and 376: Table 2: Consumer cases: main infor
Page 377 and 378: Table 4: Consumer cases: time of no
Page 379 and 380: C.27 The FOS has explained that in
Page 381 and 382: Have you any physical defect or inf
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Page 385 and 386: Deliberate Customers deliberately m
Page 387 and 388: C.65 A further complication of the
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Page 393 and 394: 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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