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

Section 6 Case Study - Critical Illness Cover
6.2.1 Assumed impact of the reforms
As we explained in section 5 of this report, the Law Commission proposes to
remove any ambiguity around the FOS’ definition of reckless. This may have
an effect on Type 1 firms. Following this clarification of categories of
misrepresentation, we have assumed that an additional 3.5 percentage points
of claims against Type 1 firms will be redefined as being claims that involve
negligent misrepresentation (rather than deliberate or reckless
misrepresentation) with the remaining unpaid claims continuing to be
refused for reasons of reckless or deliberate misrepresentation.
Therefore, we assume that if the Law Commission’s proposed reforms are
implemented, 14.5% of previously rejected claims will be classified as a
negligent misrepresentation with the remaining 85.5% continuing to be
classified as deliberate or reckless misrepresentation. For Type 1 firms, this
reclassification results in 237 claims now being defined as negligent (an
increase of 57 claims) that will potentially be subject to a proportionate
remedy.
For Type 2 firms, the impact is more marked. As they do not currently
implement the FOS guidelines, they will be affected by all of the reforms
proposed by the Law Commission. First, we look at the effect of the
clarification of recklessness. We estimate that this will mean that the 20% of
claims that Type 2 firms avoids for negligent misrepresentation will become
23.5% (116 claims – an increase of 17 25). The 60% of claims, which are being
avoided for deliberate or reckless misrepresentation, will decrease to 56.5%
(278 claims – a reduction of 17)
Second, instead of avoiding all claims for non-disclosure or
misrepresentation, Type 2 firms will have to pay claims that involve nondisclosure
or innocent misrepresentation. They will have to pay a
proportionate amount (ranging from £0 to full) of claims that involve
negligent misrepresentation. They will continue to be permitted to refuse to
pay claims which involve reckless or deliberate misrepresentation.
25 Rounded to the nearest whole number
London Economics
June 2007 45