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

The FOS approach to unclear questions
C.51 The FOS does not evaluate questions in the abstract. Our survey did not include
any cases where a question had been asked, but where the Ombudsman had
thrown the case out at Stage 1 simply because the question was not clear. In all
the cases we looked at involving an inaccurate answer, the ombudsman had
proceeded to Stage 3 to evaluate the policyholder’s state of mind. In other words,
the cases always involved some discussion of whether the policyholder had
acted honestly or reasonably in giving the answer that they did, though
ombudsmen used different terms and tests to describe this process. The FOS
explained that the issue of whether a question is unclear “invariably involves a
discussion of the complainant’s response to it”. 7
STAGE 2: INDUCEMENT
C.52 Under the rule in Pan Atlantic, the insurer must show that the non-disclosure or
misrepresentation influenced (or “induced”) them to enter the contract – though it
does not necessarily have to be a decisive influence. The insurer does not have
to show that, if they had known the full facts, they would not have entered the
contract at all. It is enough to show that they might have charged a higher
premium, or that they would have inserted other terms or exclusions into the
policy.
C.53 The FOS comments that
The burden of proving inducement will not be high in clear-cut cases.
For example, if a customer fails to disclose that their house has
serious cracks, we are likely to believe the insurer would not have
offered them full buildings insurance.
C.54 However, in other cases it may not be clear-cut, and the FOS will usually require
evidence of influence, such as a statement from the underwriters.
C.55 Thus the cases in our survey usually included a statement or other evidence from
the underwriter, saying what they would have done had they known the full facts.
These statements are relevant for two reasons:
(1) Insurers can only avoid a policy if they can show that they would have
been influenced by the information had they known it. Thus, even if a
claimant has deliberately failed to mention past claims, the insurer can
only avoid the policy if they show that had they known about the past
claim, they would probably have acted differently in entering into the
contract. At this stage, the insurer does not necessarily have to show
what they would have done differently.
(2) Where the non-disclosure is inadvertent, the ombudsman asks what the
insurer would have done had they known the information. The insurer will
usually be required to pay a claim that it would have paid under the terms
of the insurance it would have offered.
7 Private communication.
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