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

C.56 At this stage, we are only concerned with the first issue: can the insurer show
they would (probably) have done something differently? We return to the second
issue below.
C.57 In practice, the first issue rarely causes disputes. It is a fairly easy test for
insurers to meet. In most cases, the insurer’s underwriters sent a letter stating
that had they known the information, they would have acted differently. The FOS
told us that ombudsmen then exercise their own judgement on whether the
insurer has in fact been induced: they do not rely on complainants to undertake
“the burden of challenging insurance experts on insurance practice”.
C.58 There were a few cases in which the ombudsman did not accept that the insurer
would have written the policy on different terms or not at all if they had known the
information. For example:
(1) In Case 102, the ombudsman found that the policyholders had acted
recklessly in not telling the insurer that their son had been convicted of
theft. They had not read page 2 of the renewal notice, which asked for
such information. However, there were particular circumstances
surrounding the conviction, and the policyholders had been insured with
the insurer for more than 14 years, during which they had an excellent
claims record. The ombudsman said the insurer had not discharged their
burden of proof to show that they would not have entered into the
contract on the same terms.
(2) In Case 129, the applicant failed to mention that she had been referred to
a specialist for a heart murmur, and had undergone an ECG test. She
later developed cancer. The tests revealed no abnormality of the heart.
On this basis, the ombudsman said that the information would not have
affected the underwriter’s decision, and the insurer would still have
issued the same policy on the same terms.
C.59 However, most cases focused on the customer’s state of mind (discussed below)
rather than the insurer’s. If a complainant were to challenge an insurer’s claim,
they would need expert evidence. The FOS does not ask complainants to provide
such evidence, and we did not find any cases in which the complainant had done
so. This is hardly surprising, given the low levels of legal representation. The
FOS regards legal representation as unnecessary and most policyholders were
unrepresented. Among the 190 decisions, we found evidence that the applicant
was legally represented in only 21 cases (11%). 8
STAGE 3: EVALUATING THE CUSTOMER’S STATE OF MIND
The stated approach
C.60 The FOS state that they categorise misrepresentations in four ways: deliberate,
reckless, inadvertent and innocent. They define these categories as follows:
8
In three cases the applicant appeared to be represented by a (paid) non-lawyer such as a
broker, and in one case by an unpaid adviser.
370