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

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C.62 The classification system is a complex one. It attempts to distinguish between two forms of negligence: inadvertence and recklessness. The word “reckless” is often used in a criminal context, and attempts to define it have kept the courts busy. 10 In 1993 the Law Commission distinguished between acting recklessly in respect of a circumstance (such as whether you had undergone an MRI scan) and acting recklessly in respect of a result (such as whether the insurer would act differently if they knew about it). 11 We provided the following draft statutory definition: A person acts “recklessly” with respect to: (i) a circumstance, when he is aware of a risk that it exists or will exist and (ii) a result when he is aware of a risk that it will occur and it is unreasonable, having regard to the circumstances known to him, to take that risk. C.63 It is not absolutely clear whether the FOS is talking about recklessness in relation to the circumstances or the result. For example, a policyholder may be aware that the question asks about “any ear disorder” and that they suffer from minor hearing loss. They may, however, fail to mention it in a proposal for life insurance because they do not think it would be of any relevance to the insurer. The misrepresentation would therefore be deliberate as to the circumstances but inadvertent as to the result (as the applicant is unaware of the risk that the insurer would think it material). C.64 At first reading, the description the FOS gives of their approach suggests that ombudsman will look only at the applicant’s state of mind in relation to the literal truth of the answer: did they give an answer knowing it to be untrue or without caring whether it was true? On this basis someone who deliberately states that they do not have a hearing loss because they didn’t think the insurer had any reason to know would be classed as acting “deliberately” rather than “inadvertently”. This can lead to a harsh result where the applicant dies of a cause unrelated to the hearing loss (such as leukaemia). If the mis-statement is classified as deliberate or reckless, then the insurer may avoid payment if they can show that, had they known the truth, they would have done something differently (such as exclude hearing loss). The insurer does not need to show that, had they known, they would have excluded the particular claim in question. 10 See in particular, R v G (2003) 22257805 (HL), [2004] 1 AC 1034; R v Caldwell [1982] AC 341; R v Cunningham [1957] 2 QB 396. 11 Legislating the Criminal Code: Offences against the Person and General Principles (1993) Law Com 218. 372
C.65 A further complication of the FOS test is that ombudsmen are forced to make subtle evaluations of the policyholder’s state of mind when they were filling in a form, possibly several years earlier, and to which they may not have paid much attention to at the time. This is especially difficult where the policyholder has died (which occurred in at least 16 cases). In the absence of evidence about what risks the applicant was aware of, the burden of proof becomes an issue. The burden is clearly on the insurer to establish that a misrepresentation has been made. However, once this has been established, the ombudsman’s description of the process does not make it clear whether it is up to the policyholder and their family to show that the risk was innocent or inadvertent, or up to the insurer to show that it was reckless or deliberate. Applying the categories in practice C.66 Given the potential problems with attempting to categorise the policyholder’s state of mind, we were keen to see how the system worked in practice. In our survey there were 160 cases in which it was alleged that the policyholder had given an inaccurate answer to a question. We read through each of these decisions to see how the ombudsman had classified the behaviour Table 5: Consumer cases where a question was asked: how did the ombudsman classify the answer? No. % Innocent 22 14 Inadvertent 14 9 Reckless 31 19 Deliberate 6 4 Did not classify in this way of which: 87 54 Policy avoided 59 68 Policy not avoided 25 29 Ombudsman upholds insurer’s 3 3 decision to amend policy terms/apply proportionality All cases where question answered inaccurately 373 160 87 100 100 C.67 The first issue to note is that very few answers were classified as deliberately false. We found only six cases where the ombudsman said that the insured had acted deliberately in giving false information. There were none in which the complainant was said to be fraudulent. It was much more common for the ombudsman to say that the behaviour was “at least reckless”.
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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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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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Page 335 and 336: Section 4 Baseline analysis of insu
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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
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Page 379 and 380: C.27 The FOS has explained that in
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Page 397 and 398: The overall success rate C.107 The
Page 399 and 400: Institute of Actuaries Healthcare C
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