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

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Table 6: Consumer cases: overall success rate No. % No change to insurer’s decision 109 57 Substantial change to insurer’s decision 72 38 Small change/goodwill payment 9 5 Total 190 100 SMALL BUSINESS CASES C.94 As discussed above, only 7 of the 197 case in our original sample (4%) were brought by small businesses. In order to say more about the particular issues raised by small business cases, we attempted to boost this number. We therefore asked the FOS if they could locate another 30 final decisions on non-disclosure by small businesses. In the end, however, we were only able to locate another 5 small business decisions relating to non-disclosure. It appears that, for whatever reason, relatively few small businesses bring claims to the FOS about this issue. C.95 The discussion that follows is therefore based on only 12 case. They all involved a final ombudsman decision, and were decided between March 2003 and August 2005. C.96 Table 1 shows the type of insurance. Over half involved building or contents insurance; two cases involved professional indemnity insurance; and two involved health issues (either to protect income or a business loan). In the final case, the owner of a residential care home for the elderly had taken out insurance which, among other things, covered the policyholder against loss of registration. Table 1: Small business cases – by type of policy Building/contents No. 7 Professional indemnity 2 Income protection/permanent health 1 Loan protection 1 Care home insurance 1 Total 12 C.97 The non-disclosure related to a wide variety of different issues. Two cases involve health issues; two related to the locks or alarm system; and the two professional indemnity cases both related to pending complaints. The other cases each involved a different issue, including previous losses, the value of the property and the property’s state of repair. C.98 The value of the claim was an issue in only one case. Here the full claim was valued at £650,000, but the complainant agreed to limit their claim to £100,000. 380
When does the FOS apply the consumer approach? C.99 One issue we were interested in exploring was how far the FOS applied the strict letter of the law to small business claims, and how far it tempered the rule in Pan Atlantic to take into account the ABI Statements or good industry practice. Technically the ABI Statement of Practice and FSA Conduct of Business Rules on non-disclosure only apply to consumer claims, but the FOS may apply similar provisions to small business cases on the grounds that it is fair and reasonable to do so. C.100 In one case (SB3) the ombudsman explicitly stated that the policyholder would be given the same rights as a private consumer. A fish and chip shop had suffered a fire when an intruder entered the premises. The building insurer attempted to avoid the policy on the grounds that policyholder had told them that the door was fitted with a five-lever mortice lock. In fact, it was only a three-lever lock. The ombudsman took the view that the misrepresentation was innocent. Furthermore, the type of lock made no difference to the outcome as the intruder had broken through a panel in the door. C.101 By contrast, there were four cases in the study where the ombudsman applied the letter of the law. For example: (1) In Case SB2, the policyholder was a firm of insurance brokers. The ombudsman decided that the inequality of bargaining power often present between small businesses and insurers did not apply. Instead, the complainant’s size, status and knowledge of insurance law meant that it would be appropriate to apply normal legal principles. The brokers had signed a professional indemnity policy, stating that each member of staff had been asked whether they were aware of any circumstances that might give rise to a claim. In fact, the firm had not made these enquiries. A member of staff had been issuing backdated cover notes. The brokers argued that even if they had made enquiries it would have made no difference, as they would not have found out about the cover notes. The ombudsman found that this was irrelevant: the non-disclosure was effectively a breach of warranty and had the effect of avoiding the policy. (2) In Case 52 the ombudsman held that the policyholder was under a duty to volunteer information even though no question had been asked. The policyholder had insured a shop with a flat above it. At the time the flat had been empty, but shortly afterwards it was let to a tenant. The tenant proved unsatisfactory. The owner started possession proceedings against her, but before the court proceedings ended the tenant smoked in bed and started a serious fire. The ombudsman found that the policyholder should have realised that a prudent underwriter would want to know that the flat was occupied by an unsatisfactory tenant. In particular, the insurer should have been told that possession proceedings had been started. Even though the insurer had not asked any questions about the occupant of the flat, the policyholder should have volunteered this information. 381
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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 343 and 344: 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
Page 377 and 378: Table 4: Consumer cases: time of no
Page 379 and 380: C.27 The FOS has explained that in
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Page 387 and 388: C.65 A further complication of the
Page 389 and 390: I cannot accept that the complainan
Page 391 and 392: (2) W failed to disclose an eating
Page 393: C.89 One problem with relying on om
Page 397 and 398: The overall success rate C.107 The
Page 399 and 400: Institute of Actuaries Healthcare C
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