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

2.17 In general contract law the courts have often held that there is not only a
representation that the opinion or belief is honestly held but also, depending on
the circumstances, one that the opinion is based on reasonable grounds. 11
Insurance law differs in that there is no representation that there are reasonable
grounds for the opinion or belief. The absence of this requirement derives from
section 20(5) of the 1906 Act:
A representation as to a matter of expectation or belief is true if it be
made in good faith.
2.18 An illustration of this principle is to be found in Economides v Commercial Union
Assurance Co. 12 A 21 year old man undervalued the contents of his flat after his
parents moved in with him. As his statements on this issue were found to be a
matter of opinion rather than fact, it was sufficient that they were held in good
faith. It was not necessary that they should be based on reasonable grounds. 13
Return of premiums
2.19 Secondly, avoidance normally requires restitution: the parties must be restored to
the positions they were in prior to the contract being made. Thus the policyholder
may demand the return of the premium paid, but there is an exception in the case
of fraudulent misrepresentation. For marine insurance, section 84(3)(a) of the
1906 Act states:
Where the policy is void, or is avoided by the insurer as from the
commencement of the risk, the premium is returnable, provided that
there has been no fraud or illegality on the part of the assured...
For non-marine insurance, the point is not wholly clear, and depends on general
principles of contract law or the law of unjustified enrichment. 14
Damages for misrepresentation
2.20 Thirdly, in principle an insurer that has suffered a loss as the result of a
misrepresentation may be able to recover damages from the insured. Damages
may be claimed if the misrepresentation was fraudulent or negligent but not if it
was non-negligent.
11 Brown v Raphael [1958] Ch 636.
12
[1998] QB 587.
13 Above by Simon Brown and Peter Gibson LJJ. Sir Iain Glidewell preferred to leave the
matter open. See Bennett “Statements of Facts and Statements of Belief” (1998) 61 MLR
886; J Cartwright, Misrepresentation, Mistake and Non Disclosure (2 nd ed 2007) para 2.14.
14 See Berg v Sadler & Moore [1937] 2 KB 158; Clough v London and North Western Railway
Co (1871-72) LR 7 Ex 26; and Standard Life Assurance Co v Weems (1884) 11 R (HL) 48.
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