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

2.25 It might be thought that when a proposal form asks a question, the answer would
always be material and, if it were inaccurate, would amount to a
misrepresentation. However this is not so. Many questions are asked in rather
general terms and it is difficult to know the full extent of what is wanted. For
example, an insured who is asked if they have had medical tests for illness may
not interpret this as referring to routine tests (for example blood pressure checks)
or even to non-routine tests that were completely negative. Their answer may be
inaccurate or incomplete. Whether the insurer will have a remedy depends on
whether or not the incorrect or missing information was material within the
meaning of section 20(2). If it was, the insurer will have a remedy for
misrepresentation. If it was not, the insurer will have no remedy even though the
proposer knew that its answer was not wholly accurate.
2.26 Materiality is a particular problem when very broad questions are asked. The
following example is taken from a study of cases considered by the FOS. 20
Have you any physical defect or infirmity or is there any ailment or
disease from which you suffer or have suffered or to which you have
a tendency?
Taken literally, this would require a list of every illness from which the insured has
ever suffered, and asks for information about illnesses to which they have “a
tendency” even if they haven’t yet suffered from them. A consumer insured might
quite reasonably assume that they are being asked only about serious or chronic
illnesses which they have suffered from, and answer accordingly.
2.27 When is a statement “material”? Until 1994, there were two vital questions
relating to the interpretation of the section 20(2) test:
(1) Does "would influence the judgment" require that the influence would be
decisive? There are no doubt many matters of which an insurer would
wish to be aware. Some will be decisive in the decision-making process -
for example, a prior conviction for insurance fraud may of itself lead an
insurer to decline an application. Others will not be decisive but may,
taken with other factors, affect an insurer's assessment of the risk.
(2) Can an insurer avoid a policy if it was not induced to enter into it by the
misrepresentation?
2.28 For English law, these questions were answered in the landmark case of Pan
Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd. 21 The House of Lords
decided that:
(1) A material circumstance is one that would have an effect on the mind of
the prudent insurer in assessing the risk and it is not necessary that it
would have a decisive effect on the insurer's acceptance of the risk or on
the amount of premium charged.
20 See para 3.36 below.
21
[1995] AC 501. The case mainly concerns non-disclosure, but the tests apply equally to
misrepresentation.
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