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

2.105 In July 2006 the FSA took action against a term in a legal expenses insurance
policy which bore some similarities to a warranty. It stated that “cover will end at
once” if the insured dismissed their appointed representative, or if the
representative refused to act for the insured. This was thought to be unfair as the
insured may have a legitimate reason for dismissing the representative (for
example, in the event of fraud), or the legal representative may refuse to act for
the consumer for reasons beyond the consumer's control. Following FSA
intervention, the insurer rewrote the term to state that the cover will only end if the
insured dismisses the representative without good reason, or the representative
refuses to act for a good reason.
The impact of the UTCCR
2.106 The regulations have been in place since 1994, applying to all contracts entered
into after 1 July 1995. So far, they appear to have had surprisingly little impact on
the insurance industry. With the exception of Bankers Insurance Co v South, 112
we have not located any cases in which the issue was argued in the courts.
2.107 The Regulations have the potential to provide protection to consumers. However,
we will argue later that in practice they do not give consumers adequate
protection against some types of policy terms. They do not apply at all to
business insurance contracts.
CONCLUSION
2.108 We set out below a brief summary of our criticisms of the current law before
looking in Part 3 at how the situation for both consumers and businesses has
been affected by regulation and the FOS. We then return to our criticisms in more
detail in Parts 4 to 8 when we set out our proposals for reform.
2.109 The law is not in line with the reasonable expectations of the market. The law
places an obligation on the insured to disclose all material facts, even if no
questions have been asked of them. The definition of material in the 1906 Act is
information that would influence the judgement of the prudent insurer in fixing the
premium or determining whether he will take the risk. This is not a matter that
many insureds will be in a position to assess.
2.110 In the case of misrepresentation, insurance contract law entitles an insurer to
avoid the policy if that misrepresentation is material. Again, the definition of
material is according to the standard of the prudent insurer. As a result, an
insured’s claim can be denied even when they have acted honestly and
reasonably and where they act carelessly the remedies may be overly harsh.
112 See para 2.81 above.
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