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

(1) Each proposal form was required to include a prominent warning,
drawing attention to the consequences of failing to disclose material
facts, and explaining that material facts were those which “an insurer
would regard as likely to influence the acceptance and assessment of the
proposal”. Applicants had to be warned that if they were in any doubt
about whether facts were material, they should disclose them.
(2) SGIP stated that “those matters which are generally found to be material
should be the subject of clear questions”. However SGIP provided no
sanction if this provision was not observed.
(3) Under SGIP, insurers undertook not to repudiate liability on grounds of
non-disclosure of a material fact which a policyholder could not
reasonably be expected to have disclosed. This effectively limited the
consumer’s duty to volunteer information to facts which “a policyholder
could reasonably be expected to disclose”.
3.6 As far as misrepresentation was concerned, insurers should not repudiate liability
on grounds of misrepresentation unless it was a deliberate or negligent
misrepresentation of a material fact. SGIP did not deal with the question of
whether the insurer may avoid the policy without prejudice to existing claims.
SLIP forbids avoidance unless the material fact in question was known by the
applicant, and is one that the applicant could reasonably be expected to disclose.
3.7 SGIP did not deal with fraudulent misrepresentation and non-disclosure. SLIP
notes that:
…fraud or deception will, and reckless or negligent nondisclosure
or misrepresentation of a material fact may, constitute grounds for
rejection of a claim.
3.8 The 1986 SGIP effectively outlawed the use of basis of the contract clauses. It
provided:
Neither the proposal form nor the policy shall contain any provision
converting the statement as to past or present fact in the proposal
form into warranties. But insurers may require specific warranties
about matters which are material to the risk. 3
3.9 It also stated that an insurer may only refuse to meet a claim
on the ground of a breach of warranty where the circumstances of
the loss are unconnected with the breach, unless fraud is involved.
3 SGIP 1986, Clause 1(b).
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