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

3.43 These examples look only at the words the ombudsman used to justify the
decision – not at the substance. The FOS told us that in recent cases, if the
ombudsman had been forced to use one of the four categories, they would have
labelled the misrepresentation as at least reckless. The main reason for not using
the word “reckless” was to avoid angering or distressing the unsuccessful
complainant, especially if they were seriously ill or recently bereaved. The FOS
also pointed out that some of the cases in our survey were decided before 2003,
when the ombudsman approach was still being refined. Furthermore, there may
well be cases in which the insurer would not have accepted the risk had it known
the truth, in which case the FOS approach would permit it to avoid the policy for a
negligent misrepresentation. However, the words used in these cases give the
impression that insurers may be entitled to avoid policies even if the consumer
was only negligent, without necessarily considering what the insurer would have
done had it known the information.
3.44 The issue of what is or is not reckless is clearly of vital importance in determining
misrepresentation disputes. We return to this issue in Part 4.
Inadvertent non-disclosures: applying a proportionate remedy
3.45 It was relatively rare for ombudsmen to classify conduct as inadvertent. There
were only 14 cases in the study in which the term was applied (compared with 22
cases where the misrepresentation was considered innocent). This means that
proportionate remedies were relatively rare.
3.46 The study found five cases in which the ombudsman decided that had the insurer
been aware of the true state of affairs, it would have charged more. The insurer
was therefore ordered to pay a proportion of the claim.
Case studies: proportionate remedies
W failed to disclose an eating disorder and depression. The ombudsman said
that the question was oddly worded and that W found the issue particularly
difficult to talk about. She was later diagnosed with multiple sclerosis. The
insurer said that their standard practice where there was evidence of
depression was to increase the premium by 50%. On this basis, W received
two thirds of the normal claim. (Case 23)
Y had failed to disclose that his father had died of a heart attack. He later
developed Parkinson’s disease. The ombudsman found that the nondisclosure
was “slightly careless… but this does not amount to recklessness”.
The case was sent back to the insurer, for them to calculate how much they
would have charged if they had known about Y’s father’s heart attack. (Case
138)
63