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

Warranties of fact
3.50 We did not find any cases in which an insurer sought to rely on a basis of the
contract clause or warranty of existing fact. There were none in either our sample
of non-disclosure cases or in our further sample of cases on policy terms. 27 The
FOS has told us that it would follow the Statements of Practice and refuse to
allow an insurer to rely on a warranty or basis of the contract clause to avoid a
policy for a non-material mis-statement. It seems generally accepted that basis of
the contract clauses and specific fact warranties no longer meet industry
standards in the consumer market.
Overall success rate
3.51 Across all the consumer cases in our sample, the insurer’s original decision was
upheld in over half the cases (57%). There was a substantial change in 38%, and
a small change in 5%. This is in line with the way that FOS cases are resolved
generally.
3.52 Where a decision was overturned, it was often because the insurer had used very
wide questions, which can operate as a trap. Our survey included cases where
insurers attempted to avoid policies on the grounds that, when asked about “any
current condition”, policyholders had failed to mention minor matters. These
included cold symptoms (Case 75) or a mole (Case 65). There were also
frequent arguments because people had forgotten hospital tests carried out many
years earlier that turned out to be negative, or did not mention common
conditions that were no longer a problem. We hope that if the rules were clearer,
insurers would be less likely to take minor points, and would write clearer
questions about what they really want to know.
Conclusion
3.53 From the work we have conducted we have no doubt that the FOS currently
provides consumers with their best chance of achieving a fair result in cases
where misrepresentation or non-disclosure is alleged. Its obligation to reach a
decision that is “fair and reasonable in all the circumstances” enables it to set
aside the strict law and to explore other solutions.
3.54 The FOS addresses the harshness of the law in three important ways:
(1) The FOS treats consumers as if there is no residual duty of disclosure.
Neither the Statements of Practice nor the FSA Rules have this effect.
(2) The FOS does not offer an insurer any remedy in cases of innocent
misrepresentation. It appears to take this line regardless of whether there
has been a claim or not - whereas corresponding provisions in the SGIP
and FSA Rules only apply where a claim has been made.
27 See para 4.220 below.
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