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

3.63 There might of course be some worthy claims that would not be paid even if the
law were brought into line with the FOS guidance. On occasions, insurers’
employees may misunderstand the law or simply make wrong decisions. The
problem must be much worse, however, when the law says one thing and the
rules of practice another. The employee may believe that they are doing the right
thing in applying the letter of the law.
Denial of a remedy in court
3.64 We think that the FOS provides an extremely valuable service but we do not think
that it should be the only way in which consumers can secure justice. We believe
it is unacceptable that a consumer should have to use the FOS rather than go to
court in order to avoid unfair and archaic legal rules. Whilst we accept that most
consumer cases will be resolved through the FOS, consumers should also obtain
a just result if they choose to go to court. For example, the case may already
have been the subject of a ruling by the FOS but the consumer may feel that the
FOS has not reached the correct result.
Clarity and accessibility
3.65 Turning now to the state of “the law as a whole”, we have equally serious
concerns. The first is simply that the present position is inaccessible and
incoherent. There is a growing gulf between unsatisfactory law on the one hand
and the patchwork of Statements of Practice, FSA Rules and guidance from the
FOS on the other. In some cases, the different elements of this patchwork may
each give different and conflicting results to a question.
3.66 Take, for example, a basic issue: is an insurer required to ask an applicant for
insurance any questions?
(1) Under the law, an insurer is not obliged to ask the applicant any
questions. It can simply rely on the applicant’s duty of disclosure.
(2) The Statements of Practice require the insurer to ask questions about
matters “generally found to be material”. However, no sanction is
provided if this requirement is breached.
(3) Neither ICOB 7.36 nor COB 8A.2.6 requires questions to be asked.
(4) The FOS expects insurers to ask questions. It will not allow an insurer to
avoid a policy for non-disclosure as opposed to misrepresentation.
3.67 The confusion surrounding this area is illustrated by the fact that both the SLIP
and the ICOB Rules require consumers to be warned about a duty to disclose
material facts, which the FOS does not recognise.
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