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

The risk of legal challenge
3.72 We have also been told of concerns, even among the ombudsmen themselves,
that the gap between the approach being applied by the FOS and the underlying
law is becoming so wide that they fear a legal challenge. Whether or not that is
realistic, it would be unfortunate if the FOS or individual ombudsmen feel
restricted in how far they can make insurers adhere to good practice and to
depart from the strict law because of the threat of legal challenge.
THE CASE FOR LAW REFORM
3.73 The current position on pre-contractual information from the insured is a strong
example of why reform is needed. We say this for five reasons.
(1) The law is out of line with what, for at least the last 20 years, the industry
has recognised as good practice.
(2) It is also quite different to what is required of insurers by the FSA Rules,
and with the standards of “fairness and reasonableness” that the FOS
will expect the insurer to meet.
(3) Neither the FSA Rules nor the FOS scheme can offer adequate
protection to all individual consumers. The FSA Rules are aimed at
regulating behaviour, not at the individual rights of the consumer. Breach
of the FSA Rules may give a consumer an action for breach of statutory
duty but that is a cumbersome and expensive remedy.
(4) Much more effective remedies are available through the FOS but there
are serious gaps in the types of claim the FOS can handle.
(5) The practical legal position – taking into account the different layers of
law, rules and discretion – is needlessly complex, confusing and
inaccessible, both to insured and insurer.
3.74 We provisionally conclude that there should be a clear statutory statement
of the obligations on consumers to give pre-contract information and the
remedies available to insurers if they fail.
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