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

PART 4
PRE-CONTRACT INFORMATION AND
CONSUMERS: PROPOSALS FOR REFORM
INTRODUCTION
4.1 In Part 1 we set out the general criteria by which we think insurance law should
be judged. Applying those criteria, we think the law on pre-contractual information
from the insured requires reform.
4.2 There is a strong case for reforming the basic provisions of insurance contract
law dealing with consumers’ duty to provide pre-contract information. In our view,
a new statute should:
(1) abolish consumers’ duty to volunteer information;
(2) require consumers to be both honest and to take reasonable care to give
accurate and complete answers to the questions they are asked;
(3) protect those who acted reasonably; and
(4) provide insurers with a remedy appropriate to the consumer’s behaviour.
The remedy should act as a strong disincentive to deliberate or reckless
misrepresentations, and provide a fair solution for negligent ones.
4.3 Under our proposals, the remedy will depend on the nature of the policyholder’s
fault. A consumer may be found to have given incorrect or incomplete
information:
(1) DELIBERATELY OR RECKLESSLY. In our view this involves a lack of
honesty and openness, though it is not necessarily criminal. Such
behaviour would give the insurer who entered a policy on the basis of an
incorrect or incomplete statement the right to avoid the policy and to
retain the premiums. This may over-compensate the insurer for their loss,
but such over-compensation is justified to deter dishonesty. It is
important to define carefully what we mean by “deliberate or reckless”,
and we discuss these terms in some detail.
(2) NEGLIGENTLY. Here the outcome should depend on what the insurer
would have done had it been aware of the full facts. The remedy will
attempt, as far as possible, to put the insurer in that position. We have
termed this a “compensatory” or “proportionate” remedy. The insurer will
only be able to avoid if it can show that it would not have entered into the
contract at all. If the insurer would have added an exception, the outcome
will depend on whether the claim would have fallen within the exception.
If the insurer would have charged a higher premium, it must pay a
proportion of the claim.
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