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

(10) Finally, we propose that both “basis of the contract” clauses and specific
warranties of fact should be ineffective in consumer contracts. Insurers
should not be able to use such warranties to give themselves greater
rights than they would have were the statement to be treated as a
misrepresentation (paras 4.219 to 4.229).
DEFINING CONSUMERS
4.5 As we explain in Part 1, the concept of a “consumer” is intended to mirror the
Financial Services Authority (FSA) definition of a “retail customer”: that is an
individual acting for purposes which are outside his trade, business or
profession. 1
4.6 The FSA definition is taken from the Directive on Distance Marketing of
Consumer Financial Services, which refers to “any natural person who is acting
for purposes which are outside his trade, business or profession”. 2 This is
identical to the definition used in the Unfair Terms Directive, 3 which we
considered at length in our joint report on Unfair Terms in Contracts. 4
4.7 The definition is in two parts. The insured must be a natural person: that is, they
must be an individual rather than a company or organisation. Secondly, the
insured must not be acting for business purposes. In our report on Unfair Terms,
we point out that an individual may enter into a contract partly for business
purposes and partly for private purposes. 5 In an insurance context, this would
arise where a self-employed contractor insures a car partly for business and
partly for leisure, or takes out household contents insurance on premises that
include a home-office. In these circumstances, we thought that the court should
determine the main or predominant purpose of the contract.
4.8 We propose that the same approach should apply here. Thus a self-employed
driver who uses a car mainly as a taxi, with only the occasional private trip, would
be considered to be insuring it for business purposes. However, an individual
who insures their home for £30,000, including a small office containing £3,000 of
business equipment, would be a consumer.
4.9 Where an individual takes out insurance to protect their own income in the event
of illness or disability, this would be considered to be a consumer contract,
irrespective of whether the income was gained through employment or selfemployment.
However, if an individual were to insure an employee’s health, this
would normally be for business purposes. Equally, an individual acts as a
consumer when insuring their spouse’s life, but for business purposes when
insuring a business partner’s life. Of course, there may be marginal cases, as
where one’s spouse is also one’s business partner. Then it would be up to the
court or ombudsman to decide whether the main purpose of the insurance was to
protect the business or to protect the policyholder in a private capacity.
1 As found in the FSA handbook glossary.
2 Directive 2002/65/EC, Art 2(d).
3 Directive 93/13/EEC on Unfair Terms in Consumer Contracts, Art 2(b).
4
Law Commission and Scottish Law Commission, Unfair Terms in Contracts (2005) Law
Com 292 and Scot Law Com 199, paras 3.20 to 3.38.
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