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

The policyholder shall also upon his or her own initiative give details of
specific circumstances which he or she must understand to be of
material significance to the Insurers in their evaluation of the risk. 19
The French system reaches similar results by making special provisions for
fraudulent concealment or réticence. 20 The German proposals reach the same
result by application of the general contract law, which gives the right to avoid for
fraudulent non-disclosure, 21 and we gather that this would be the result also
under the European Restatement Group’s draft. 22 It is noticeable, however, that
the systems that do this are all ones in which the duty of disclosure is otherwise
abolished for business as well as consumer contracts. The only Act we have
found that deals separately with consumer contracts, the Swedish Act of 2005,
has no such rule. Like the FOS, in consumer cases the Swedish law requires the
insurer to ask questions.
4.20 Our view is that in consumer cases the range of factors relevant to the insurer’s
decision is sufficiently well-known and predictable that the insurer can be
expected to ask specific questions about the vast majority of them. Any unusual
circumstance can be made the subject of a general “sweeper” question, which
should bring home to the proposer the need to tell the insurer about the unusual
fact just as well as a warning of a duty to disclose. We conclude that in consumer
cases the duty to disclose is no longer needed. We think the law should now be
brought into line with the FOS guidelines. Given existing practice, we believe this
proposal will be uncontroversial. It has the following advantages:
(1) It would focus the attention of insurers on what they needed to know at
the application stage;
(2) It nevertheless leaves insurers free to ask whatever questions they wish,
or indeed to choose to ask no questions at all;
(3) It gives applicants for insurance a clear indication of the information that
is required from them;
(4) It simplifies the overall legal position by bringing substantive law into line
with accepted good practice and the FOS guidelines.
19 Insurance Contracts 1989, ss 4-1.
20 Code des Assurances, Art L 113-8.
21 The right to avoid for fraudulent non-disclosure was stated explicitly in § 21(5) of the
version of March 2006. There is no equivalent in the draft of December 2006 but it is
thought that this is because it is unnecessary: the same result follows from the general
rules of contract law, which remain applicable by virtue of § 22.
22 See para 1.84 above. The draft incorporates the so-called Principles of European Contract
law (see O Lando and H Beale (eds) Principles of European Contract Law (Parts I and II)
(Kluwer, 2000); O. Lando, E. Clive, A. Prüm and R. Zimmermann (eds) Principles of
European Contract Law, Part III (Kluwer 2003). Article 4:107 of the Principles provides a
right to avoid a contract that was entered after “fraudulent non-disclosure of any
information which in accordance with good faith and fair dealing ought to have been
disclosed.”
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