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

4.32 We provisionally propose that where the insurer asks a general question,
the insurer should have no remedy in respect of an incomplete answer
unless a reasonable consumer would understand that the question was
asking about the particular information at issue.
THE DUTY TO ANSWER QUESTIONS HONESTLY AND CAREFULLY
4.33 In Part 1 we suggested that consumers who act honestly and reasonably should
be protected. The other side of the coin is that policyholders should have a duty
to answer questions honestly and to take reasonable care that their replies are
accurate and complete. Equally, if the consumer provides the insurer with
information that was not asked for, they must do so honestly and carefully. Where
a consumer’s answer or statement was not honest, because it involved a
deliberate or reckless misrepresentation, the law should provide a remedy that
not only compensates the insurer fully but also provides an element of penalty
against the dishonest consumer. Where the consumer was honest but not
sufficiently careful, the law should aim to compensate the insurer. But consumers
who act both honestly and reasonably should be protected. They should receive
what they think they have paid for, and their claims should be paid in full.
4.34 In the sections that follow, we discuss an insurer’s rights when a consumer has
made a misrepresentation. We start by setting out two basic aspects of the test.
As under current law, before an insurer may avoid the policy or resist paying a
claim, it must show that:
(1) the consumer made a misrepresentation
(2) which induced the insurer to enter into the contract.
We discuss each element in turn.
4.35 We then consider how to categorise the conduct of the insured. We start by
describing what we have termed “deliberate or reckless” misrepresentations,
which do not show a sufficient degree of honesty. We deal with this issue in some
detail, as many respondents to our first Issues Paper expressed concern about it.
We seek to allay fears that insurers would need to prove “fraud” to a criminal or
near-criminal standard.
4.36 We then look at what amounts to “acting reasonably”. An insured may act
reasonably either because they did not know the information required, or
because they did not realise that the question was asking for that particular
information. Our survey of ombudsman cases showed that many innocent
mistakes occurred because consumers simply did not understand what the
questions were asking for: consumers often failed to realise that a question about
hospital treatment was asking them to disclose negative tests, or that a general
question about health sought information about minor issues. We explain that
where a reasonable insured would not understand that a question required the
information to be given, the policyholder will be protected.
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