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

Criminal fraud
4.55 First, some insurers associate fraud with a criminal offence. They feared that they
would not be able to show fraud unless they had strong evidence of an intention
to deceive, which implies criminal behaviour, proved to the criminal standard of
beyond a reasonable doubt. This was not what we said or what we meant. The
criminal offence includes elements that are not part of the requirements of fraud
as a matter of civil law, nor of our proposal. Thus, for example, in England and
Wales, under section 2 of the Fraud Act 2006, fraud by false representation
requires an intention to “make a gain for himself or another, or cause a loss to
another or expose another to a risk of loss”. This is not part of our test. In civil law
it is fraud to make a statement that you know to be untrue if you know that
someone will act on it, even if there is no intention to cause them any loss. 34 The
proposer only needs to be aware that the statement they are making is incorrect,
and that the issue is relevant to an insurer, in the sense that the insurer would
want to know about it. 35 They need not be aware that the insurer would be
induced to enter the contract as a result, or that this will lead to a gain for them or
a loss to the insurer. 36
4.56 The word “dishonest” also has criminal associations. It is a major element in a
wide range of criminal behaviour and is often taken to mean that the behaviour is
sufficiently blameworthy to constitute a crime. 37 In R v Ghosh, 38 for example, it
was held that a defendant should only be taken to act dishonestly if they were
aware that their conduct would be regarded as dishonest by reasonable, honest
people. This is not the test we are proposing here. For example, someone who
failed to disclose an eating disorder because they felt uncomfortable talking about
it may well be considered fraudulent under the test in Derry v Peek without falling
within the Ghosh definition. We think it is right to describe a person who has
deliberately or recklessly given incorrect information to another, knowing or not
caring that the other may act on it, as not acting “honestly”, but we do not want
the word to import criminal definitions or standards of proof.
34
For example, see Brown, Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB
621.
35 On this point, see para 4.60 below.
36 We suspect the same kind of misapprehension may have prompted a number of
respondents to the Issues Paper to say that at the pre-contractual stage it would be hard to
prove fraud because it would only be an intention to commit fraud at that stage. Whatever
the position in criminal law, in civil law it is fraud to make a deliberate or reckless statement
that induces the insurer to issue a policy, and the insurer is entitled to avoid the policy. It is
not necessary to show that the insured has put in a claim to which they are not entitled or
intended to do so.
37
See the discussion in the Law Commission’s final report on Fraud (2002) Law Com No
276, p 38.
38
[1982] QB 1053. This was the Court of Appeal decision that set out the criminal test for
dishonesty.
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