Insurance Contracts CP - Law Reform Commission

decisions in which the Ombudsman has found in favour of the proposer on the basis that the
evidence did not establish the pre-existing condition as a matter of fact. 97
Where the non disclosure can be due to a failure by the insurer‘s representative to follow
standard procedures, the Ombudsman has observed that an award of compensation may be
made because of the way in which the policy was sold. The insurer will be able to avoid the
policy itself for non disclosure. 98
Even if an insurer has justifiable grounds for refusing a claim on the grounds of non disclosure of
a prior condition, an unrelated risk that materialised led the Ombudsman to award 50% payable
on a holiday cancellation policy. 99
(6) Non-Disclosure – the 1957 Reform Proposals in England and Wales
3.67 There have been a number of reviews of English insurance contract law. In the first of these
exercises, the Law Reform Committee was asked by Lord Chancellor Simonds to consider the position in
law, of insurance companies when using special conditions and exceptions in insurance contracts, as well
as the consequences of non-disclosure of material facts by a proposer. The Law Reform Committee
issued its report, Conditions and Exceptions in Insurance Policies 100 in 1957. The Committee said that
the use of special conditions and exceptions in policies was open to potential abuse insofar as an insurer
could invoke a number of technical matters against even an honest and careful proposer in order to avoid
indemnifying the proposer in respect of a claim. While the Committee indicated that there were some
isolated instances of abuse, the Committee took the view that there was no evidence this was widespread
in the industry. The Committee accepted the assurance of the industry that no reputable insurer would
invoke a technical defence to defeat an honest claim. Notwithstanding these assurances, the Committee
was critical of the fact that the law allowed an insurer a broad discretion in forming an assessment of the
honesty of the proposer. Such was the scope of the latitude that express contractual terms could provide
to an insurer, the Committee felt that a limited number of provisions could be enacted which would
provide some counterbalance, whilst not interfering with the principle of freedom of contract.
3.68 The most important recommendation concerned materiality:
―For the purposes of any contract of insurance no fact should be deemed material unless it
would have been considered material by a reasonable insured.‖
3.69 The 1957 Law Reform Committee Report was produced at a time when English and Scottish
law had no real conception of consumer protection and there was no attempt to distinguish between the
position of a proposer acting within his or her private sphere and proposers acting within a business or
commercial context. English judges at this time were attempting to protect contracting parties from the
effects of draconian or far reaching limitation or exclusion clauses by adopting crude techniques such as
the fundamental breach doctrine, and in the area of sales law Parliament ultimately intervened in the form
of a number of legislative measures that sought to counteract abuse of the principle of freedom of
contract – something the 1957 Law Reform Committee report felt unable to recommend, as a matter of
principle. The Law Reform Committee considered that making proposals to counteract unfair contractual
practices went beyond the specific terms of reference that the Committee had been given. Nevertheless,
the materiality provision, referred to in the paragraph above, has retained its attractiveness as a reform
proposal.
(7) The English Law Commission’s 1979 Working Paper 101
3.70 After setting out the nature and scope of the duty of disclosure in English law. The English
Law Commission drew attention to a number of criticisms that have been levied against the duty,
97
98
99
100
101
July 2009, p.19-20 and see also p.23-4; see also December 2005, p.6-7.
July 2008, p.13-14.
July 2008, p.16-17.
(1957) Cmnd. 62.
Working Paper No. 73, Insurance Law: Non Disclosure and Breach of Warranty.
81