Insurance Contracts CP - Law Reform Commission

particularly the Law Reform Committee‘s view that the duty may catch honest and careful proposers, and
judicial criticisms voiced in 1975 in Lambert v Co-operative Insurance Society Ltd 102 and in earlier cases.
3.71 The provisional conclusion reached by the Law Commission was that the duty of disclosure
―should be retained across the board‖ but the Law Commission went on to distinguish between cases
where the insurer did not make use of a proposal form from situations where a proposal form was utilised.
3.72 In cases where no proposal form was used the duty
―should be to disclose those facts which a reasonable man in his circumstances would
consider to be material in the sense that they would influence the judgment of a prudent insurer
in accepting the risk or fixing the premium. The insured should however only be under a duty
to disclose facts which he either knows or which a reasonable man in his circumstances ought
to know.‖ 103
3.73 The Law Commission explained that the formulation of the test, in particular the reference to ―a
reasonable man in his circumstances,‖ sought to direct attention to the circumstances of the particular
insured rather than imposing a wholly objective standard of ―a reasonable insured‖. The standard might
depend on ―whether the insured was a businessman or consumer‖, but no recommendations on the
precise range of relevant circumstances were made. Benefits of such a test were said to include
dispensing with the need for expert evidence as to what would influence a prudent insurer. In opting for a
constructive knowledge factor, such knowledge could be attributed to the reasonable man, the Law
Commission sought to clarify the law and bring non marine insurance contract duties into line with the
marine insurance duty, as set out by section 18(1) of the Marine Insurance Act 1906.
3.74 In cases where a proposal form was used the Law Commission suggested a radical approach
that hinged upon the Commission‘s dissatisfaction with the existing law:
―Our provisional recommendation is that if a proposal form has been completed by the insured,
insurers should not be permitted to say that a fact outside the scope of the questions asked is
material and ought therefore to have been disclosed. Insurers should be taken to have waived
the duty of disclosure in regard to that fact.‖ 104
3.75 The proposer will be held to have discharged the duty of disclosure and the good faith
obligation by providing complete and accurate answers to the questions asked. However, the proposal
form must itself contain a statement in respect of the duty and the consequences of non compliance.
3.76 The Law Commission identified two difficulties in relation to the reformulated duty of disclosure
vis-à-vis proposal form-based insurance contacts. The first obstacle to effective reform was the
possibility that a proposer might well know something that would be material: for example, a proposer has
received threats to burn down property from a disgruntled former employee but goes ahead in arranging
fire insurance, the threat being outside the ambit of questions put in the proposal form. For this reason
the English Law Commission recommended a residual duty ―not deliberately to conceal facts which he
knows to be material and of which he has actual knowledge.‖ 105 The second obstacle to effective reform
was the possibility that the insurer might ask a general question concerning any facts that a prudent
insured should consider relevant. If` this were possible, the reforms would be side-stepped via a contract
clause that would fill the gap left by waiver of the duty of disclosure. For this reason the English Law
Commission recommended that ―an insured should be entitled to ignore any such question and insurers
should be deprived of any remedy in respect of false information supplied in answer to any such
question‖.
102
103
104
105
[1975] 2 Lloyd‘s Rep 485.
See paragraphs 59-64 of Working Paper No. 73.
Paragraph 66.
Paragraph 73.
82