Insurance Contracts CP - Law Reform Commission

(8) The English Law Commission’s 1980 Report 106
3.77 When the Law Commission produced its Report on Insurance Law: Non-Disclosure and
Breach of Warranty (October 1980) some significant differences between the provisional
recommendations in the Working Paper and the final recommendations became evident. While the
analysis of defects in the existing law relating to non-disclosure remained the same, the consultation
exercise persuaded the Law Commission to row back from some of the more innovative
recommendations, but on the question whether non consumer insurance should be treated differently in a
formal sense, the Commissioners held to their view.
3.78 The Law Commission rejected the argument that an attenuated duty of disclosure should be
imposed on consumers. Suggestions that the duty should be limited to cases of fraudulent nondisclosure
were rejected on the basis that fraud is difficult to prove and that a limited duty would not assist
insurers in estimating the risk – after all, this is the primary reason why the duty exists. In this context the
Law Commission returned to its core theme, that, save for MAT insurance, the goal of retaining a unitary
body of legal rules and contractual practices should be pursued:
―it seems to us that any separate regime for consumers and non-consumers would lead to
anomalous results in practice. This can again be illustrated by a shopkeeper who lives above
his shop. He applies for fire and burglary cover in respect of both his shop and his flat at the
same time: the former application would be made in the course of a business, but the latter
would not. It would be odd, to say the least, if the resulting contracts were subject to different
vitiating factors.‖ 107
3.79 The Law Commission returned to the Law Reform Committee Report from 1957 and proposed
that, save for marine insurance contracts, the standard set in that Report should be adopted. Thus:
―for the purpose of any contract of insurance no fact should be deemed material unless it would
have been considered material by a reasonable insured.‖ 108
3.80 This rejection of the prudent insurer test replicates the view initially set out in the 1979 Working
Paper. However, the Law Commission treated the duty of disclosure in a significantly different way when
it came to examine the duty of disclosure per se and the duty of disclosure when a proposal form, of
whatever kind, is in use. In the Working Paper a much more stark contrast was drawn between these two
situations. In the Report the Law Commission set forward a set of recommendations in insurance
contracts generally, with a significant gloss being added to the general recommendations when a
proposal form was employed by the insurer.
(9) The general duty of disclosure in the 1980 Report
3.81 The Law Commission recommended that the duty of disclosure should be modified in the
following way:
―A fact should be disclosed to the insurers by the applicant if: -
(i)
it is material to the risk;
(ii) it is either known to the applicant or is one which he can be assumed to know;
(iii) it is one which a reasonable man in the position of the applicant would disclose
to his insurers, having regard to the nature and extent of the insurance cover
which is sought and the circumstances in which it is sought.‖
3.82 In relation to (i) above, the Law Commission indicated there was no intention to change the
definition of materiality, save in relation to the need to expand the range of potential responses by ―the
prudent insurer‖. Rather than decline the risk or charge a different premium, a prudent insurer could well
106
107
108
Cmnd. 8064.
Ibid, paragraph 4.42.
Cmnd 62, paragraph 14.
83