Insurance Contracts CP - Law Reform Commission

questions that are incapable of a yes/no answer. 31 The ALRC suggested that provisions of this kind
should be ―rendered ineffective. They lead to uncertainty and confusion.‖ 32
4.20 The ALRC instead took a very robust approach to the problem although this issue was treated
as a non-disclosure issue.
―An insurer should be deemed to have waived the duty of disclosure to the relevant extent
where it has failed to pursue unanswered or obviously incompletely answered questions
contained in a proposal form. If an insurer requires more information, it should make further
inquiry.‖ 33
4.21 This is an area of law where the non-disclosure and misrepresentation fields overlap but the
ALRC proposal has the advantages of clarity and consistency. The Law Commissions also cite this
approach with enthusiasm, observing that where a question has been met with an obviously incomplete
answer ―the onus should be on the insurer either to decline the application or follow up the issue with the
insured.‖ 34 The Consumer Insurance (Disclosure and Representations) Bill 2011 does not however
contain a provision like section 21(3) of the Australian 1984 Act. While there are some relevant
provisions in the 2011 Bill, the Commission believes that there is a lack of clarity on this point. Clause
2(2) imposes a duty on the consumer to take reasonable care not to make a misrepresentation to the
insurer, but silence will not constitute a misrepresentation in ordinary contract law. Clause 3(3) states
that the failure by an insurer to comply with an insurers request to confirm or amend previously submitted
particulars may be a misrepresentation, suggesting that should no follow up request be made, an
incomplete form will not include any misrepresentations by virtue of unanswered questions. There are
decisions under the Insurance Ombudsman of Ireland complaints procedures where the failure to follow
up an incomplete proposal forms in relation to material matters affected the insurer‘s right to avoid the
policy, the Ombudsman deciding on a proportionate remedy 35 or settlement.
4.22 There is another point where the Commission thinks it would be desirable to be clearer than
the UK 2011 Bill appears to be. Take the case of a proposer who left a question blank (eg ―have you ever
suffered from clinical depression‖) when the proposer should answer yes. The proposer‘s hope that the
insurer overlooks the omission is realised, and the misstatement comes to light much later. Is this a case
of fraudulent omission or concealment that might trigger avoidance? The formula in section 27 of the
Australian Act – omission is not a misrepresentation ―by reason only‖ of the failure would be of
assistance, suggesting that other factors may justify a conclusion of fraud.
4.23 The Commission provisionally recommends that if an insurer does not follow up on the failure
by the proposer to answer a question, or in respect of an obviously incomplete answer, this should be
regarded as a waiver by the insurer of the duty of disclosure and the duty to answer questions honestly
and fairly; this would not apply where there has been fraudulent concealment by the proposer (intentional
or reckless concealment)
4.24 This solution would leave it open to a court to hold that, on the facts, the proposer was aware
of the incomplete nature of the answer and had abstained from giving a complete answer in order to
conceal material facts. As the Commission has proposed the retention of a redacted duty of disclosure
as well as allowing an insurer appropriate relief against misrepresentation, this reform would not lead to
wholesale fraud by allowing proposers to provide intentionally misleading information, or ignore
questions, or supply fragmentary answers to questions, in proposal forms.
31
32
33
34
35
Para 16-032.
Report No. 20, Insurance Contracts para 184, implemented via section 21(3) of the 1984 Act for non
disclosure and section 27 for misrepresentation.
Ibid.
2007 Consultation Paper, para. 4.44.
Eg Case Study 49 in the Digest.
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