Insurance Contracts CP - Law Reform Commission

on a proposal form or in a ‗tick box‘ user interface on a website. The duty is to provide ‗true‘ answers;
whatever a true answer is may depend on specific circumstances. The duty is not to answer questions
honestly and carefully. The duty does not afford an innocent belief that the answer given to a factual
question is honestly held any weight. Even should the proposer have a reasonable belief in the veracity
of his or her statements, the duty will be broken nevertheless. The Commission considers that this
requires too much of the consumer and ―small business‖ proposer seeking standard, mass cover
insurance.
4.33 Section 20(1) also prescribes one remedy for breach: Should the misrepresentation be made,
absent the decision of the insurer to waive the breach, the insurer may rescind or avoid the contract. The
breach of s.20(1) resembles a breach of a condition in the Sale of Goods Act 1893 sense; breach of
s.20(1) does not give a right to damages only (ie it is not to be treated as a term analogous to a warranty
under the 1893 Act). Nor does s.20(1) countenance the possibility of the obligation being classified as an
innominate term, leaving the remedy to be tailored by reference to the consequences of breach. 44 The
failure of the 1906 Act to provide proportionate remedies for misrepresentation is due to the fact that for
wholly innocent misrepresentations, unless some intervening factor is present (third party rights, etc),
equitable rescission was the primary remedy. In the context of insurance the effect of this rather blunt
remedial mechanism can be striking. The contract can be rescinded at any time after the
misrepresentation was made, particularly so in cases where the risk has already materialised. Where the
insurer elects to rescind, s.84(3)(a) of the 1906 Act entitles the proposer to the return of premiums, save
where fraud or illegality by the insured is present, in which case the premiums are forfeit.
4.34 The Commission provisionally recommends that section 20 of the Marine Insurance Act 1906
should be repealed in relation to consumer insurance and mass market insurance products (including
mass market insurance products to all businesses, not limited to the jurisdictional limit of the Financial
Services Ombudsman); and that the duty in section 20 of the 1906 Act to furnish “true” answers should be
replaced by a duty to answer specific questions honestly and carefully.
(2) Limited reforms in Sale of Goods and Supply of Services Act 1980
4.35 Limited efforts to inject some flexibility into the law relating to remedies following upon a
misrepresentation have been attempted in England and Wales, Ireland, Hong Kong, Singapore and some
Australian States via statutory provisions that find their origins in England and Wales in the form of the
Misrepresentation Act 1967. 45 Section 2(1) affords a misrepresentee with a statutory cause of action in
damages following upon an innocent (ie non-fraudulent) misrepresentation, while section 2(2) gives a
court a discretion to award damages in lieu of rescission. These provisions are replicated in this State by
section 45(1) and (2) of the Sale of Goods and Supply of Services Act 1980 respectively. Because a
contract of insurance is a contract for services and thus within section 43, it is possible for the Irish
judiciary to abridge an insurer‘s rights of rescission accordingly. There is a technical difficulty of course
because the 1906 Act speaks of ―avoidance‖ not ―rescission‖. However, there are apparently no cases
from across the common law world in which these provisions exist in which a court has applied them in
the context of an insurance contract. Indeed, the two Law Commissions in the 2007 Consultation Paper
note judicial hostility exists to the use of such powers in the context of commercial insurance. 46 While this
may be understandable in the context of large risk insurance or reinsurance, the failure of counsel or the
judiciary to invoke these provisions in consumer and standard form business insurance disputes is
puzzling.
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While judicial attitudes have differed, the general view is against holding questions asked in proposal forms to
be innominate terms, for generally sould policy reasons. See Chapter 10: Remedies.
For England and Wales. For Northern Ireland see the Misrepresentation Act (Northern Ireland) 1967. Section
3 of both 1967 Acts was replaced by s.8(1) of the Unfair Contract Terms Act 1977.
Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured (July 2007) page 25.
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