Insurance Contracts CP - Law Reform Commission

the commercial experience of the proposer and his/her familiarity with the relevant insurance
sector
the need to ensure that the remedy given takes account of and is consistent with any proposed
reliefs that may be available in relation to any breach by the proposer of the duty of disclosure.
4.45 While this solution is less radical than the Australian approach, it has the merit of taking
account of existing Irish statutory provisions that the Oireachtas has already sanctioned in relation to
curbing the availability of rescission as a primary remedy for pre-contractual misrepresentation. This
approach also leaves it open for the judge or ombudsman to decide, on a case by case basis, that even
though the proposer may not have been fraudulent, the degree of negligence demonstrated in the instant
situation is one whereby the ‗policing‘ function, and the link between misrepresentation and breach of the
duty of disclosure, makes avoidance or rescission an appropriate remedy. The Commission does not
anticipate that this decision to continue to afford the insurer the right to rescind for a purely negligent
misrepresentation will be made readily or frequently. It may be that cases will arise whereby the
alternative financial remedy will be impossible to calculate with any ease, but the judge or ombudsman
should be able to resort to rescission as an appropriate remedy in exceptional circumstances.
4.46 The Commission invites submissions as to whether Part V of the Sale of Goods and Supply of
Services Act 1980, which concerns misrepresentation, should be tailored to insurance contracts so as to
provide a remedy in damages in place of rescission in respect of pre-contractual misrepresentations
made by the proposer and the failure to observe the proposed duty of disclosure in insurance law.
4.47 The Commission does not however favour the solution initially canvassed by the Joint
Consultation Paper by the two British Law Commissions. The Commission has already rejected the
dichotomy drawn between misrepresentation in consumer insurance and business insurance. In the view
of the Commission the decision to confine the business insurance reforms to situations where the
business insured and the insurer have not contracted out is an open invitation to insurers to write around
the default rules. As the default rules, as recast, broadly reflect general principles of contract law and tort
law the Commission find this approach puzzling and over-elaborate. The Commission favours mandatory
rules that operate in a more horizontal manner, giving the parties the kind of outcome that would have
resulted had the breach of duty not occurred.
(4) Fraudulent Misrepresentation
4.48 In the leading English case of Derry v Peek 53 the House of Lords, particularly Lord Herschell,
summarised the elements of actionable fraudulent misrepresentation as requiring any person alleging
deceit to show that ―a false representation has been made (1) knowingly, or (2) without belief if its truth, or
(3) recklessly, careless whether it be true or false‖. 54 MacGillivray has summarised the position within
insurance law thus:
―In order to constitute an actionable fraudulent misrepresentation the statement of which
complaint is made must be:
(1) false,
(2) made dishonestly, and
(3) acted upon by the recipient in the sense that it induced him to make the proposed
contract. 55
4.49 Corrigan and Campbell provide a succinct analysis of fraud in Irish insurance law and practice.
Fraud is relevant:
―at the inception of the policy where material facts have been deliberately withheld or a true
state of affairs misrepresented. This has given rise to very few reported cases. Seldom have
there been circumstances where the insurer could not simply rely on the defence of innocent
53
54
55
(1889) 14 App Cas 337.
Ibid, p.374.
Paragraph 16-001.
103