Insurance Contracts CP - Law Reform Commission

4.68 While the English and Scottish Law Commissions stopped short of recommending that an
insurer should be required to consult databases or the insurers own files, the question whether a
consumer acted with insufficient care in failing to give information should, the Commissions said, be
viewed by reference to how reasonable it was for an insurer to obtain information for itself (for example,
by seeking the consumer‘s express consent to a request to a third party for disclosure of information held
by the third party about the consumer). Clause 3(4) seems relevant to this point but does not give any
real guidance to a court.
4.69 In the case of misrepresentations made carelessly, avoidance is not possible but the
Commissions recommend a compensatory remedy aimed at putting the insurer in the position it would
have been in if the misrepresentation had not occurred. This could result in a claim not being met or
adjusted, or the application of a financial adjustment based upon proportionality. In making this
recommendation the Commissions departed from the earlier Law Commission Report from 1980 which
saw proportionality as an imprecise or often arbitrary mechanism. Even if this be so, the Commissions
argued:
―In any event, in our view it is preferable to allow judges to aim imprecisely at the correct figure
than to apply one that is clearly wrong (as where a policy is avoided altogether when there
would have been only a small increase in the premium). There are many occasions in which
the courts are forced to place arbitrary figures on the level of damages, particularly in personal
injury cases. The level of imprecision involved here would appear to fall within acceptable
limits.‖ 75
4.70 The Commission considers the proportionality remedy below in Chapter 10, below. The
Schedule to the 2011 UK Bill provides a detailed account of how the remedy will be utilised.
(7) Innocent misrepresentation
4.71 Where a proposer makes an innocent misrepresentation in the sense that the proposer has
exercised the necessary amount of care in reading questions put to him or her orally, or in the proposal
form, or on an on-line application form, and has answered the question truthfully and with due care and
deliberation, the Commisssion sees no basis for the insurer to be able to argue that the contract of
insurance should be vitiated or avoided on the ground of innocent misrepresentation.
4.72 The Commission provisionally recommends that where a proposer has exercised due care and
attention in understanding the questions put and has provided the answers to such questions honestly
and with due care and deliberation, the insurer should not be able to avoid liability on the policy that has
arisen prior to discovery of the innocent misrepresentation.
4.73 However, in situations where the insurer is able to show that, if the true facts were known at
the time when the innocent misrepresentation was made the insurer would not have accepted that risk in
any circumstances, the question arises whether the insurer should be entitled to terminate the policy
prospectively. The Commission makes a provisional recommendation on the issue of prospective
avoidance below in Chapter 10.
75
Law Com No. 319/Scot Law Com No. 219 (December 2009), para 6.66.
108