In July 2007 the Law Commission and Scottish Law Commission (the Commissions) published a joint consultation regarding misrepresentation, non-disclosure and breach of warranty by the insured. A summary of the 105 responses received in relation to consumer insurance has now been published and can be found by clicking here.

The responses came from a variety of entities including: insurance companies, lawyers, legal associations, the judiciary, brokers, consumer groups, trade associations and academics.  The summary paper discusses:

• the overall scheme proposed for pre-contract information required from consumers (including group insurance, co-insurance, and insurance of the life of another);
• future warranties in relation to consumers;
• the role of intermediaries in communicating pre-contract information from consumers to insurers; and
• consideration of the costs and benefits of reform. 

A brief summary of some of the issues discussed in the summary  is set out below.   This consultation is part of the Commissions’ wide ranging and ongoing review of insurance contract law. Following this consultation, the Commissions hope to publish a report and draft bill in the summer of 2009 regarding pre-contractual information for consumer insurance.

Misrepresentation and Non-Disclosure

It was widely agreed amongst the consultees that there should be a clear statutory statement regarding consumers’ obligations to give pre-contract information and the insurers’ remedies if the consumers fail to do so.

The responses opened debate as to when a person should be defined as a consumer for the purposes of any statute especially in mixed use policies (i.e. motor insurance for someone who uses their car for both business and leisure). However, the majority of consultees agreed with the Commissions that statute should reflect the current accepted good practice regarding a consumers’ duty to volunteer information prior to the formation of a contract (i.e. that insurers are obliged to ask consumers about material facts they wish to rely on). In addition, they agreed that “deliberate or reckless misrepresentation” should be defined in statute although they were unable to agree on the drafting of  a definition. The consultees also agreed with the Commissions that, where a consumer has made a “deliberate or reckless misrepresentation,” the insurer should be entitled to retain the premium.

In relation to innocent misrepresentations, it was agreed that consumers who had acted honestly and reasonably should be protected by statute; however, the statute must utilize a test for “reasonable misrepresentation” that is not overly prescriptive. The vast majority of consultees also agreed that a proportionate remedy should be introduced in relation to negligent misrepresentations; under the Commissions’ proposals an insurer would be put in the position it would have been in had it known the true facts (for instance, if it would have excluded a certain type of claim the insurer will not be obliged to pay that class of claim). However, the consultees were unable to agree whether the courts or ombudsman should be given a discretion to prevent an insurer avoiding a contract. The consultees also agreed that insurers should not be able to contract out of any consumer rules governing misrepresentation and non-disclosure in consumer insurance except in favour of the consumer.

Group Insurance, Co-Insurance and Insurance on the Life of Another

Most of the consultees agreed that group insurance policyholders should be treated as individual consumers if a misrepresentation was made to the insurer. They also agreed that, as co-insurance usually arose in a business context, there was not an urgent need to make consumer related reforms to the law. In relation to insurance on the life of another, they agreed that the representations by the person whose life was insured should be treated as the representation of the insured.

Warranties as to the Future

Having considered this issue, the  Commissions agreed that reform of the law of warranties separately for consumers was not necessary.

Pre-Contract Information and Intermediaries

There seems to have been quite a debate on the question of on whose behalf an intermediary works when arranging a contract of insurance for a consumer and whether the current law on this issue was clear. The responses suggested that the law should provide more guidance in this area but remain flexible.