International Journal of Law and Management

Insurance law: fit for purpose in the twenty-first century?

Gerald Swaby
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To cite this document:
Gerald Swaby, (2010),"Insurance law: fit for purpose in the twenty-first century?", International Journal of
Law and Management, Vol. 52 Iss 1 pp. 21 - 39
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Mathew Joseph, George Stone, Krista Anderson, (2003),"Insurance customers’ assessment of service
quality: a critical evaluation", Journal of Small Business and Enterprise Development, Vol. 10 Iss 1 pp. 81-92
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Lu-Ming Tseng, Wen-Pin Su, (2013),"Customer orientation, social consensus and insurance salespeople's
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Insurance law: fit for purpose in Insurance law

the twenty-first century?

Gerald Swaby
School of Law, The University of Huddersfield, Oldham, UK
Abstract
21
Purpose – The purpose of this paper is to provide a critical examination of the current law and the
proposed changes made by the Law Commission, after consultation, in relation to non-fraudulent
pre-contractual duties in insurance law.
Design/methodology/approach – The research is addressed using case law, statutes, current
academic and law commission publications in the UK and Australia.
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Findings – First, the paper finds that the current state of the law is unfair in relation to consumers
and small businesses and much reform is needed to rebalance the nature of insurance contracts to
reflect modern day practice.
Research limitations/implications – This work does not address detailed issues in relation to
fraudulent misrepresentations.
Practical implications – The law will be brought into line with current practice by the Financial
Ombudsman Service.
Originality/value – This paper will be of interest to legal practitioners and academics and those in
the insurance industry.
Keywords Laws and legislation, Insurance, United Kingdom, Australia, Case law
Paper type Research paper

Introduction
The purpose of this article is to provide the reader with an overview of the current
changes that are proposed to the area of consumer insurance. This article will consider
those pre-contractual duties of misrepresentation, non-disclosure and utmost good faith.
Many consumers face problematic issues in this area and this is, in part, due to the
difference between what has been practiced and the way in which the law has developed.
As will be seen the Financial Ombudsman Service’s approach and that of the law differs
significantly and this is, in part due to the fact that the law itself stems from the mid
1700s and is therefore somewhat outdated in relation to the twenty-first century.

Background
The common law principles for insurance law started much of their development in the
mid 1700s. During the late 1800s, there was driven support from businessmen to codify
many of the commercial areas of the common law such as the Sale of Goods Act 1893,
the Partnership Act 1890 and the Marine Insurance Act 1906. This codification would
introduce certainty into many areas of the dealing of such men. The law at this time
reflected the then current practice and while the courts can distinguish and overturn
cases where the principles are too old to apply today, they cannot overturn or disapply
a statutory act of Parliament. They can only interpret it. While there have been many
reforms[1], to these commercial codification acts to meet present day needs, it has been
insurance that has undergone virtually no reform and the codification of common law
International Journal of Law and
Management
In relation to acknowledgements, the author is particularly indebted to Birds (2007), Birds’ Vol. 52 No. 1, 2010
Modern Insurance Law; Lowry and Rawlings (2005), Insurance Law; Pynt (2008), Australian pp. 21-39
# Emerald Group Publishing Limited
Insurance Law; publications by the Law Commission, the Australian Law Commission and 1754-243X
Professor Robert Merkin’s papers on ‘‘reverse transportation’’. DOI 10.1108/17542431011018525
 IJLMA into the Marine Insurance Act 1906 (MIA) remains as it was at the time of drafting. The
short title indicates that this Act is specifically for marine insurance however it has
52,1 been held by the House of Lords in Pan Atlantic Insurance Co Ltd v. Pine Top Insurance
Co Ltd [2] to apply equally to all insureds whether they be marine or non-marine
consumers or businesses.
One of the key issues with the MIA 1906 is that it favours the insurer in relation to
the remedies as he can avoid a policy for a misrepresentation, non-disclosure or breach
22 of the utmost good faith. While there may be little doubt that the insurer should have
the right to avoid a policy where there has been a fraudulent misrepresentation or non-
disclosure, the House of Lords in Economides v. Commercial Union Assurance Co plc [3]
mitigated the harshness of this remedy to prevent the insurer from avoiding his policy
obligations where there had been an innocent misrepresentation or non-disclosure.
However, this did not address the issues of negligent non-disclosure. Under the current
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law, a negligently made misrepresentation or non-disclosure will allow the insurer to

avoid the policy as if the insured has acted fraudulently.
Whenever a consumer makes a proposal for insurance, irrespective of the medium in
which it is made, it is stated in the MIA that ‘‘Every material representation made [. . .]
must be true [. . .]’’[4] and that ‘‘[. . .] the assured must disclose[. . .] before the contract is
concluded, every material circumstance which is known to [him]’’[5]. In practice, these
provisions are pleaded jointly as a defence by the insurer where he is seeking to prove
that the insured inaccurately completed the proposal form either by omitting to tell the
insurer about a relevant fact or not stating an answer accurately enough.

Non-disclosure
The law of non-disclosure originates from Lord Mansfields judgment in Carter v.
Boehm[6], where he stated that the insurer provides the underwriting in the basis of the
representation made and that the insured ‘‘[. . .] [should] not keep back any
circumstance within his knowledge, to mislead the underwriter [. . .]’’ This means that
the insured’s subjective knowledge becomes relevant. In this case the Governor of
Sumatra insured Fort Marlbrough against attack. When the claim was made upon the
policy the insurer contended that there had been a non-disclosure. In judgment Lord
Mansfield placed emphasis on the fact that the insurer in Europe was in a better
position to know the current circumstance of hostilities and this was in no part due to
the problematic and sporadic issues with communication in those times (Birds, 2007,
p. 115). He also stated that the insurer knew that the Governor could not disclose some
facts, as this could clearly have compromised the defensive capabilities of the fort and
the condition of the fort was ‘‘in general, well known, by most persons conversant of
acquainted with Indian affairs . . . and could not be kept secret or concealed from
persons who should endeavour by proper inquiry, to inform themselves’’. Therefore if
the insurer ‘‘knew the governor, by insuring, apprehended, at least, the possibility of
attack. With this knowledge, without asking a question, he underwrote. By so doing, he
took knowledge of the state of the place upon himself. It was a matter, as to which he
might be informed in various way: it was not at matter, within the private knowledge
of the governor only’’ (Birds, 2007, p. 1915). Thus the emphasis was on the insured to
ask a question.
While this approach continued for a short period, it later developed away from this
interpretation during the Victorian era to become a heavier duty on the insured so that
he had to disclose all material facts and not make material misrepresentations.
Therefore the issue becomes, ‘‘What is ‘materiality?’’’
 The answer is contained within s. 20(2) and s. 18(2) MIA and states: ‘‘Every Insurance law
circumstance is material which would influence the judgment of a prudent insurer
fixing the premium, or determining whether he will take the risk’’.
Therefore there are two issues that have to be addressed in this section. The first is
‘‘materiality’’ and the second is ‘‘influence.’’ In relation to the test of materiality, the key
issue is that of a reasonable or prudent insurer. This is an objective test and therefore
does raise issues for the insurer if a fact is not objectively deemed to be material (Birds,
2007, p. 121). In relation to influence this is has been interpreted so that a fact would be
23
deemed to have influenced the formulation of an opinion, or judgment so that a
reasonable insurer would have acted in a different way. Once this has been proved the
next issue is that of ‘‘inducement.’’ The requirement for the insurer to be induced was
introduced by the House of Lords in Pan Atlantic v. Pine Tops[7], where it was stated
that a particular insurer, in cases of non-disclosure and misrepresentation of a material
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fact, must have been induced to enter the contract.

This could be seen as an equivalent of the ‘‘but for’’ test in negligence in that it
introduces the requirement for a causative link to be established, i.e. would the insurer
have entered into the contract ‘‘but for’’ the misrepresentation or non-disclosure? This
was in part as a result of the common law of contract requirement that there must be an
inducement to enter into a contract for without this there can be no rescission of the
contract and as the MIA was a codification of the common law, this was logically
implied. Lord Mustill stated that ‘‘[. . .] there is to be implied into the 1906 Act a
qualification that a material misrepresentation will not entitle the underwriter to avoid
the policy unless the misrepresentation induced the making of the contract [. . .]’’[8].
While their Lordships held in Pan Atalantic that a circumstance could be material
and influence a prudent insurer, ‘‘[. . .] it was not necessary for the insurer to show that
the fact was misrepresented or not disclosed [and] would have had a decisive influence
on his mind’’[9]. However, the decision indicates that if this insurer had been required to
show subjectively that it had had a decisive influence upon him, then the test may have
had a better equilibrium. Nevertheless, as the law stands materiality depends on the
reasonable insurer and this can lead to disputes as to what a reasonable insurer would
do. This is a matter of evidence[10], but once a fact has been deemed material the next
issue is whether it has been said to ‘‘induce’’ the actual insurer in question. The
presumption is that it has, although this is rebuttable by the insured. This test seeks to
mitigate the harshness in relation to the objective interpretation of materiality.
It therefore appears that the law has in general remained unchanged in favour of the
insurer. While Economides has made it slightly easier for a claim to be made where
there is an innocent misrepresentation the law has not developed in keeping with the
modern consumer.
Additionally it can be seen that while the decision in Pan Atlantic has introduced
the requirement of inducement, in that an insurer must demonstrate that he was
induced into the contract, the key issue is one of materiality. Perhaps it is a shame that
the decision in Pan Atlantic did not overrule the previous cases and establish a new
precedent, although it is understandable why their Lordships would not have done this
on the basis of the cost[11]. Nevertheless, materiality is still based on what effect a fact
would have had on the prudent or reasonable underwriter.

Ombudsmans
During the 1980s, the insurers established an ombudsman service called the Insurance
Ombudsman Service. This had a remit and as a result of the Financial Services Act
 IJLMA 2000 (FSA) the Insurance Ombudsman Bureau establishment of the Financial
Ombudsman Service.
52,1 The need for consumers to be treated differently developed at a rapid pace over the
last 30 years where consumerism has become a multi-billion pound marketplace. In
relation to the consumer and small business insured, the duties of disclosure and of
misrepresentation were no longer considered adequate[12] after the industry’s
exemption from the Unfair Contract Terms Act 1977. The industry’s own self-
24 regulation established the Insurance Ombudsman Service to investigate and adjudicate
on disputes with consumers and small business up to a value of £100,000. Its decisions
would be binding on its members although not on the consumers using the service.
This non-statutory body has now been subsumed into the Financial Ombudsman
Service established under the FSA 2000. Both the former and the latter ombudsman
service follow the same approach when dealing with consumers who make
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misrepresentations and non-disclosures.

In relation to innocent misrepresentations, their approach follows the law as stated
in Economides. However, the main difference is the approach to negligent
misrepresentations and non-disclosures. In this case, he approaches this by asking two
questions:
(1) Did the insurer ask clear questions about what is in dispute at the time the
insurance was taken out?
(2) Did the answer induce the insurer? (Ombudsman News, 2005)
The financial ombudsman service (FOS) will find in favour if the insured if the answer
to these questions is ‘‘no’’ and the insurer will not be allowed to avoid the contract.
Therefore, the approach appears to be far more flexible than the actual law, in that if
the insurer does not ask a question, he cannot rely on non-disclosure to avoid the policy.
This is a similar approach to that taken by the law in other countries such as
Australia[13]. Therefore, this approach could also be seen as going back to the original
decision by Lord Mansfield in Carter v. Bohimn, where he stated that it was the
insurer’s duty to make enquiries.
However, the FOS will take a subjective approach if the answer to the questions is a
‘‘yes:’’ It will look at the state of mind of the proposer at the time that the statements
were made and has divided these responses into two key types for the purposes of this
paper: innocent and inadvertent[14]. To help analyse and demonstrate their reasoning
the FOS provided a case study for each category. However, what is clear is that in the
case of innocent misrepresentation or non-disclosure the FOS follows the same
approach as the law based on Economides. However one difference remains, the FOS
examines a claim to see if a clear question was asked at the time of the contract. This
differs from the legal test of establishing whether the fact was material as there is no
duty on the insurer to ask as mentioned above. Therefore, the insurer will have to pay
the insured in full and cannot avoid the policy and the FOS does not provide the insurer
with a remedy in such cases.
In relation to the FOS’s approach to inadvertence, this is based around the issues of
negligence, though this is by far an easy area to analyses due to the varying degrees of
negligence. The FOS has designed a number of scenarios that justify its approach to
dealing with cases of inadvertence. What can be seen from these is that the way in
which the insured answers these questions differs. Therefore, the varying issues of
negligence practiced by the insured can be grouped into five categories that the Law
Commission report 4.30 identified, in that, the insured:
 (1) Failed to read the question (either reasonable if the form is badly set out, or Insurance law
negligently).
(2) Fails to understand the question (because the question is unclear, or they had
limited knowledge of such matter, or the had acted negligently).
(3) Understood the question, but have know way of knowing the answer.
(4) Understood the question, and think they know the answer, but give and inaccurate
reply (either innocently, or without conducting proper checks, or deliberately).
25
(5) Understand the question, but fail to take enough care with the reply because the
didn’t realise that it mattered.
What is clear from these five answers is that the insurer can be partly to blame if the
form and/or the question asked lacks clarity as the case may be in questions 1 and 2,
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therefore the amount the insured has contributed to his own negligence can be reduced.
However, the more negligent the mistakes he makes, or the accumulation of them, on a
sliding scale increases his contributory negligence.
Therefore, the approach the FOS takes in settling such cases appears to be far more
flexible than the actual law, in that it applied the principle of proportionality. The
insured’s premiums would have been increased by 30 per cent they would receive an
amount proportional, i.e. the value of the claim less 30 per cent. However, if the insurer
were to have accepted the policy but subjected the policy to an exclusion or limitation
clause then the FOS may side with the insurer and allow refusal of the claim, but
probably not the avoidance of the policy. If however the insurer would not have
accepted the insured and refused the policy the FOS can agree with the insurer and
permit the refusal and possibly avoid the policy. Clearly, this is a better series of
outcomes than non-payment of the policy and its avoidance ab initio. This is in stark
contrast to the statements and code of practice, which the insurer can avoid for a
negligent misrepresentation or non-disclosure.
However, the law has diverged from what occurs in practice. Clearly, there is a
significant difference between the approaches of the law, the statements of practice and
rules, the FOS’s approach and some reform is necessary, especially in the cases of
consumers. In relation to misrepresentation and non-disclosure, it can be seen that
the law clearly allows the insurer to rely on non-disclosure and avoid the policy where
the insured has not provided some form of information. This is also the position in the
statements of practice and the FSA’s insurance conduct of business rules (ICBR). This
is contrary to the position of the FOS. In the view of the FOS, if the insurer wants to
know the answer to a question then he should ask, and if he does not he will not be
allowed to avoid the contract for want of his own failings. Furthermore, the statements
of practice do not allow for a remedy to be sought by the insured against the insurer if a
requirement is breached, assuming that he knew about them. Therefore as not all
consumer insureds know of the FOS, they fall through its protection. Furthermore,
there are also the cases where applications are made to the FOS, but the FOS refuse to
deal with the complaint. This it is permitted to do under its own rules[15], where for
example, a third party needs to be cross-examined. Furthermore, the FOS may be a
victim of its own success, in that, by dealing and resolving the large number of cases at
hand, it removes cases that would otherwise have been heard in court and thus
expanded, modified or codified the common law.
However, one key issue where the FOS has stayed stagnant is in relation to the
monitory award. The maximum award that can be made is £100,000[16]. This has
 IJLMA stayed at this limit since it was set in the 1990s. Therefore as this has not been indexed
52,1 linked, it is worth significantly less today than in previous years, perhaps more so if
one considers that a large detached house would not have cost £100,000 in the early to
mid 1990s yet the average price at the time of writing is close to £275,000. Therefore,
this is a significant disadvantage to the consumer that needs to be addressed.
Overall it can clearly be seen that there is a divergence between law and practice.
26 Some insured’s fall through the system where the insurers may avoid a policy for
unrelated reasons. Gaining a remedy, if at all possible, requires knowledge of the law,
policies, self-regulatory procedures and practice, the FOS, its policies, procedure,
remedies and discretion. Therefore, this is totally unacceptable and reform is needed.

Reforms, Law Commission proposals and responses

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While there is a clear need for reform as identified above, it is unfortunate that the
reforms have been somewhat reticent at arriving. With the dichotomy of industry good
practice, championed by the FOS (focused on the consumer and small business
following its own path) on the one hand, and the harsh black letter of the law (followed
by the large commercial marine and aviation transportation industries) on the other. It
is clear that these divergent approaches can only be resolved with the aid of statutory
reform. To these ends, a joint review of the whole area of insurance law has been
undertaken by the Scottish and English Law Commissions.

Part 1: consumer insurance

In relation to the consumer, the Law Commission makes five key recommendations for
a new Act that should:
(1) Redefine what is and what is not a material fact in terms of what the reasonable
consumer will think is material.
(2) Provide that avoidance is appropriate only to fraud, and clarify what amounts
to fraud for these purposes[17].
(3) Exclude a remedy to the insurer where the consumer has acted innocently but
not negligently.
(4) Clarify the remedies that should be applied in cases of negligent
misrepresentation.
(5) Abolish the requirement that consumers should volunteer information.

Materiality
The Law Commission’s proposals are to redefine what is, or is not, a material fact from
the view point of the consumer. It will be recalled that materiality[18] is currently
defined under the MIA as a statement that would, ‘‘Induce the judgment of a prudent
insurer in fixing the premium or determining whether he will take the risk’’[19]. As this
has caused some debate, as while some minor occurrence may be relevant to the
insurer, the insured may not think about, or appreciate its significance. As the current
law stands, it may lead to the avoidance of the policy (unless there was FOS
intervention), and therefore the Law Commission has instead proposed a reasonable
insured test. In relation to the consultations carried out by the Commission it was
nearly a 50/50 split[20] between those who wished to keep the current test and those
who supported the reforms for a reasonable insured test.
 While the reform for a reasonable insured test has appeared to be fairly Insurance law
uncontroversial in a consumer context the same cannot be said to that of business.
Furthermore, as the test in both cases is based on the reasonable insured, any
proposals and comments on the latter will clearly apply to the former, as it is the same
test. The reasonable insured test would introduce flexibility, as the question to be asked
would focus on what the reasonable insured would do under those circumstances.
However, differences between a consumer and a business will remain due to the
differing business activities and because businesses differ in nature it would be hard to
27
‘‘[. . .] create a unilateral concept of the reasonable insured’’[21]. More than one insurer
identified this issue and it was also said that a specific business should have a specific
form to be completed[22]. Whereas in comparison to a reasonable consumer, their
needs are somewhat more predictable.
It appears that the majority of insurers and brokers supported the change as it
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would encourage better practice from the insurers and improve certainty[23].
Additionally in the case of businesses, adopting this new text would mean that the
insurer could no longer use non-disclosure as a means to avoid a contract because it
transpired to be a bad bargain.
The test proposed stated that the insurer must show certain things before being
entitled to a remedy, namely:
(1) Had it known the fact in question it would not have entered into the same
contract on the same terms or at all.
(2) It must also show either:
. that a reasonable insured in the circumstances would have appreciated that
the fact in question would be one that the insurer wanted to know about; or
. that the proposer actually know that the fact was one that the insurer would
want to know about.
The first part of this test requires nothing more than inducement. This is the current
test that was implied by the House of Lords in the Pan Atlantic decision and stands for
both misrepresentation and non-disclosure. It is the second part of the test that is
different. Clearly if an insured acts reasonably and provides disclosed information that
is relevant, then this would limit the amount of information that the insurer needs.
Ultimately, this does actually act as a benefit to the insurer as it prevents them from
being overloaded with all the information that they would otherwise have.

Abolishing the consumer requirement to volunteer information

It is quite evident that the FOS’s approach has impacted significantly on the direction
of reform that should be undertaken in this area. As aforementioned the FOS requires
an insurer to ask his questions prior to the formation of the contract. If this insurer
does not ask his question, then he is liable for the consequences of his actions and he
will not be allowed to avoid his obligations towards the insured. The Law
Commission’s approach is to adopt the same approach of the FOS whose established
practice should be codified. This abolishes the pre-contractual duty on the insured to
make any disclosure if he is not asked a question. Clearly this is beneficial towards the
consumer insured and is perhaps echoing back to Lord Mansfield’s approach that may
be seen as being subjective on the insured to disclose information if he thinks it is
relevant. Having said that this approach is not without disadvantages, in that, if an
insurer has to ask more questions then this may lead to significantly longer application
 IJLMA forms which could give rise to consumer insured negligence when completing the
proposal. This was the contention forwarded by the Institute of Insurance Brokers in
52,1 their submission to the Commission[24]. However, in reality the asking of the insured
specific questions is this is already standard practice. The answers are currently
sufficient to allow an insurer to set the policy’s premium. Therefore as the FOS will not
allow an insurer to avoid his liabilities for non-disclosure or misrepresentation if he has
not asked a specific question their line of contention is unsustainable[25].
28 Currently, the insured is already asked a number of questions when completing
application forms and given the approach of the FOS in not allowing avoidance for
non-disclosure, it is hard to see how this argument holds water. The FOS, and its
predecessor the IOB, has taken this consistent approach for many years and so it is
standard practice that this insurer should ask all his questions before the contract and
not try to rely on the strict letter of the law for non-disclosure.
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Furthermore, in many cases such as internet or even phone text message proposals
it is considerably more difficult to disclose some facts, even if the insured did wish to do
so. However in relation to telephone applications, it is clearly possible for the insured to
ask further questions and disclose other issues if he was asked the question.
Moreover, the Commission has proposed that the questions asked should be general
in nature although this may lead to the insured providing vague or incomplete
answers. The Commission argues that the insurer should take the risk that the answers
are vague, however this may not be the correct approach unless the law balances this,
for if the insurer receives vague answers, it could be argued, that he should be making
more enquiries. Thus if the insurer does not ask if the proposers home to be insured is
susceptible to flooding due to its locality to a nearby river then they should not be
allowed to avoid their policy obligations. However if the insurer asks a general
question about (if there are any) risks that they should know about, the proposer may
answer ‘‘yes’’ if there is a risk, but may not state what that risk is, or alternatively he
may explain a particular risk in relation to his house’s close proximity to a mine for
subsidence, but he may omit to explain that his house in on a flood plain. Partly the
question to be asked, and the answer, could be found in what the reasonable consumer
insured would do.
The reality is that the insurer will probably be more interested in gaining the
custom of the consumer than small vague issues on an application form and it will not
be until the insured makes a claim that the insurer will truly look at the proposal form’s
answers to establish their liability.

Misrepresentations in consumer insurance

The Law Commission has proposed that the current law should be maintained, in that
the misrepresentation should induce the insurer into the contract. They have addressed
the issues under fraudulent and reckless misrepresentations and innocent and
negligent misrepresentations.

Exclusion of insurers remedies for consumer innocent misrepresentation

The Law Commission has proposed to keep the current law as stated in Economides
and thus an insurer will not be able to avoid his liabilities where the insured was acting
honestly and reasonably when the misrepresentation was made. This approach follows
that of the FOS, the statements of practice and the FSA regulatory code. However, this
decision has never sat comfortably with Lloyds. Their belief is that the insurer should
not be liable when he could not accurately assess the risk due to inaccurate material
 facts and they argue for a more proportional approach such as can be seen in the FOS Insurance law
application of liability in cases of negligent misrepresentation.
Clearly what is visible is that the law on innocently made misrepresentations is not
in accordance with the common law of contract. However, the mere nature of insurance
law, perhaps answers why the distinction has to be made. In contract law under the
Misrepresentation Act 1967 (MA) an innocently made misrepresentation will allow the
injured party to avoid the contract and seek an indemnity from the misrepresenter or
alternatively damages can be awarded as an alternative to avoidance[26]. It should also
29
be borne in mind that the MA 1967 is primarily concerned regarding contracts for the
sale of goods and not speculative risk as in insurance cases. Nevertheless, if damages
were to be awarded based on the MA 1967 by the court, then it would appear that it
should be the difference between the price that was attached to the policy and the price
that should have been paid. This would allow the consumer to reap the full benefits of
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the contract, so that he would have his claim met by the insurer and that the insurer
would also have the correct premium. While no law in contract or insurance law exists
on this point it would be a practical answer. If this was to occur it would perhaps
address the point made by Lloyds in relation to proportionality[27]. Rather than the
claim being paid on a proportional basis (thus if 70 per cent of the true premium was
paid only 70 per cent of the claim would be awarded), the insured could pay the
difference in the premium to what the value of the true premium would be ‘‘but for’’ the
misrepresentation, then the insurer would be liable for the whole amount of the claim.
However, excluding the fact that the insured may be tempted to commit a fraud by
deliberately lying in hope to make up the shortfall if the risk materialised, if the insured
did have to pay the difference, this could raise issues of affordability, especially if the
cost of increasing the premium was to be significantly higher. Additionally, there
would also be a possible problem with the calculation of the initial policy premium.
Therefore, this may encourage the insurer to offset this against all his polices thus
having a contingency set in case this would occur. As it stands however, the insurer
will remain liable for the whole amount even if the true premium has not been paid.

Consumer remedies for negligent misrepresentation

Clearly there is a gap between innocent and fraudulent misrepresentation. Thus the
negligent issue is a matter of fact and degree and could possibly be likened to a sliding
scale where on the one end the insured may have failed to ‘‘take sufficient care to
understand what the insurer wanted to know or to check their fact’’[28]. As the law
currently stands the insurer is allowed to avoid a contract where there has been a
negligent misrepresentation. The Law Commission cite the example where avoidance
can be an extreme and disproportionate remedy in that it ‘‘allows an insurer to refuse a
claim for cancer because they were not told about hearing loss’’[29]. While an easier
way around this may be to allow the insurer to see the proposer’s medical records prior
to the policy’s commencement, it provisionally would allow for the invasion of privacy.
Under the strict letter of the law, an insurer will provide the policy, and then he will
keep the policy payments he later avoids paying out on the policy for a negligently
made non-disclosure by the assured. This will still be the case where an insurer would
have placed an exclusion clause on a policy as can be seen with the hearing loss
example.
Therefore, the approach proposed by the Law Commission has been to graduate the
remedies for the insurer and the insured. The key issue in this respect is
the requirement of some forseeability in that the tests require an analysis of what the
 IJLMA insurer would have done if he had known the true facts and this, to a degree, is
speculative and subjective as it would require the court to ask not what a reasonable
52,1 objective insurer would have done (thus this would introduce evidence from
professional witnesses who may well not act in the way that the insurer in question
would have acted), but rather what the insurer in question would have done had the full
facts been known.
This is problematic as the particular insurer may act differently and ‘‘this test could
30 not deal with every possible eventuality’’[30]. If an insurer would have not taken the
risk due to their policy guidelines this would leave the court ‘‘with no evidence about
what an appropriate premium may have been’’[31] and thus, would contribute to
uncertainty as the insurer would not have accepted the claim and this would leave the
insured without any remedy, although it has been suggested that the insurer would
have to provide strong evidence to support this contention[32]. If a more reasonable
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insurer test were implemented however then under the same circumstance the insured
would have a potential remedy and the insurer would be held liable, albeit subject to
the basis of proportionality.
The advantage of the doctrine of proportionality indicates that the greater the
negligent misrepresentation the smaller the amount of compensation the insured will
receive. While the Law Commission suggests this is not arbitrary the Association of
British Insurers (ABI) contends that there should be a threshold above which the
insurer should not be liable. ‘‘It is not fair to charge honest applicant related terms and
allow other to be no worse off in all the circumstances even if there is a negligent
misrepresentation [. . .] [L]ife insurer should not be expected to treat someone whose
premium should be rated at up to þ50 per cent extra mortality the same as someone
whose premium would be rated at þ400 per cent extra mortality’’[33]. However, the
Commission has rejected this view on the basis of if a policy premium was £500 for
£100,000 in life assurance cover, a 400 per cent increase would be £2,500 for the same
cover, but the amount awarded would be proportional at £20,000. Therefore, this
approach follows that of current good practice conducted by the FOS.
There will undoubtedly be circumstances where there has been a negligently made
misrepresentation, but it is relatively minor and thus this will have no connection with
the claim being made, but nevertheless an insurer would still be allowed to avoid his
obligations as he may have declined the policy initially. This was supported by Lord
Justice Rix who states that the discretion ‘‘should be narrowly confined, e.g. where the
loss in unrelated to the fault and the fault does not extend to fraud or recklessness’’[34].
Furthermore in allowing the courts some discretion, it does no more than to allow the
already existing ‘‘[. . . ] overriding obligation to reach a decision that is fair and
reasonable’’[35] in the circumstances which the FOS currently operates.
Nevertheless no matter in what terms this duty is couched, it is difficult to see how
the insured could be compensated if the insurer would have declined the initial
proposal based on the insured’s subjective view. Therefore what may be needed is a
reference to an objective reasonable insurer, in that if a reasonable insurer would have
charged an additional premium then the proportionality doctrine would intervene to
mitigate the otherwise hardship that may otherwise be caused to the insured.
Conversely, the ABI opposed any need for discretion arguing that its guidance
states that an insurer can only rely on information that is connected with a claim[36].
Thus where there has been a misrepresentation that is unconnected with the claim, it
should be severed from the facts in that case. The ABI’s approach is purely guidance
and perhaps currently this may be as a result that in previous cases negligent
 misrepresentation would have allowed the insurer to avoid their obligations and Insurance law
therefore the insurer would go on a ‘‘fishing expedition’’[37] to find an unconnected
reasonable why they should not have to pay the claim[38].

Part II: business insurance

Knowledge
There are some key differences in the approach of the recommendations between
consumer insurance and business insurance. One of the key differences can be seen in
31
the requirement of disclosure. While it can be seen above that in consumer insurance
the duty should be abolished or limited to only those direct questions the insurer asks,
in business insurance the recommendation is to simplify the test, but to keep it in some
form. Currently s. 18(1) MIA reads: ‘‘[. . . ] the assured is deemed to know every
circumstance which, in the ordinary course of business, ought to be known by him’’.
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The recommendation is to make the test partly subjective, in that, he (the insured) has a
duty to disclose those facts that he actually knew or which he ought to have known.
Therefore, the latter part of this test is objective and follows the Australian approach,
but in Australia this provision is also under reconsideration on this issue[39].
The current proposals have been made to distinguish negligent behaviour from
fraudulent (reckless or deliberate) behaviour. Therefore the question is one where if the
insurer asked, did the reasonable insured, if he knew the truth, make a
misrepresentation or non-disclosure negligently, recklessly or deliberately incorrectly.
If this test were to be adopted, the burden of proof would be moved from the insurer to
the insured to show that the insured did know or should have known the facts based on
the reasonable insured test.
However, a further issue for consideration is that the insurer is not an expert and
nor can he be held to be an expert in all fields of business. Therefore, this may generate
further difficulties for the insurer as it will be hard for him to demonstrate what the
insured knew or should have known. This argument did find some support among the
consultees with The Royal Bank of Scotland commenting that ‘‘The insured is better
positioned to present an argument for why it did not know’’[40], or the reasons for it not
knowing the facts in question.
Nevertheless, this proposal is clearly beneficial as it allows the insured to partially
rebalance the equation.

Misrepresentation in business insurance

The Law Commission has proposed that the business insured should not have a claim
refused if there has been an innocent misrepresentation. This is in accordance with the
principle in Economides and the approach taken in relation to consumers. The burden
of proof in this case will again be on the insurer to prove that the insured did not have
reasonable grounds for believing what was stated was true.
Many consultees expressed a wish to see an honest and reasonable misrepresentation
compensated on a proportionality basis. The International Underwriting Association of
London stated that the insurer ‘‘[. . .] [would] be forced to accept a risk or pay a claim on
a risk that they would not have written if they had had full knowledge of the facts’’[41].
The insurers wish to see a clear distinction between consumer insurance and that of
business, in that business considerations are different and thus the underwriting risk is
different. As a result, a proportionate approach is more preferable than the insurer
seeking the total avoidance of the policy. A remedy that allows for apportionment is
preferable. In some cases businesses are very much like consumers, in that many are
 IJLMA very small companies only, consisting of a few employees or sole traders who are
exactly like a consumer, in that, they do not have ready access to advice when
52,1 completing the proposal forms. For small businesses, it would be beneficial to see the
consumer approach whereby the insurer will have to meet the full claim if an innocent
misrepresentation has been made and the introduction of a proportionate remedy for
those larger businesses. The difficulty lies in assessing which business falls into which
category. One proposal, suggested by the Law Commission, is that of contracting out of
32 the proposed statutory provisions. However this has been considered problematic by
Professor Birds who states that ‘‘I am not convinced of the desirability of providing for
contracting out, certainly as far as smaller businesses are concerned’’[42]. This point
was also made and supported by Lord Justice Rix, but he considered that it would be
correct for businesses to be able to avoid a claim where the misrepresentation was
material, even though it was honestly made. Nevertheless, a key issue that the report
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does not address is that of insurance practice. If the insurers were given the ability to
contract out of the provisions then as there is still significant imbalance in the
bargaining power between them and the smaller business, it is hard to see that there
would be anything capable of preventing the insurer’s dictating the terms to small
businesses, especially if it became a standard practice, other than perhaps a new FSA
code which the FOS could regulate.
As can be seen above by reference to the consumer, the burden of proof would be the
same in that it will be for the insurer to show that the insured did know or ought to
have known a particular fact.

Business remedies for non-disclosure and misrepresentation

In relation to business insurance, the Law Commission made similar recommendations in
that there should be three classes of claims, namely deliberate or reckless, negligent and
innocent and they also suggested how a proportionate settlement would work, in that the
court has to ‘‘ask what the insurer would have done had it been aware of the true position:
. where an insurer would have excluded a particular type of claim, the insurer
should not be obliged to pay claims that would fall within the exclusion;
. where the insurer would have required precautions to be taken or would have
imposed an excess, the policy would be treated as if it contained those terms;
. where an insurer would have declined the risk altogether, the policy would be
avoided and the claim may be refused; and
. where an insurer would have charged more, the claim should be reduced
proportionately to the underpayment of premium’’[43].
The overall approach taken is similar to consumers. In relation to negligence however,
the Commission’s view was that the insurer was currently over-compensated if they were
permitted to continue with the current law and avoid a contract due to the negligent
conduct of the insured. However, differences still remain between the consumer and the
business approach, in that the Commission looked at where the presumptions should lie.
Both the Law Commission and 89 per cent of the responding consultees stated that there
should be a rebuttable presumption that the insured would be deeded to know any fact
that in the ordinary course of business it ought to have known. They also stated that this
should be the test when applying a proportionate remedy.
The Law Commission also asked for the respondent’s view as to whether the insurer
should be entitled to avoid the policy if it would have declined the risk. Therefore,
 despite issues of negligence, if this were applied then it would fetter the court’s Insurance law
discretion to provide an appropriate remedy. Over 65 per cent of respondents agreed
with this view. This may be unfortunate in that an insurer would easily be able to show
from the moment of claim that it would not have accepted the risk.
The Law Commission has been mooting a possible option whereby the insurer could
terminate the policy after a negligent misrepresentation or non-disclosure after a
reasonable period of notice. This remedy may be unfair. If the insurer discovered a
negligent misrepresentation or non-disclosure he may take the view that he should
33
terminate the policy. This the insurer could do even if the claim was not related to the
negligent issue. It would be a way around him having to continue with the policy.
Furthermore, it could leave the insured in a position where he may have to disclose
(under the new proposed provisions whereby a question has been asked to this effect)
that he has had pervious insurance policies cancelled. This in turn would increase the
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difficulty for the insured as his premiums may be higher or insurance could be refused.
One particular area where this is greatly inconvenient is in relation to professional
indemnity insurance. For if membership of a professional body requires insurance and
thus if it has been refused or cancelled, it effectively prevents that individual from
earning a living. Therefore, it would be better to prevent an insurer cancelling a
contract part of the way through that contractual period.

Australian developments
For comparative purposes, the reforms and approaches that were undertaken in
Australia in relation to misrepresentation, non-disclosure and utmost good faith need
to be considered. Prior to the Insurance Contract Act 1984, the relevant law was
contained within MIA 1909 and was taken word for word from its English equivalent,
the MIA 1906[44]. The similarities do not end here. Similar insurance ombudsman
systems exist in both countries. The Australian Insurance Ombudsman Service Ltd
was established in 1993 and has similar duties to its UK counterpart in that it deals
with claims in accordance with good insurance practice rather than following the strict
letter of the law.
While the UK has talked about reforms, and despite various proposals (Law
Commission, 1979; 1980), no tangible reforms have been forthcoming. However, in
Australia things have been far more proactive. In 1976 the Australian Law Commission
was asked to review the whole area of insurance law. The Commission’s report was a
wide review that included a draft bill which lead to its enactment, albeit with a few
minor amendments in the form of the Insurance Contracts Act 1984. In relation to
misrepresentation, non-disclosure and utmost good faith the Act forms a complete
code[45]. However, it does not affect the Marine Insurance Act 1909 that still applies to
marine insurance in its entirety and has not been subject to any amendments or repeal.

Misrepresentation in Australian insurance law

The ICA 1984 reversed the approach previously taken in the AMIA 1909 in respect to
pre-contractual misrepresentations. It is no longer necessary to prove that the
judgment of a prudent or reasonable underwriter would be affected by a
misrepresentation. The law is now contained in s. 26(2):
A statement that was made by a person in connection with a proposed contract of insurance
shall not be taken to be a misrepresentation unless the person who made the statement knew,
or a reasonable person in the circumstances could be expected to have known, that the
 IJLMA statement would have been relevant to the decision of the insurer whether to accept the risk
and, if so, on what terms.
52,1
In relation to this the AICA also introduced a reasonable insured rather than a
reasonable or prudent insurer test, and in accordance with Plasteel Windows Aust Pty v.
C E Heath Underwriting Agencies Pty Ltd [46] the insurer has to discharge the burden
of proof to show that a reasonable insured would not have acted in the way the insured
34 did. However the law actually differs from what the Australian Law Commission
proposed, as they wanted to see a subjective approach towards to insured rather than
an objective one.

Statements of fact in Australian insurance

If the insured answers a question incorrectly, then under the MIA 1909 he could have
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made a factually incorrect statement, which would have given rise to the avoidance of
the policy. This was the same as the English position prior to Economides. However,
s. 26(2) replaces this materiality principle in that the insured will only have made a
representation if he actually knows or he should have known (based on the reasonable
insured) that the matter would have been relevant to the insurer. Furthermore, the
insurer then has to prove that they have been induced into the contract under s. 28
before they are entitled to a remedy. This is effectively the same requirement that was
introduced into s. 18 MIA by the House of Lords’ decision in Pan Atlantic. Therefore
‘‘the protection for the assured [under s. 28] is thus switched from objective materiality
to subjective intentions’’ (Merkin, 2007, para 4.28) and this is the same stance that the
English Law Commission has proposed should be maintained.

Statements of opinion in Australian insurance

The Australian approach to the holding of a belief and the statement of an opinion can
be found in s. 26(1) which states that:
Where a statement that was made by a person in connection with a proposed contract of
insurance was in fact untrue but was made on the basis of a belief that the person held, being
a belief that a reasonable person in the circumstances would have held, the statement shall not
be taken to be a misrepresentation.
This is an objective test. The Australian Law Commission has proposed a subjective
test based on the insured’s actual position but this was not to be. Therefore the insured
or a reasonable person in his shoes, must hold that belief. Thus, the more outlandish
the belief, then the greater the insured’s liability under this section will be as it is less
likely to be honestly held. This can therefore be compared to cases such as Economides
in that an honestly held belief is all that is needed.

Utmost good faith in Australian law

The duty of utmost good faith under ICA is an implied term. This term is applicable to
both parties and the provisions can be seen in s. 13 ICA 1984 which states:
A contract of insurance is based on the utmost good faith and there is implied in such a
contract a provision requiring each party to it to act towards the other party, in respect of any
matter arising under or in relation to it, with the utmost good faith.
In connection with other implied terms, it will be actionable upon a breach committed
by one of the parties. However, the contract is not permitted to be avoided ab initio,
though it does permit damages or estoppel to be awarded as an appropriate remedy.
 While the duty of good faith is bilateral, it is effectively made a contractual term in Insurance law
Australian insurance law. This means that the insurer is in a stronger position as under s.
14[47] as he will be relying on the terms of the contract, while under s. 12 the insurer is in
a weaker position and there is no duty on the insured to disclose any information unless
the insurer requests it[48]. Therefore this is a heavier duty to discharge[49]. The position
is that the duty of utmost good faith is a contractual term in comparison to the duty of
disclosure which is a pre-contractual duty. What the drafting was trying to achieve can be
summarised as to ‘‘remove the argument that a post-contractual failure to disclose by the
35
assured amounts to a breach of the duty of utmost good faith by him thereby putting him
in breach of contract’’ (Merkin, 2006, para 3.7). Therefore, the insurers cannot benefit by
relying on s. 13 implying a term in the cases of post-contractual disclosure.
There is still a degree of overlap between s. 13 utmost good faith and s. 21 the duties
of disclosure. Therefore under s. 28 ICA, the insurer is entitled to a remedy if it would
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have made a difference to that policy.

Non-disclosure
The provisions for the pre-contractual duty of disclosure are contained within s. 21(1)
ICA which states:
An insured has a duty to disclose to the insurer, before the relevant contract is entered into,
every matter that is known to the insured, being a matter that:
(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept
the risk and, if so, on what terms; or
(b) a reasonable person in the circumstance could be expected to know to be a matter so relevant.

Knowledge
The approach under s. 21 above it not to define knowledge, it merely makes reference to
the fact that must be known to the assured. This is unlike its English equivalent where
knowledge has been defined as actual or willful ignorance as the MIA required that all
material facts that are ‘‘known to the assured and the assured is deemed to know every
circumstance in which in the ordinary course of business is known to him’’[50].

Materiality and relevant facts

Section 21 reverses the common law position of the prudent or reasonable underwriter
and replaces it with a prudent or reasonable insured test. This section removes the
word ‘‘material’’ from this area for insurance law. It is for the insurer to discharge the
burden of proof to show that the insured knew about a fact or a reasonable person
would know the fact to be relevant to the making of his decision. The issues are then to
define what is ‘‘actual knowledge’’ and that of ‘‘relevance’’. Actual knowledge is what
the insured ‘‘knows to be a matter relevant to the decision’’ under s. 21(a) therefore this
excludes constructive knowledge through use of an agent. Whereas the test of what ‘‘a
reasonable person’’, deciding what is relevant under s. 21(b) can include many lifestyle
factors such as ‘‘education, literacy, knowledge, experience’’[51]. However, many
concerns have been raised about this second test using a ‘‘reasonable insured’’ as this
places an unfair burden on the insured. Therefore, this was reviewed by the Australian
Treasury in 2004, who proposed the repeal of this provision and its replacement so that
the ‘‘reasonable insured’’ is required to disclose a matter having regard to:
(b) factors including, but not limited to:
 IJLMA (i) the nature and extent of the insurance cover . . .; and
52,1 (ii) the class of persons for whom that kind of cover is provided . . .; and
(iii) the circumstance in which the relevant contract of insurance is entered into[52].
If these provisions become law, this will still allow the insurer to be in a slightly stronger
position, since his reference point is still the reasonable insured. Therefore when an
36 insurer may wish to avoid the policy, he would be in a weaker position because of the
subjective nature of s. 21(a), but in a stronger position under s. 21(b) as the insured’s
conduct is still subjected to whether he acted reasonably. Therefore, the Australian
approach has stopped short of abolishing the duty of disclosure, but the insurer will still
have some protection under s. 21(b) against the insured’s conduct although this could be
seen as a compromise approach. In comparison what is quite clear is that the FOS has
adopted similar methodology from the principles of the Australian system.
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In comparison the English Law Commission’s approach has recommended that both
of these tests in s. 21 should be adopted into English law. Furthermore while the
Australian duty of disclosure is limited to those questions asked, it can also be seen
under s. 22 ICA that the insurer cannot rely on disclosure if they have asked a specific
question and they have then failed to inform the insured of the consequences for non-
compliance. This is currently similar to the Statement of General Insurance Practice,
prior to their replacement by the Business Rules, and those of the SLTIP. The Law
Commission has made no recommendations on this point regarding the consequential
failure to disclose an answer to a direct question. However, given that it has worked
well in Australia it may prove to be of an advantage to the consumer or small business
type of insurance. Furthermore, it could assist in the maintenance good industry
practice if this were adopted into English law.

Conclusions
As the law currently stands, there is scope for considerable injustice for the consumer or
small business insured that have fallen foul of the duty not to misrepresent or to disclose
material facts while simultaneously having to abide by the duty of utmost good faith.
While the consumer has been provided with some practical remedies through the FOS,
the clear divergence from the law has restricted the development of the common law,
stagnating through a voluminous lack of cases, although in part this could also be due to
arbitration and mediation clauses that are operational and prevent cases going to court.
Ultimately, the joint review by the Scottish and English Law Commissions’
recommendations are to be welcomed as they clearly make provisions for a major
reform. It adopts a fairer and more balanced approach. If a new Act does incorporate
the provisions discussed, then the law and the approach of the FOS will be virtually the
same. Furthermore while the FOS remains a free investigatory service at the point of
access, with no legal costs, if the consumer is unhappy with the application of the law
then the FOS can now be judicially reviewed[53] or alternatively the consumer can use
the law, albeit at an additional cost of legal fees, to sue the insurer. This he may have to
do for claims over the £100,000 threshold.
Clearly the Law Commission’s proposal to abolish the duty of non-disclosure, unless
a question is asked, is a substantial improvement and this follows the original
subjective approach of Lord Mansfield’s judgment and the FOS as indicated previously.
This can only benefit the insured, but it would also reflect the practical reality that, in
many cases, the insurance company is never going to know, nor has any way of finding
out, if the insured has had a minor accident and compensated the injured party directly.
 Therefore, this would be indicative of his past conduct, but may not represent a Insurance law
financial risk to the insurer. If the insurer did discover these facts, however, this would
be a negligent misrepresentation and rather than having the policy avoided the insured
would be able to rely on the policy of proportionality, provided the insurer would not
have refused the insurance. Therefore, this is a substantial improvement on the
approach of allowing the insurer total avoidance, as is the current law.
Within the current legal framework the insurers have very few duties towards the 37
insured[54]. Therefore if the consumer insured needs to seek a remedy against the
insurer he would be ill-advised to do so through legal proceedings and, as has been
seen, the only remedy available where the insurer makes a misrepresentation or has
been held to be in breach of utmost good faith is avoidance.
Under the existing provisions in the MIA either the insurer or the insured can only
gain the remedy they are seeking by treating the contract as though it never existed.
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Therefore, this all or nothing approach is somewhat drastic, although the FOS’s
position, which can prevent the total avoidance of the contract, is much to be preferred
and the Law Commission now shares this view.
The development of consumer and small business insurance has provided a
lucrative industry whereby nearly all the benefits have been taken by the insurers who
have managed to stave off virtually all attempts at reform despite the recommendation
of two previous Law Commissions’ reports. So far only the FOS and its predecessor
have been able to redress the balance for consumers and those small businesses with
turnover less that £1 million[55], but this is clearly inadequate given the £100,000 cap.
Thus, it can only be hoped that Parliament will act on the Law Commission’s
proposals to redress the inadequacies of the current law and restore, at least from the
consumer and small business perspective, some order out of this chaos in the draft bill
to be published later this year and then finally this area of insurance law may be fit for
purpose in the twenty-first century.

Notes
1. Whether it be repealing or amending an act such as the Sale of Goods Act 1893 that
has been replaced by the Sale of Goods Act 1979.
2. [1995] AC 501 per Lord Mustill at 518.
3. [1997] 3 All ER 636.
4. MIA 1906 s. 20(1).
5. MIA 1906 s. 18.
6. (1766) 3 Burr 1905.
7. [1995] AC 501.
8. [1995] 1 AC 501 (p. 549).
9. Hird N.J. ‘‘Rationality in the House of Lords’’ [1995] JBL 194.
10. The court would be required to hear evidence from expert witnesses who may assist
the court in reaching a decision as to what the hypothetical reasonable insurer would
have done. This may not fall within the grounds of the actual insurer in question as his
policies may be different, so that he would not have undertaken the risk at all.
Furthermore, if these issues surrounded a specialist risk, the reasonable insurer may
have chosen not to underwrite that risk.
11. Cost in this sense would be the reinterpretation of the law to conform with modern days
society. This would also generate more uncertainty as new cases would be necessary to
 IJLMA provide further clarification. Furthermore, this would also have additional financial costs
to the insurance industry in retraining and redefining insurance proposal forms.
52,1 12. Law Commission report No. 104, C and Y 8046.
13. Insurance Contracts Act 1984, s. 21.
14. Although there at four key type in total with the latter two being reckless and deliberate.
15. Rule 3.3, DISP Sourcebook of the FSA Handbook.
38 16. This limit also includes small businesses who can use the FOS provided their turnover
is less than £1 million.
17. This will not be discussed as it is outside the scope of this work.
18. While materiality is under the heading of consumerism as it is common to both
consumer and business insurance, both issues will be addressed.
19. Marine Insurance Act 1906 s. 18 and s. 20.
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20. 48 per cent against; 52 per cent for.

21. Law Commission: a summary of responses to consultation (Business issues) October
2008 Para 3.18.
22. Law Commission: a summary of responses to consultation (Business issues) October
2008. Para 3.19.
23. Law Commission: a summary of responses October 2009, para 3.20.
24. Law Commission: a summary of responses, May 2008.
25. Para 2.74.
26. Section 2(2) MRA 1967.
27. Misrepresentation Act 1967 s. 2(2).
28. Consultation, para 2.118.
29. Law Commission: a summary of responses to consultation (Consumer issues) May
2008. Para 2.120.
30. Para 2.126, per ABI.
31. Law Commission: a summary of responses to consultation (Consumer issues) May
2008. Para 2.1226.
32. Law Commission: a summary of responses to consultation (Consumer issues) May
2008. Para 2.129.
33. Para 2.130 ABI.
34. Para 2.145.
35. Para 2.143.
36. Para 2.144.
37. Para 2.147.
38. However even under the currently law it would be necessary to demonstrate the facts
induced the insurer.
39. See below.
40. Para 3.36.
41. Para 3.42.
42. Para 3.45.
43. Para 3.52.
44. It also included other statutes including the Fire Prevention (Metropolis) Act 1774, the
Life Assurance Act 1774 and the Marine Insurance Act 1788.
 45. Though this does not apply to the rest of the Act. Insurance law
46. (1989) 5 ANZ Ins Cas 60-926.
47. Section 14 – Parties not to rely on provisions except in good faith.
(1) If reliance by a party to a contract of insurance on a provision of the contract would
be to fail to act with the utmost good faith, the party may not rely on the provision.
(2) Subsection (1) does not limit the operation of s. 13.
(3) In deciding whether reliance by an insurer on a provision of the contract of
39
insurance would be to fail to act with the utmost good faith, the court shall have
regard to any notification of the provision that was given to the insured, whether a
notification of a kind mentioned in s. 37 or otherwise.
48. This is similar to the FOS’s approach in England and stands in stark contrast to
English law where as has been seen, the duty to disclose material facts in placed on the
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insured.
49. Section 12 – This Part is not to be read down. The effect of this Part is not limited or
restricted in any way by any other law, including the subsequent provisions of this Act,
but this Part does not have the effect of imposing on an insured, in relation to the
disclosure of a matter to the insurer, a duty other than the duty of disclosure.
50. Section 18.
51. ALRC 20, para 183.
52. Insurance Contract Amendment Bill 2007. Schedual 4, Part I, para 1.
53. Similarly the insurer could also seek a judicial review of any decision made by the FOS.
54. See La Banque Financiere de la Cite SA v. Westgate Insurance Ltd [1991] 2 AC 249.
55. The definition of a business that will qualify for FOS adjudication is currently under
review by the Law Commission.

References
Birds, J. (2007), Modern Insurance Law, 7th ed., Sweet & Maxwell, London.
Law Commission (1979), ‘‘Non-disclosure and breach of warranty’’, WP No. 73, Law Commission,
London.
Law Commission (1980), Insurance Law: Nondisclosure and Breach of Warranty, Cmnd 8064,
The Stationary Office, London.
Lowry, J. and Rawlings, P. (2005), Insurance Law, 2nd ed., Hart, Oxford.
Merkin, R. (2006), A Report of the English and Scottish Law Commissions on the Australian
Experience of Insurance Law Reform, Law Commission and Scottish Law Commission,
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Merkin, R. (2007), ‘‘Reforming insurance law: is there case for reverse transportation’’, available
at: www.lawcom.gov.uk/docs/merkin_report.pdf
Ombudsman News (2005), ‘‘Insurance case studies’’, Issue 48, August.
Pynt, G. (2008), Australian Insurance Law, LexisNexis, Chatswood.

Corresponding author
Gerald Swaby can be contacted at: g.swaby@hud.ac.uk

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