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News
Law Commission - Misrepresentation and Non-disclosure - A claims Managers view from Peter Barrett at RGAure.
Law Commission
Issues Paper 1
Misrepresentation and Non-disclosure
Claims Managers view from Peter Barrett at RGA
Introduction
The Law Commission published an issues paper on 22 September 2006 intended to prompt discussion and thought on a range of issues connected with insurance law, principally misrepresentation and non-disclosure. The commission was keen to point out that no fixed decisions had so far been reached and the matters addressed in the issues paper are no more than tentative conclusions and proposals. A formal consultation paper is to be issued in the summer of 2007, when insurers will be able to give feedback on the proposals.
Why do you need to know this?
What has been tentatively proposed would be a major overhaul of the law relating to misrepresentation and non-disclosure. If implemented, it will impact on the way insurers deal with misrepresentation and non-disclosure and the remedies available to them.
What are the proposals and questions raised in the paper?
· Insurers should ask specific questions and accordingly the existing duty of disclosure would be severely restricted.
· Re-defining the test to determine what is a material fact to take into account the view of the reasonable insured, rather than the prudent underwriter.
· Insurers to be prevented from relying on non-fraudulent misrepresentation after the policy has been in force for three years – in effect the introduction of a 3 year contestable period.
· Return to defining misrepresentation as innocent, negligent and fraudulent, rather than the current 4 categories used by the FOS.
· Where negligent misrepresentation is proved application of a proportionate remedy, rather than the automatic right to deny the claim and avoid the policy.
· Insurers who indicate that they may obtain information from a third party (by, for example, asking the insured for consent to obtain it) should not be allowed to rely on a non-fraudulent misrepresentation (or failure to disclose) if the insured reasonably thought the insurer would check with the third party.
· Whether where the insurer would have declined the risk, but the policyholders fault was minor and other insurers would have accepted the risk at a higher premium, the court should have discretion to apply a proportionate remedy.
If implemented, what would this mean?
In short, a considerable change to the way we treat non-disclosure and misrepresentation.
It has been described as the end of utmost good faith. If the proposals are implemented, the emphasis will be on misrepresentation rather than non-disclosure.
The test for deciding what is material will change and the remedies available once it has been determined there has been misrepresentation will also be modified. Far fewer policies will be avoided and far fewer claims declined out right. Proportionate remedies will become the norm, expect in fraud cases and those were the material non-disclosed would have led to the policy being declined or the condition relating the claim being excluded.
The introduction of a 3 year contestable period would mean that after that time limit, insurers would only be able to reject claims for misrepresentation where they were able to prove fraud. Never an easy job and something insurers have historically not been keen to do.
Why now?
The Law Commission has been considering changes to the law in this area for many years. There is no certainty that these changes will go ahead, however, there does seem to be many groups, not just consumers that consider the current law in this area to be harsh and inflexible.
More information
For a full copy of the Law Commission report – please access the attached link
http://www.lawcom.gov.uk/docs/insurance_contact_law_issues_paper_1.pdf
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