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5/10 W01/March 2017 Award in General Insurance

Where the breach is neither reckless nor deliberate the remedies provided in the Act are less severe.
They are intended to be proportionate and to reflect what the insurer would have done if it had known of
the undisclosed information before entering into the contract.

So, an insurer will only be able to repudiate a claim and avoid a policy entirely where it can show that it
would not have written the policy at all.
Be aware
IA 2015 still preserves the insurer’s right to avoid a policy where fraud is involved.

D2 Remedies for misrepresentation

So far we have considered the nature of material facts, those that need to be disclosed and the
consequences of non-disclosure. What happens if a fact is stated wrongly, or exaggerated? This is
different from not telling insurers something, as it involves telling insurers something that is wrong – a
misrepresentation.
The rules that apply are therefore similar to those for non-disclosure. Slightly different words are used,
but the intention is the same. It is really a reinforcement of the fact that a proposer need only answer to
the best of their knowledge or belief. However, where a proposer deliberately or recklessly answers
wrongly or, in fact, for any deliberate misrepresentation, the insurer will be entitled to avoid the policy
ab initio.
5 The misrepresentation must concern a fact rather than an opinion, and must otherwise meet the
Chapter conditions outlined earlier relating to non-disclosure.

In non-consumer (business) insurance, an insurer may seek remedy on the grounds of misrepresentation
regardless of whether the misrepresentation is fraudulent, negligent or completely innocent.

In consumer insurance, the insurer may only seek remedy for a misrepresentation which is negligent or
fraudulent. This is because CIDRA imposes the duty to take reasonable care not to misrepresent material
facts (see section D2A). Reference copy for CII Face to Face Training
Example 5.6
The following are examples of misrepresentation in insurance:
• A proposer for theft insurance says that the premises are protected by a burglar alarm when they are not.
• A proposer for motor insurance declares that their car has not been modified in any way when it has.
• A proposer for property insurance implies, in respect of a previous fire at his home, that the fire had occurred at
other premises and had been the fault of contractors. In fact, the fire had been at his house and there had been no
contractors.

D2A Consumer insurance

Under CIDRA, the insurer can only seek remedy if misrepresentation is qualifying. That is if:
• the misrepresentation was caused by the consumer’s failure to exercise reasonable care; and
• the insurer shows that, without the misrepresentation, it would not have entered into the contract (or
agreed to the variation) at all, or would have done so only on different terms.
The Act classifies qualifying misrepresentation as either:

• deliberate or reckless if the consumer knew that:
– it was untrue or misleading, or did not care whether or not it was untrue or misleading, or
– the matter to which the misrepresentation related was relevant to the insurer, or did not care
whether or not it was relevant to the insurer; or
• careless, i.e. not deliberate or reckless.
The burden of proof that a qualifying misrepresentation was deliberate or reckless is on the insurer. In
this respect, the Act also states that unless the contrary is shown, it is presumed that the consumer:
• had the knowledge of a reasonable consumer; and
• knew that a matter the insurer asked a clear and specific question about was relevant to the insurer.