INSURANCE CONTRACT LAW: Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured

Transcription

1 The Law Commission Consultation Paper No 182 and The Scottish Law Commission Discussion Paper No 134 INSURANCE CONTRACT LAW: Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured A Joint Consultation Paper

2 The Law Commission and the Scottish Law Commission were set up by section 1 of the Law Commissions Act 1965 for the purpose of promoting the reform of the law. At the time this joint consultation paper was prepared, the Law Commissioners were: The Honourable Mr Justice Etherton, Chairman Professor Hugh Beale QC, FBA Mr Stuart Bridge Professor Jeremy Horder Kenneth Parker QC Professor Hugh Beale s term of office came to an end on 30 June He has been succeeded by Mr David Hertzell. The Chief Executive of the Law Commission is Steve Humphreys and its offices are at Conquest House, John Street, Theobalds Road, London WC1N 2BQ. The Scottish Law Commissioners are: The Honourable Lord Drummond Young, Chairman Professor George L Gretton Professor Gerard Maher QC Professor Joseph M Thomson Colin J Tyre QC The Chief Executive of the Scottish Law Commission is Michael Lugton and its offices are at 140 Causewayside, Edinburgh EH9 1PR. This joint consultation paper, completed on 21 June 2007, is circulated for comment and criticism only. It does not represent the final views of the two Law Commissions. We would be grateful for comments on the proposals before 16 November Please send comments to the Law Commission either By to: commercialandcommon@lawcommission.gsi.gov.uk; or By post to: Elizabeth Waller, Law Commission, Conquest House, John Street Theobalds Road, London WC1N 2BQ Tel: / Fax: It would be helpful if, where possible, comments sent by post could also be sent on disk, or by to the above address, in any commonly used format. As the Law Commission will be the recipient of responses, the Freedom of Information Act 2000 will apply and all responses will be treated as public documents. Those who wish to submit a confidential response should contact the Law Commission before sending the response. Automatic confidentiality disclaimers generated by an IT system will be disregarded. This consultation paper is available free of charge at: and

3 THE LAW COMMISSION THE SCOTTISH LAW COMMISSION INSURANCE CONTRACT LAW: MISREPRESENTATION, NON-DISCLOSURE AND BREACH OF WARRANTY BY THE INSURED CONTENTS Paragraph Page Outline ix-xiii Glossary xiv BACKGROUND PART I: INTRODUCTION 1 Outline of the project Problems with the law Previous criticisms of the law Developments affecting consumers Criteria for evaluating the law Consumer insurance: enshrining existing principles of good practice into law Business insurance: setting out default rules that meet reasonable expectations Europe Structure of the paper Acknowledgements iii

4 Paragraph Page PART 2: THE CURRENT LAW 22 Introduction Misrepresentation Non-disclosure Warranties Basis of the contract clauses Unfair Terms in Consumer Contracts: the 1993 Directive and 1999 Regulations Conclusion PRE-CONTRACT INFORMATION FROM THE INSURED PART 3: PRE-CONTRACT INFORMATION AND CONSUMERS: ASSESSING THE CURRENT POSITION 52 The current law The ABI Statements of Practice The Financial Services Authority The Financial Ombudsman Service The case for law reform PART 4: PRE-CONTRACT INFORMATION AND CONSUMERS: PROPOSALS FOR REFORM 72 Introduction Defining consumers Abolishing the duty to volunteer information The duty to answer questions honestly and carefully Basic requirements: misrepresentation and inducement Deliberate and reckless misrepresentations: acting without honesty iv

5 Paragraph Page Innocent misrepresentations: protecting the insured who acted honestly and reasonably Where the policyholder thinks the insurer will obtain the information A continuing duty of disclosure Negligent misrepresentations: the remedies Negligent misrepresentations in life policies: should the law impose a cut-off period? Renewals Mandatory rules Basis of the contract clauses and warranties PART 5: PRE-CONTRACT INFORMATION AND BUSINESSES: PROPOSALS FOR REFORM 120 Introduction Retaining the duty of disclosure Protecting the honest and careful insured Should the law distinguish between dishonest and negligent conduct? Contracting out of the default regime Different rules for different markets? PART 6: GROUP INSURANCE, CO-INSURANCE AND INSURANCE ON THE LIFE OF ANOTHER 157 Group insurance Co-insurance Insurance on the life of another v

6 Paragraph Page WARRANTIES AS TO THE FUTURE AND SIMILAR TERMS PART 7: WARRANTIES AS TO THE FUTURE AND SIMILAR TERMS: THE CURRENT POSITION 172 Introduction Warranties as to future conduct or circumstances Evaluation of the present position Comparative law Conclusion PART 8: WARRANTIES AS TO THE FUTURE AND SIMILAR TERMS: PROPOSALS FOR REFORM 187 Introduction A written statement Requiring a connection between the breach and the loss A mandatory or default rule? A reasonable expectations approach Terminating future cover The implications for marine insurance PRE-CONTRACT INFORMATION AND INTERMEDIARIES PART 9: PRE-CONTRACT INFORMATION AND INTERMEDIARIES: ASSESSING THE CURRENT POSITION 215 Introduction The nature of the problem Previous reports on the status of agents The structure of Parts 9 and The current law The Newsholme problem vi

7 Paragraph Page Marine Insurance Act 1906, section Consumers the current position PART 10: PRE-CONTRACT INFORMATION AND INTERMEDIARIES: PROPOSALS FOR REFORM 249 Consumers Business Insurance CONCLUSION PART 11: ASSESSING THE COSTS AND BENEFITS OF REFORMS 264 London Economics report and model for assessing costs and benefits Contents of London Economics report A case study: critical illness Life insurance: the effect of a five year cut-off period for negligent misrepresentations Conclusion PART 12: LIST OF PROPOSALS 272 Pre-contract information and consumer insurance Pre-contract information and business insurance Group insurance, co-insurance and insurance on the life of another Warranties as to the future and similar terms Pre-contract information and intermediaries: consumer insurance proposals Pre-contract information and intermediaries: business insurance proposals Assessing the costs and benefits of reforms vii

8 Page APPENDIX A: REFORMING THE LAW ON NON-DISCLOSURE AND MISREPRESENTATION: A CHRONOLOGICAL ACCOUNT OF PREVIOUS REPORTS, SELF REGULATION AND STATUTORY REGULATION 284 APPENDIX B: ASSESSING THE ECONOMIC IMPACT OF OUR PROPOSALS: A REPORT PREPARED BY LONDON ECONOMICS 298 APPENDIX C: THE FOS APPROACH TO ISSUES OF NON-DISCLOSURE AND MISREPRESENTATION: A SURVEY OF OMBUDSMAN FINAL DECISIONS 359 APPENDIX D: LIST OF MEETINGS AND RESPONSES IN RELATION TO THE ISSUES PAPERS 384 viii

9 OUTLINE 1.1 This Consultation Paper examines three areas of insurance contract law: misrepresentation and non-disclosure by the insured before the contract is made; warranties and similar terms; and cases where an intermediary was wholly or partially responsible for pre-contract misrepresentations or non-disclosures. 1.2 A more comprehensive summary is available on our websites at and Here we list some of our main provisional proposals and indicate where to find more information about them in the Consultation Paper. THE NEED FOR REFORM 1.3 Insurance contract law is partly set out in the Marine Insurance Act This Act incorporates general principles of insurance law and has been held to apply to all forms of insurance contracts, not simply to marine insurance. However, it has not kept pace with the times and can produce results that fail to meet the expectations of the market. 1.4 Consumers have a degree of protection against the strict effects of the law: Insurers issued Statements of Practice in which they agreed not to rely on their strict legal rights in some circumstances. These have been withdrawn but remain influential. The Financial Services Authority (FSA) adopted the substance of some of these Statements into its rules regulating the conduct of insurance companies. The Financial Ombudsman Service (FOS) provides a dispute resolution service to consumers and small businesses, which makes decisions on the basis of what is fair and reasonable. When deciding what is fair and reasonable the FOS often uses the Statements of Practice as guidance. ix

10 1.5 However, the existence of these different systems of law, regulation and guidance means that it is difficult for both insurers and consumers to find out what their rights and obligations are. The FOS issues guidance but it does not publish its decisions. Moreover some cases fall outside its jurisdiction. The position for both insurers and consumers can therefore be unclear and inaccessible. 1.6 For businesses, the Statements of Practice and most of the FSA rules do not apply. Only those businesses with a turnover of less than 1 million are entitled to bring cases to the FOS. 1.7 We therefore conclude that the overlapping layers of regulation and discretion are not a substitute for law reform. We propose reforms which are intended to give potential policyholders confidence in insurance by ensuring that it meets their reasonable expectations while protecting the legitimate interests of insurers and not imposing undue costs or unnecessary restrictions. OUR REFORMS 1.8 Our reforms deal separately with consumers and businesses. We define consumers as individuals who take out insurance for purposes wholly or mainly unrelated to their businesses (see paras 4.5 to 4.12). For consumers we propose a mandatory regime which is based largely on existing FOS practice. For businesses, we propose a new default regime, based on accepted good practice. These rules could be altered by contractual terms, provided that the alterations are made clear to the business. PRE-CONTRACT INFORMATION FROM THE INSURED 1.9 It is clearly important that insurers are able to obtain sufficient information from potential policyholders to assess risks properly. However, the current law on disclosure can operate as a trap and allows claims to be rejected even where policyholders have acted honestly and reasonably. Consumers 1.10 The following proposals will bring the law broadly into line with FOS practice: x

11 At present, consumers have a duty to volunteer all information that would have an effect on the mind of a prudent insurer. We propose to replace a consumer s duty to volunteer information with a requirement to answer questions carefully and honestly (paras ). A consumer who answers questions (or gives other information) honestly and takes reasonable care should be protected (paras ). Where the consumer deliberately or recklessly gives an incorrect answer to a question or other incorrect information, the insurer will be entitled to avoid the policy and refuse all claims under it. We ask if the insurer should also be entitled to retain the premiums (paras 4.50 to 4.99). Where the consumer has been negligent when answering questions or giving information, the law should aim to put the insurer in the position in which it would have been had it been aware of the full facts: If the insurer would have charged more, the claim should be reduced proportionately to the under-payment of premium. If the insurer would have excluded a particular type of claim, it should not be obliged to pay claims that would fall within the exclusion. If the insurer would have declined the risk altogether, the policy may be avoided, the claim refused and the premiums returned (paras ) We ask whether in consumer life insurance, the insurer should be prevented from relying on a negligent misrepresentation after the policy has been in force for five years or more. This would go further than current FOS practice, but reflects similar statutory provisions which are already in place in other jurisdictions (paras ). Businesses 1.12 For businesses, we propose changes to the default regime (that is, the rules which apply in the absence of any contractual terms to the contrary). xi

12 We propose that businesses should continue to have a duty to volunteer information, but the duty should be limited to facts that a reasonable insured in the circumstances would realise the insurer wanted to know about (paras ). A business that answers questions or provides information honestly and takes reasonable care should be protected (paras ). We ask whether, for businesses, the law should distinguish between dishonest and negligent conduct. Where a business has made a negligent non-disclosure or misrepresentation, should the insurer be placed in the position it would have been in had it been aware of the full facts, along the lines recommended for consumer cases (paras )? 1.13 Under our proposals, insurers and businesses would be free to agree different rules. However, we propose special controls which would prevent insurers from contracting out of the default regime in standard term contracts to the extent that the terms altering the default position have not been made clear to the insured and would defeat the insured s reasonable expectations (paras ). Group insurance and insurance on the life of another 1.14 Group insurance schemes are typically those where an employer arranges insurance for the benefit of employees and, sometimes, their partners and dependants. The current law does not deal with this situation and insurers have developed principles of good practice to deal with group insurance. We propose reform to bring the law into line with that good practice (paras ) We also propose that where the policyholder insures someone else s life, a misrepresentation by the person whose life is insured should be treated as if it were a misrepresentation by the policyholder (paras ). WARRANTIES AS TO THE FUTURE 1.16 Under current law, where a policyholder gives a warranty about future actions, any breach will discharge the insurer from all further liability, even in respect of claims which have no connection with the breach. We propose that the following rules should apply to all warranties as to the future: xii

13 Any warranty should be set out in writing. Additionally, in consumer cases, any warranty must be brought properly to the consumer s attention (paras ). A breach of warranty would not automatically discharge the insurer from liability. Instead, the insurer should pay a claim where the insured can prove on the balance of probabilities that the event constituting the breach did not contribute to the loss (paras ). For consumer insurance, these rules would be mandatory (paras ). In business insurance the parties could agree other consequences for breach of warranty. There would be special controls where the business contracts on the insurer s standard terms. The insurer would not be permitted to rely on a warranty, exception or definition of the risk in a standard term contract if it would render the cover substantially different from what the insured reasonably expected (paras ). PRE-CONTRACT INFORMATION AND INTERMEDIARIES 1.17 Insurance is often bought through brokers and other intermediaries who give guidance on application forms and pass information to insurers. It is not always clear for whom the intermediary is acting, and a policyholder often bears the consequences of any mistakes or wrongdoing by the intermediary We propose to clarify that tied agents who sell the products of a limited range of insurers should be treated as acting for the insurer. Where intermediaries are clearly independent, they should be considered to be acting for the policyholder. We ask whether the test of an intermediary s independence should be whether the intermediary has made a fair analysis of the market, as defined by the Insurance Mediation Directive (paras ). CONCLUSION 1.19 It is not possible in an outline of this length to introduce all of our proposals. Consultees are therefore encouraged to read both the fuller summary available on our websites and the relevant sections of this paper. We look forward to receiving views by 16 November 2007, sent to the address at the front of this report. xiii

14 ABBREVIATIONS USED IN THIS REPORT 1906 Act Marine Insurance Act 1906 ABI ALRC BILA COB DISP FOS FSA FSCS Association of British Insurers Australian Law Reform Commission British Insurance Law Association Conduct of Business Sourcebook (FSA Handbook, dealing with investment insurance) Dispute Resolution Sourcebook (FSA Handbook) Financial Ombudsman Service Financial Services Authority Financial Services Compensation Scheme FSMA Financial Services and Markets Act 2000 ICOB LRC MAT NCC OFT PRIN SLIP SGIP Insurance Conduct of Business Sourcebook (FSA Handbook) Law Reform Committee (the Law Commission s predecessor) Marine, Aviation and Transport National Consumer Council Office of Fair Trade Principles for Businesses Sourcebook (FSA Handbook) ABI Statement of Long-Term Insurance Practice 1986, issued by the Association of British Insurers. (A copy of this can be found in Issues Paper 1, Appendix B) ABI Statement of General Insurance Practice 1986, issued by the Association of British Insurers. (A copy of this can be found in Issues Paper 1, Appendix B) UCTA Unfair Contract Terms Act 1977 UTCCR Unfair Terms in Consumer Contracts Regulations 1999, SI 1999 No 2083 xiv

15 PART 1 INTRODUCTION OUTLINE OF THE PROJECT 1.1 The English and Scottish Law Commissions are undertaking a joint review of insurance contract law. Our aim is to ensure that the law balances the interests of insured and insurer, reflects the needs of modern insurance practice and allows both insured and insurer to know their rights and obligations. 1.2 In January 2006 we issued a joint scoping paper, which explained that we would be considering the law of misrepresentation, non-disclosure and breach of warranty. 1 We then asked whether there were other areas in need of review. We received 118 responses from a wide variety of organisations and individuals, which indicated strong support for a wide-ranging review Given the many topics to be considered we have decided to publish two consultation papers. This first paper considers: (1) misrepresentation and non-disclosure by the insured before the contract is made; (2) warranties (including basis of the contract clauses); and (3) misrepresentation and non-disclosure before the contract is made when the contract is made through an intermediary. The remaining topics will be dealt with in a separate consultation paper in They will include post-contractual good faith, insurable interest and damages for the late payment of claims. 1.4 In order to share our thinking as it developed, we published three Issues Papers: Paper 1 on Misrepresentation and Non-Disclosure in September 2006; Paper 2 on Warranties in November 2006; and Paper 3 on Intermediaries and Pre- Contractual Information in March The papers were discussed at a series of seminars and meetings (listed in Appendix D), including two private seminars with an invited audience. 3 The feedback from these papers has been very helpful and has led us to modify our views in several respects. Although this consultation paper draws heavily on material in the Issues Papers, some proposals are explained more clearly, while others have changed. 1.5 We seek views on our provisional proposals and questions by 16 November We would be grateful if responses could be sent to the Law Commission at the addresses given at the front of this paper Law Commission and Scottish Law Commission, Insurance Contract Law: A Joint Scoping Study: see Law Commission website at Law Commission and Scottish Law Commission, Analysis of Responses and Decisions on Scope, August 2006: see website above. Notes of these meetings are available on our website, above. 1

16 1.6 When we have decided the scope of the reforms, we will consider how they would best be implemented. One possibility would be to draft a new Insurance Act to replace the Marine Insurance Act 1906 (1906 Act). Another would be to replace some sections of the 1906 Act and leave others in force. Following the second consultation paper, we will also consider whether there is a need to codify insurance law more generally. PROBLEMS WITH THE LAW 1.7 The two Law Commissions have a statutory duty under section 3 of the Law Commissions Act 1965 to review the law with a view to its simplification and modernisation. The Law Commissions have reached the view that the law of misrepresentation, non-disclosure and breach of warranty in the field of insurance is neither simple nor modern and is in urgent need of reform. 1.8 British insurance law developed during the eighteenth and nineteenth centuries. It was largely codified in the 1906 Act, whose general provisions have been held to be relevant to insurance of all types. The 1906 Act is an impressive piece of work: it covers much ground and is written in clear, forthright terms. However, the courts have found it difficult to develop the principles of the codified law or to adapt them to changing economic conditions. Although the nature of the insurance market has changed markedly, insurance law remains much as it was a hundred years ago In the sections below we look first at the strict law and then consider more recent developments in regulation and ombudsman practice which modify the legal position. Misrepresentation and non-disclosure by the insured before the contract is made 1.10 Insurers need to receive information from potential policyholders about the nature of the risk. They use this as the basis of their decisions on whether to accept risks at all and, if so, at what price and on what terms. Some of this information can only be obtained from would-be policyholders. 4 As Lawton LJ put it in Lambert v Cooperative Insurance Society Ltd [1975] 2 Lloyd s Rep 485 at 492, It was said by [Counsel], with some force, that when the law first began to develop in the 18 th century those who sought to get the benefit of insurance cover were really acting with the same sort of knowledge and understanding as the underwriters from whom they were seeking cover. Nowadays when the ordinary citizen seeks to take out insurance cover for his house and belongings he is not acting on equal terms with the insurance companies. He went on to say that much as he sympathised with that point of view only Parliament could alter the law. 2

17 1.11 The 1906 Act therefore imposes heavy duties on those applying for insurance. They are required to volunteer information to the insurer about anything that would influence a prudent underwriter s assessment of the risk. If the policyholder fails in this duty, the insurer is entitled to refuse all claims. It can avoid the policy, which means that it can treat the policy as if it never existed. Similarly, the insurer can avoid the policy if the policyholder makes a material representation of fact that turns out to be untrue. It does not matter that the policyholder had no reason to know that the statement was untrue This leads to three difficulties: (1) The duty of disclosure may operate as a trap. Many insureds, particularly consumers and small businesses, are unaware that they have a duty to disclose. It may not occur to them to volunteer information for which they have not been asked. Even if they do realise they have such a duty, they may have little idea of what would be relevant to an insurer. Lambert v Cooperative Insurance Society Ltd 5 In 1963, Mrs Lambert took out a policy of insurance to cover the family s jewellery with the Cooperative Insurance Society (the Cooperative). She renewed the policy every year. Nine years later, she made a claim for loss of the jewellery. The Cooperative refused to pay her claim on the grounds that Mrs Lambert had not disclosed her husband s previous criminal convictions. The Cooperative had never asked Mrs Lambert any questions about criminal convictions, although it had had an opportunity to do so when Mrs Lambert first filled out the application form and every year at renewal. The Court of Appeal reluctantly concluded that the Cooperative was entitled to refuse to pay Mrs Lambert s claim, despite the fact that she did not realise that the Cooperative wanted to know about previous convictions. The Court said the case showed the unsatisfactory state of the law. Mrs Lambert is unlikely to have thought that it was necessary to disclose [this] fact She is not an underwriter and has presumably no experience in these matters. The defendant company would act decently if, having established the point of principle, they were to pay her. It might be thought a heartless thing if they did not. (2) Policyholders may be denied claims even when they act honestly and reasonably. An insured who misunderstands a question on the proposal form, and reasonably thinks that some information is not relevant to the insurer, may find that the insurer can avoid the policy. The same is true if the insured has given factual information that is inaccurate, or only partly accurate, even though the insured honestly and reasonably believed that what they said was correct. 5 [1975] 2 Lloyd s Rep

18 (3) Where the insured acts carelessly, the remedies may be overly harsh. Where the insured was honest but careless in answering a question, the insurer has an absolute right to avoid the policy. This applies even though, had it been given the correct or full information, the insurer would still have entered the policy, albeit at a higher premium or subject to different exceptions. Avoidance over-compensates insurers for their loss by allowing them to refuse those claims that have effectively been paid for, as well as those that have not. Ombudsman case study 27/5 6 Mr and Mrs C held a critical illness insurance policy. When he arranged the policy, Mr C failed to disclose that Mrs C had suffered from ear infections, leaving her with some loss of hearing. Mrs C was then diagnosed with leukaemia, which was wholly unconnected with her hearing problems. If the insurers had known about the hearing problem, it would merely have imposed an exclusion relating to Mrs C s hearing. Nevertheless, the insurer avoided the policy from the outset on the grounds of misrepresentation, and refused to pay the substantial claim for leukaemia. Under the strict law, the insurers were entitled to do this. However, the ombudsman held that it was unreasonable and disproportionate. As the misrepresentation was merely inadvertent, the insurer should only reject those claims which would have fallen within the hearing exclusion. Other claims, including the leukaemia claim, should be paid. Warranties and basis of the contract clauses 1.13 Insurers have an obvious interest in ensuring that policyholders take precautions against loss. The law therefore takes a strong approach to enforcing policyholders promises. The 1906 Act sets out severe consequences where a policyholder promises that a particular thing shall be done or shall not be done, or that some condition shall be fulfilled. The law applies the same approach where the policyholder affirms or negatives the existence of a particular state of facts. 7 Such promises are called warranties and must be exactly complied with, whether material to the risk or not. 8 The insurer is not required to pay any claims that arise after the date of the breach, even if the breach is later remedied or had nothing to do with the loss in question Again this may lead to three problems: Financial Ombudsman Service, Ombudsman News, (April 2003), Issue 27. Marine Insurance Act 1906, s 33(1). Marine Insurance Act 1906, s 33(3). 4

19 (1) The insurer may use warranties of past or present facts to add to the remedies the law already provides for misrepresentation. Where a statement is made into a warranty in the contract, and the fact stated is not true, the insurer may treat the policy as discharged. This applies even if the statement was not relevant to the risk; the insurer did not rely on it; and it had no connection to any claim that has arisen. De Hahn v Hartley 9 In June 1779 a policy of insurance was taken out on a ship which was sailing from Liverpool to the British West Indies. This was a dangerous business and the policy of insurance described the vessel as having sailed from Liverpool with 14 six-pounders, swivels, small arms and 50 hands or upwards. However, the ship had set off from Liverpool with only 46 hands. It docked at Anglesey six hours later where it picked up a further six men. The ship then sailed to Africa with 52 hands. Off the coast of Africa the ship (still with 52 hands) was captured and lost. The underwriter refused to pay for the loss and the Court agreed. The Court held that the warranty was not strictly true. It was irrelevant that it had been remedied only six hours later whilst the ship was still in the relatively safe waters around Britain. (2) A statement on the proposal form may be converted into a warranty using obscure words that most insureds will not understand. If a prospective policyholder signs a statement on a proposal form stating that the answers given form the basis of the contract, this has the effect of converting all the answers into warranties. The insurer may avoid the contract for any inaccuracy, even one that did not increase the risk. 9 (1786) 1 TR 343. See also Yorkshire Insurance Co v Campbell [1917] AC

20 Dawsons Ltd v Bonnin 10 A furniture removal firm in Glasgow (Dawsons) took out insurance for one of its removal lorries. The proposal form included the following clause: which proposal shall be the basis of this contract and be held as incorporated herein. This converted all the answers on the form into warranties. Dawsons filled out the form, and gave its business address in central Glasgow. When it was asked where the lorry would normally be parked it inadvertently wrote above address. In fact, the lorry was usually parked in the outskirts of Glasgow. The lorry was destroyed in a fire and Dawsons made a claim. At Court, it was argued that Dawsons mistake about the address did not add to the risk and arguably reduced it. The Court held that this did not matter: the insurance company was entitled to refuse to pay all claims under the policy. (3) Where a policyholder gives a warranty about future actions, any breach will discharge the insurer from all further liability, even from claims that have no connection with the breach. For example, if a policyholder warrants that they will maintain a burglar alarm, any failure to do so may (depending on the construction of the contract) allow the insurer to refuse a claim for storm damage or flood. The insurer may also refuse claims for burglary arising after the alarm has been repaired. Misrepresentation and non-disclosure before the contract is made when the contract is made through an intermediary 1.15 Insurance is often arranged through a broker or an intermediary. If the policyholder gives correct information to a broker, but the broker fails to pass on the information to the insurer, or passes it on incorrectly, the insurer will frequently have the right to avoid the policy even though the policyholder may not have been at fault. The policyholder may have thought he was dealing with a representative of the insurer and the insurer may have been in a better position to prevent mistakes occurring. PREVIOUS CRITICISMS OF THE LAW 1.16 Recommendations for reform of the topics covered by this consultation paper were made by the Law Reform Committee as long ago as In the fifty years since, several authoritative reports have subjected insurance contract law to severe criticism. Details of these reports are set out in Appendix A, together with a history of the government s and industry s response. 10 [1922] 2 AC 413; 1922 SC (HL) Fifth Report of the Law Reform Committee (1957) Cmnd 62. However, in the same year a report by the Law Reform Committee for Scotland made no proposals for reform, concluding that there was "no demand in Scotland for any alteration in the law with regard to the subject of our remit": Fourth Report of the Law Reform Committee for Scotland (1957) Cmnd 330, para 25. 6