Insurance Law and the Financial Ombudsman Service
NON-DISCLOSURE AND MISREPRESENTATION
A COMPARATIVE OVERVIEW OF THE LEGAL, FOS AND LAW COMMISSIONS’ POSITIONS
The duty of disclosure
(a) The law
In insurance law, there is a duty of utmost good faith at the pre-contractual stage. This duty is derived from the Marine Insurance Act 1906,1 and now applies to both marine and non-marine insurance. The duty means that before the assured takes out or renews a policy of insurance, he must voluntarily disclose all facts which an insurer might consider to be material, even if not asked. If he fails to do so, the policy will be void ab initio,2 which means that it will be reversed as if there had been no contract in the first place. This would mean that the insurer could refuse to pay all claims under the policy, could recover any payments already made, and, unless there had been fraud,3 would return the premium. These consequences of non-disclosure would be so under the law, even if the assured is unaware of his duty or which facts are material. The reason for the position at law is that the insured, rather than the insurer, is the one who knows the relevant information which the insurer has to trust the insured to share.