REFORMING INSURANCE LAW: - Law Commission

elevant to the decision of the insurer whether to accept the risk and, if so, on what terms. 103
Once again the view of the ALRC that the test of knowledge should take account of factors
intrinsic to the assured 104 was rejected in favour of a more objective approach based on a
reasonable person in the circumstances, although it has been held that hindsight is not a part of
the test. 105 Section 26(2) does provide some leeway to an assured who makes a false statement in
the belief that it doesn’t matter. If, for example, an assured aged 60 is asked his age, which he
states to be 59 while unaware of the fact that the insurers do not insure people aged 60 or more,
he would not be guilty of misrepresentation under s 26(2). 106 The change does not apply to
marine insurance, and the ALRC in its 2001 Report on marine insurance felt that it would be
correct to retain the existing law. 107
4.27 It is to be assumed that the 1984 Act has not abolished the common law principle that a
statement is to be treated as a representation only if, viewed objectively, it can be taken to be
such. Pre-contract puffery is not treated as the making of a representation, and there seems no
reason why the law should be any different under a statutory regime.
Statements of fact
4.28 An assured who is asked a straight factual question which he answers incorrectly is not
necessarily guilty of misrepresentation. He has the enhanced protection of s 26(2) in place of the
common law objective materiality principle, so that his statement is only capable of being treated
as a misrepresentation if he knows or a person in his position ought to have known that it would
have been relevant to the insurers. That is not the end of the matter, because even if the assured
was or should have been so aware, the insurers are under s 28 entitled to a remedy only if they
were induced, and even the remedy then varies depending upon the assured’s state of mind –
only fraud gives a right of avoidance. The protection for the assured is thus switched from
objective materiality to subjective intentions.
4.29 Section 23 of the 1984 Act regulates the position where the assured falsely answers an
ambiguous question. The key words are in s 23(b): if the assured gives a false answer to a
question, and “a reasonable person in the circumstances would have understood the question to
have the meaning that the person answering the question apparently understood it to have, that
meaning shall … be deemed to be the meaning of the question”. This is a watered down version
of the ALRC’s proposal that the focus should be on a person in the assured’s position rather than
on a reasonable person, 108 so that once again “intrinsic” factors are omitted from consideration.
The section probably reflects the common law requirement for actual rather than manufactured
ambiguity, 109 the use of the word “would” confirming that the question was ambiguous and not
103
Sutton, paras 3.127 to 3.129. The burden of proof is on the insurers: Plasteel Windows Aust Pty Ltd v C E Heath
Underwriting Agencies Pty Ltd (1989) 5 ANZ Ins Cas 60-926
104
ALRC 20, para 184.
105
Manchester Utility Total Care Building Society v MGICA Ltd (1991) 6 ANZ Ins Cas 61-062.
106
Notes to the draft Insurance Contracts 1982 Bill, cl 27, cited in Mann, para 26.10.
107
ALRC 91, para 10.97.
108
ALRC 20, para 184.
109
The cases are too numerous to cite. See, eg, Youell v Bland Welch (No 1) [1992] 2 Lloyd’s Rep 127.
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