REFORMING INSURANCE LAW: - Law Commission

treated as misrepresentation if it was made on the basis of a belief held by the assured and which
would have been held by a reasonable person in the circumstances. The use of a clause excluding
liability in these circumstances would render s 26(1) of little effect. 120
4.32 Section 25 seeks to overcome a particular problem faced by life insurers where the
policyholder and the life assured are different persons. The abolition of warranties by s 24 of the
1984 Act removes the possibility of the insurers obtaining a warranty from the policyholder as to
the health of the life assured. They remain free to ask the policyholder questions about the life
assured, but necessarily these can only be answered to the best of the policyholder’s knowledge
and belief and all that is required of the policyholder under s 26 is honesty. The solution may be
to ask questions of the life assured himself. When warranties were available to insurers, they
were free to ask the policyholder to warrant the health of the assured. The abolition of warranties
removed this protection from them, and it was accordingly recommended by the ALRC 121 that if
insurers were to ask questions directly of the life assured, any false answers by him 122 should be
treated as having been made by the policyholder himself. 123 At present there is no duty of
disclosure imposed upon the life assured, although the draft Insurance Contracts Amendment
Bill 2007 will amend the Act to this effect: the suggested provision is discussed below.
4.33 In practice an extensive medical is required in Australia. The author is uncertain of the
extent to which insurers do seek information directly from the life assured in this jurisdiction, but
if this is a widespread practice then the section, and arguably its extension to non-disclosure, is
clearly an important protection for insurers.
Misrepresentation by placing brokers
4.34 The Insurance Contracts Act 1984 does not make express provision for the situation in
which a placing broker has misrepresented an inducing fact to insurers, and it is not clear
whether the knowledge of relevance and truth referred to in s 26 is that of the assured or that of
his broker. It is suggested below in the discussion of the role of brokers that a false statement by
a broker which does not originate from the assured should not amount to a breach of duty by the
assured himself.
120
These sections were analysed by Treasury Review II, 2004, Chapter 8, but were found to be working
satisfactorily.
121
ALRC 20, para 185.
122
English practice in life insurance, at least since the first ABI Statement of Practice in 1977, has been to confine
answers on health to the best of the proposer’s knowledge and belief.
123
This problem is not confined to life insurance. In the case of business interruption insurance taken out by the
promoters of sporting, musical or other events, there will generally be a question concerning the assured’s
knowledge as to the health of the performer. It is not usual to ask questions of the performer, who is probably
unaware that the insurance is in place. See, for a case where the performer was probably unable to appreciate much
beyond playing slide guitar, Gerling Konzern General Insurance v Polygram Holdings Inc[1998] 2 Lloyd’s Rep
544.
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