REFORMING INSURANCE LAW: - Law Commission

Some policies apply automatically to shifting membership so that as and when a new employee
or member becomes eligible, he is automatically covered. Others require some form of
declaration, eg, as to the health of the new employee or member as a condition of coverage. The
1984 Act has a special provision, s 32, which applies only to superannuation schemes. The
section assures that a duty of disclosure or a duty to avoid misrepresentation is owed when a
declaration is made to the insurers, and that in the event of breach of duty that particular person’s
coverage is to be treated in the same way as if he was an applicant for a policy in his own right.
The point here is that the policy as a whole is unaffected by a subsequent individual
declaration. 200 Treasury Review II, 2004 pointed out that s 32 does not deal with the case in
which there is non-disclosure or misrepresentation after the person has joined the superannuation
scheme but before cover has been effected on his life. It was recommended that the remedies for
non-disclosure and misrepresentation should be available regardless of whether a person is a
member of the scheme when he applies for the cover. 201 It was also recommended that s 32 be
extended to other group schemes not involving superannuation. 202 These recommendations have
been taken up by the draft Insurance Contracts Amendment Bill 2007, which amends the
relevant definitions in s 11 and repeals the existing version of 32. In its place, the new s 32(1)
repeats the earlier principle that each member has an individual contract of insurance with the
insurers, while new s 32(2) provides that if the failure to disclose or misrepresentation occurred
after the proposed life assured became a member of the relevant superannuation, retirement or
other group life scheme but before the insurance cover was provided by the group life contract in
respect of the life assured, the failure or misrepresentation is taken to have occurred before the
proposed life insured became a life insured under the group life contract.
4.71 This section opens up an issue which is otherwise not touched by the 1984 Act, namely
declaration policies and reinsurance treaties generally: s 32 is concerned only with
superannuation. 203 English law on this matter is complex and as yet not fully articulated. The
incidence of the disclosure and representation obligations may arise only when the policy is
made (which appears to be the case if the policy is obligatory in that the (re)insurers have to
accept any risks), 204 or at the stage of each individual declaration (which appears to be the case if
the policy is facultative in that the (re)insurers can refuse any individual declaration). The
principle in s 32 is inapplicable in the former case, whereas English law adopts the principle of s
32 in the latter case, so that an individual declaration may be avoided under a facultative policy
while leaving the rest of the declarations and the policy itself untouched. 205
200 ALRC 20, para 199.
201 Para 10.31 and recommendation 10.5.
202 Para 10.32 and recommendation 10.6.
203 S 32A extends a similar principle to Retirement Savings Accounts.
204 Attachment of risks may be automatic (as where the contract is obligatory) or dependent upon a decision of the
policyholder to make a declaration (as where the contract is facultative-obligatory).
205 SAIL v Farex Gie [1995[ LRLR 116.
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