Disclosure

Under article 2.101, the insurance applicant must inform the insurer of circumstances of which he is or ought to be aware and which are the subject of clear and precise questions.

This questions-only approach is similar to that proposed by the Law Commissions' draft Consumer Insurance Bill, although the Bill also spells out the consumer's duty to answer such questions honestly and with reasonable care.

Under the PEICL, of course, the provision would apply equally to consumers and business insurers, neither of which would have a duty to volunteer information. Where additional information is provided, however, the same remedies for negligent or fraudulent breach would apply (2.105).

Remedies

Where the insured has breached his duty of disclosure but a claim under the policy has not yet arisen, the question is whether the contract can keep going in the future. Under the PEICL, the insurer can either propose a reasonable variation that will allow the policy to continue or terminate it altogether (2.102).

If the breach is innocent, however, the insurer can only terminate the contract if it can show it would not have concluded the contract at all had it known the information.

Once an insured event has occurred, the insurer's liability to pay the claim becomes an issue. In the case of an innocent breach, the claim is unaffected. But where the insured has been negligent, proportionate remedies apply.

The insurer's right to rely on a negligent non-disclosure or misrepresentation, however, will only arise if there is a causal connection between the loss and the breach (2.102(5)). From an English law perspective, this is a significant curb on the insurer's remedies and something that goes beyond the Law Commissions' otherwise fairly similar proposals for proportionate remedies.

Assuming there is a causal connection, the remedies for negligence under the PEICL are based on what the insurer would have done had no breach occurred. If the insurer would not have concluded the contract at all, no insurance money is payable. But if it would have charged a higher premium or imposed different terms, the claim will be payable proportionately or in accordance with those terms.

There are some exceptions. The insurer will have no remedy in respect of a question which was left unanswered or information which was "obviously incomplete or incorrect", or if the information was not material, or the insurer led the applicant to believe it was not required. Information of which the insurer was or should have been aware will also not give rise to any sanction (2.103).

Only in the case of fraud will the insurer be entitled to avoid the policy altogether and retain the premium (2.104). This is one of the PEICL's mandatory provisions. No causal connection is required but the insurer must have been led to conclude the contract by the policyholder's fraudulent breach.

Duty to warn

If the PEICL regime applies, the insurer will be under a specific duty to warn the person applying for insurance of any inconsistencies between the cover offered and the applicant's requirements of which the insurer is or ought to be aware (2.202).

Similarly, if the applicant mistakenly believes the insurance came into force when his application was submitted and the insurer is or ought to be aware of this belief, the insurer has a duty to warn him when the cover will commence (2.203).

In either case, a failure to warn could leave the insurer liable for all losses arising from its breach and (in the case of inconsistencies in the cover) the insured will have the right to terminate the contract.

The closest parallel in the UK is the regulatory requirement to treat customers fairly and act with due skill, care and diligence, as well as guidance and rules in the Insurance Conduct of Business Sourcebook (ICOBS) about establishing the insured's demands and needs, eligibility and suitability of advice. Where such requirements are expressed as a rule (rather than as guidance) the insured has the right to claim damages for breach.