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Consequences of breach of duty

If a material fact is not mentioned when it should be this places the life insurance contract in a state which makes it ‘ voidable’.   The burden of proof that non disclosure has occurred falls on the insurer. However if an insurer discovers a material fact making to policy ‘ voidable’ but then continues to accept premiums, then the insurer has lost his right to repudiate the contract. In simple terms once the insurer has found out a material fact he can either accept that material fact and continue with the policy, or void the policy. If he continues to accept premiums then he is indicating his acceptance to continue with the contract at the original terms. This came from Hemmings v Sceptre Life Association Limited 1905.

The case of Malhi v Abbey Life Insurance Co Ltd 1994 showed that unless a non disclosed fact was later disclosed to someone authorised to understand its implication the insurer did not loose their right to void the policy.   In this case the undisclosed material fact was alcoholism which was discovered when a second proposal for another policy was sent in. The life insurance office refused this second request for insurance but did not tie it back to the policy already in place.   If was held that the office was still within its rights to decline the first life policy.

The insurer has no right for damages they can only ‘void’ the contract. In theory the insurer could have rights for damages for fraudulent misstatement under tort or deceit, or under the Misrepresentation Act 1967.
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