9. (1) This section provides for remedies that are proportionate to the effects of any misrepresentation on the interests of the insurer and the consumer by reference as to whether the misrepresentation was—

(a) innocent (that is, one that was neither negligent nor fraudulent),

(b) negligent, or

(c) fraudulent.

(2) Where a claim is made under a contract of insurance and where the consumer has discharged the duty under section 8 to answer questions honestly and with reasonable care but where an answer involves an innocent misrepresentation, the insurer shall be required to pay the claim made and shall not be entitled to avoid the contract on the ground that there was a misrepresentation.

(3) Where a claim is made under a contract of insurance and where the consumer has discharged the duty under section 8 to answer questions honestly and with reasonable care but where an answer involves a negligent misrepresentation (that is, one that was not fraudulent), the remedy available to the insurer shall reflect what the insurer would have done had it been aware of the full facts and shall be based on a compensatory and proportionate test.

(4) Without prejudice to the generality of subsection (3), where an answer given by the consumer involves a negligent misrepresentation—

(a) if the insurer would not have entered into the insurance contract on any terms, the insurer may avoid the contract and refuse all claims, but shall return the premiums paid,

(b) if the insurer would have entered into the insurance contract, but on different terms (excluding terms relating to the premium), the contract is to be treated as if it had been entered into on those different terms if the insurer so requires,

(c) if the insurer would have entered into the insurance contract (whether the terms relating to matters other than the premium would have been the same or different), but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim,

(d) where there is not any outstanding claim under the insurance contract, the insurer may either—

(i) give notice to the consumer that in the event of a claim it will exercise the remedies in paragraphs (a) to (c), or

(ii) in the case of a non-life insurance contract only, terminate the contract by giving reasonable notice to the consumer.

(5) Where a claim is made under a contract of insurance and where an answer by the consumer involves a fraudulent misrepresentation or where any conduct by the consumer (relative to the contract or the steps leading to its formation) involves fraud of any other kind, the insurer shall be entitled to avoid the contract of insurance.