Trade Voice: Bringing the law up to date

A report from Bila in 2002 was a major reason behind the Law Commissions’ work. The first part of the review led to one reform: the Consumer Insurance (Disclosure and Representations) Act 2012.

The Law Commissions are now finalising a second bill. The meat of the bill will deal with the obligations on business policyholders to provide information to insurers before buying insurance. The bill will also cover insurance warranties, insurance fraud and what happens if an insurer unreasonably fails to pay a valid claim. These topics apply to both businesses and consumers. These issues are currently governed by the Marine Insurance Act 1906, which embodies marine market principles developed in the 19th century and is now seriously out of date.

Support for the commissions’ proposals comes from across the insurance market. Of those consulted, 80% or more agreed with the broad thrust of the proposals the Law Commissions suggested.

Consultees strongly supported a single regime covering business obligations to disclose information. They did not want exceptions for small businesses or specialist sectors such as marine or reinsurance. The commissions agree, but do not believe a single legal regime can provide for every eventuality across such a wide spread of commercial interests. Consequently, the bill proposes a default regime as is currently the case. The commissions expect some insurers will wish to continue to contract on different terms.

As this is a default regime, the commissions propose remedies that are neutral and seek to put the parties into the position they should have been in if full and accurate information had been provided. The commissions’ proposals are very much based on market descriptions of best practice.

The commissions have also recommended changes to deal with modern  developments: in particular, that insurance contracts are frequently made between very large companies with a great many staff and access to information contained in electronic databases. These issues did not arise in 1906.

The commissions’ proposals for insurance warranties, damages for late payment of claims and fraud incorporate best practice, remove differences between legislation and the common law and ombudsman practice, and update archaic rules. There are no legal or economic reasons to separate consumers and businesses for these topics.

It will be very interesting to see the industry’s reaction to the first opportunity to preview the latest revised clauses of the proposed Insurance Contracts Bill.

David Hertzell
Law commissioner for commercial and common law and deputy president of the British Insurance Law Association

This article was published in the 22/29 May edition of Post magazine.