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Insurance law has
long been criticised for its archaic rules, seeming lack of clarity
and potential to cause unfairness to policyholders - previous reports
recommending reform go back as far as 1957. In January 2006 the Law
Commission (a non-political independent body, set up to keep the law
of England and Wales under review and to recommend reform where needed)
published a Scoping Paper, inviting feedback on the areas of insurance
law which should be included in its review. Subsequently a joint paper
was published with the Scottish Law Commission and the two Commissions
have since developed their thinking by issuing a series of three papers:
- Misrepresentation and non-disclosure (published Sept 2006)
- Warranties (published Nov 2006)
- Intermediaries and pre-contract information (published March 2007)
These papers were only intended to share the Commissions' initial thinking
with interested parties. They have now published a full consultation
paper on insurance contract law (17 July 2007). The closing date for
written responses, by email or post, is 16 November 2007. A number
of the Commissions' original proposals have been modified in the new
consultation paper.
At present the real remedy for an aggrieved policyholder who is an individual
or owner of a small business (defined as a turnover of less than a million)
is to refer a dispute to the Financial Ombudsman Service, who can go
beyond the strict ambit of the law by exercising a statutory "fair
and reasonable" discretion when making a ruling. The Commissions'
view is that this is too piecemeal an approach and that reform is needed
to protect all policyholders, from individuals through to large businesses
who do not, at present, even enjoy the protection of the ombudsman.
The two biggest issues are the unfairness and uncertainty caused by
the doctrine of non-disclosure and the law pertaining to breach of warranty.
A putative policy-holder is obliged to disclose all "material facts"
to the insurer, even if the insurer has failed to ask relevant questions.
This can lead not only to negligent or fraudulent non-disclosure but,
most pertinently, to innocent misrepresentation. An applicant can therefore
act honestly and reasonably and yet still be a perpetrator of misrepresentation,
with the outcome that the insurer may be entitled to set aside the policy
from the outset and refuse to meet a subsequent claim. If there is a
breach of warranty, this can be sufficient for the insurer to treat
its liability as ending at that time. This means the insurer can legitimately
refuse to pay out, even if there is no causal link between the breach
and the loss that has occurred.
Disputes which arise from either of the two issues outlined above often
involve allegations about what an intermediary said or did during the
sales process. The third paper therefore looks at the status of intermediaries,
the completion of proposal forms by intermediaries (and their status
as agents) and s. 19 Marine Insurance Act 1906, which imposes an independent
duty of disclosure on an agent to insure. The paper also looks at whether
the same principles should apply to the consumer market as to the business
market.
The Commissions are also considering the successes, failures and general
impact of the Australian new Insurance Contracts Act which was introduced
in 1984 and which reformed many of the issues currently under review
in the United Kingdom.
For full details of the papers discussed above please visit:
www.lawcom.gov.uk/insurance_contract.htm
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