Your are here: Home >> Bulletins
Proposed Changes To The Law Of Insurance
January 2008 Update
The Law Commissions of England and Scotland are continuing with their review of
the law governing insurance contracts. Whilst this places particular emphasis
on retail customers their proposals will also have a wide ranging impact on commercial
insurance (including marine insurance and reinsurance).
The Law Commissions have issued a number of joint Consultation Papers. These
deal, in particular, with misrepresentation, non-disclosure and breach of warranty.
Responses to certain of the Consultation Papers have been lodged and the Law
Commissioners aim to publish a summary of the main points raised by April 2008.
The final recommendations and proposals for new legislation should be circulated
by the middle of the year. The Commissions have also recently circulated an
Issues Paper on insurable interest upon which views have been invited by 11th
April 2008.
The main thrust of the Law Commissions' current thinking upon the issue of
warranties is to remove the ability of insurers to rely upon a technical breach
of warranty (where there is no causal link between the breach and the actual
loss suffered) to avoid the policy. The proposal put forward by the Law Commissions
is that a claim should be paid if the insured can establish that the breach
of warranty did not cause the loss suffered. The burden of proof would be upon
the insured to satisfy this test on the balance of probabilities. As such, contrary
to the current English law position, technical breaches of warranty could be
remedied and a breach of warranty would not automatically discharge insurers
from liability from the date of the breach.
Such proposals are not intended to remove the ability of parties to provide
otherwise by specific terms in the insurance contract. However, the Law Commissioners
are not in favour of "basis of contract" clauses in insurance policies.
These will not be upheld in the future if the proposed reforms are implemented.
The Law Commissioners are also proposing to reform the current legal position
relating to misrepresentation and non-disclosure to bring it more in line with
the current approach adopted by the Financial Ombudsman Service ("FOS").
In particular, it is proposed that there be no right to avoid cover for innocent
non-disclosure/misrepresentation. The intention is to reform the law so that
the issue of misrepresentation/non-disclosure is dealt with by way of categories
of non-disclosure - similar to the FOS approach to date - with a suggestion
that the right to avoid would only arise in the event of deliberate or fraudulent
non-disclosure/misrepresentation. However, the position in relation to negligent
non-disclosure/misrepresentation remains to be decided. The final recommendations
of the Law Commissions will take into account any representations made on the
Consultation Papers.
The Law Commissioners are looking at the issue of insurable interest with particular
reference to life insurance. The rules governing insurable interest are of some
antiquity (save for the Gambling Act 2005 in relation to indemnity contracts
of insurance, which appears to remove the need for an insurable interest in
property). They are, however, somewhat confusing and the Law Commissions' Issue
Paper is seeking views.
We shall continue to monitor the Law Commissions' views and provide an update
once the final recommendations in relation to warranties and non-disclosure/misrepresentation
are known. However, it is still highly unlikely that any consolidating legislation
which seeks to reform the law of insurance as a whole - including the Marine
Insurance Act 1906 - will be in place before at least 2010.
If you have any queries arising out of the above, please do not hesitate to
contact Mark Lloyd, Christopher Dunn or Andrew Purssell.
January 2008
Return to Bulletins
