Professor Hector MacQueen
Gillian Swanson, Project Manager
We are assisting the Law Commission for England and Wales with this project.
We have published a further joint Issues Paper (Issues Paper 10) on the topic of insurable interest. It contains updated proposals. In relation to indemnity insurance, we ask about the timing and consequences of concluding a valid insurance contract and whether statute should define insurable interest using a non-exhaustive list of examples. In relation to contingency insurance, such as life insurance, we ask whether there is a need for statutory reform and whether the concept of insurable interest should be expanded along the lines suggested. For those who wish to refer to a fuller treatment of the current law than that contained in the Issues Paper, please see Part 11 of our 2011 Consultation Paper. Comments are requested by 29 June 2015. A response form is available.
The Insurance Act 2015
The Insurance Bill received Royal Assent on 12 February 2015. The Insurance Act 2015, which will come into force in August 2016, implements reforms recommended in our joint Report on Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment (July 2014). A news release is available.
A duty of fair presentation in non-consumer insurance
Under a new “duty of fair presentation”, business policyholders will still have a duty to volunteer information, but what is required of them is made clearer, and insurers will have to play a more active role in asking questions. A new scheme of proportionate remedies will replace the existing single remedy of avoidance, which allows insurers to refuse the whole of a claim.
Insurers will be liable to pay any claim that arises after a breach of warranty has been remedied such as where a broken burglar alarm has been repaired. Furthermore, they will no longer be able to escape liability on the basis of the policyholder’s breach of a contract term that is shown to be completely irrelevant to the loss suffered. “Basis of the contract” clauses, which can turn any statement from a policyholder into a warranty, will be abolished.
Remedies for fraudulent claims
The 2015 Act provides insurers with clear, robust remedies when a policyholder makes a fraudulent claim. Where any part of a claim is fraudulent, they will be able to refuse the whole claim. They will also be able to refuse any claim arising after the fraud but must pay earlier, valid claims.
Damages for late payment
The Government did not include in the Insurance Bill the Law Commissions’ recommendations relating to damages for late payment, but has asked the Commissions to continue to work with stakeholders with a view to introducing a solution in the future.
Third Parties (Rights against Insurers)
The Insurance Act 2015 also includes provisions relating to the Third Parties (Rights against Insurers) Act 2010 so that it can be brought into force. These provisions might be brought into force more quickly than the rest of the 2015 Act (which will come into force in August 2016). The 2010 Act, which also derived from recommendations made by both Law Commissions, simplifies the procedure by which third parties can claim against an insurer when the insured is, in broad terms, insolvent or has been dissolved.
The Consumer Insurance (Disclosure and Representations) Act 2012 came into force on 6 April 2013. It derives from the recommendations in our joint Report on Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation (Scot Law Com No 219) further details of which can be found on the completed project page. The Scottish Government gave their initial response to the Report in March 2010 and gave a further response following the successful passage of the Bill through the UK Parliament.
The project began in January 2006. The joint team issued a scoping paper, inviting views on which areas of insurance contract law were in need of reform. In the light of the responses received, a paper setting out the scope of the project was published. The first joint consultation paper, published in 2007, covered pre-contract issues in both consumer and business insurance but the emerging scale of the project led the Commissions to introduce a phased programme of work, dealing with pre-contract consumer and business issues separately.
Our first report on Consumer Insurance Law was laid before Parliament in December 2009 and the Consumer Insurance (Disclosure and Representations) Bill was introduced in the House of Lords under the Special Bills Procedure in May 2011. The Bill, now the Consumer Insurance (Disclosure and Representations) Act 2012, received Royal Assent on 8 March 2012 and, as stated above, came into force on 6 April 2013.
The Law Commissions' second joint consultation paper (2011) covered post contractual issues: damages for late payment, remedies for fraudulent claims, insurable interest and policies and premiums in marine insurance. Our third joint consultation paper (2012)
covered disclosure in business insurance and warranties. Some of the results of these consultations fed into the second Report and draft Bill, published on 17 July 2014. That Report covered disclosure in business insurance, warranties, remedies for fraudulent claims, and late payment and has now been implemented, with the exception of the recommendations on late payment, by the Insurance Act 2015. All of these papers, and other papers published in relation to the project, can be accessed by means of the links below.
After our current consultation on insurable interest, we will prepare the final report in this project. In addition to insurable interest, it will cover two other topics on which we consulted previously, namely the broker’s liability for premiums and the requirement for a formal marine policy. For further details of the latter topics, please see Issues Papers 8 and 9 below. We aim to publish the report around the end of 2015.
Summary table of papers published so far:
If you require any further information on the Insurance Contract Law project, or if there are matters you wish to raise, please email: email@example.com.
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