Professor Hector MacQueen
Gillian Swanson, Project Manager
Julie Davidson, Legal Assistant
We are assisting the Law Commission for England and Wales with this project which they are carrying out under their Tenth Programme of Law Reform.
Joint Consultation Paper: The Business Insured’s Duty of Disclosure and the Law of Warranties
The third and final Consultation Paper in the Commissions’ joint review of insurance contract law was published in June 2012. It covers the following issues:
The business insured’s duty of disclosure
Under current law, a business policyholder has a duty to disclose every material circumstance it knows about the risk it wants to insure. Failure to do so entitles the insurer to avoid the contract, which means the insurer may treat it as if it did not exist and refuse all claims.
The duty is unclear and sometimes poorly understood, while the consequence of breach is too harsh. There is evidence that the duty does not work well in practice. Our proposals aim to clarify how policyholders are expected to comply with the duty when presenting a risk to insurers and to encourage insurers to assist them in that task. We also propose fairer remedies for breach where the policyholder has not been dishonest.
The law of warranties
An insurance warranty is an important term which, unless exactly complied with by the policyholder, results in the automatic discharge of the insurer’s liability for loss. It makes no difference if the breach is trivial, not material to the risk or if the policyholder remedies the breach prior to loss being incurred.
We propose that breach of a warranty should suspend the insurer’s liability for the duration of the breach; remedy of the breach restores liability. Where a term is designed to reduce a particular type of risk, we propose that liability is suspended only in relation to that risk. This would be mandatory for consumer insurance but subject to freedom of contract for business insurance.
A Summary of the Consultation Paper, a News Release, an Impact Assessment and a Memorandum on relevant New York law prepared for the Law Commissions by David W Kenna are also available. The consultation period has now closed. We are most grateful to all who responded and are now analysing their comments.
In spring 2014, a final report will be published which will cover the topics dealt with in this paper as well as some of the topics covered in the previous (second) joint Consultation Paper.
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.
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: firstname.lastname@example.org.
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