The joint English and Scottish Law Commission has been engaged in a project to propose reform to English (and Scottish) insurance contract law, wading through the labours of Hercules, for nearly ten years.

Thus far only a short statute has been created in respect of certain aspects of insurance law, so far as it affects the placement of insurance by consumers: pace Plutarch the mountain has brought forth but a mouse.

However, a draft insurance contract law bill (that is draft legislation) has been issued by the joint commission which has far more wide ranging implications. If this draft bill attains the Royal Assent and becomes law, there will be very significant change to insurance contract law (both that affecting consumers and business purchasers of insurance).

The joint commission has issued several drafts of the Insurance Contract Law Bill commencing in January 2014, the latest of which was issued on 17 June 2014. The joint commission has indicated that H.M. Treasury would be the sponsoring department within Government and intends to consult on whether the draft Bill has broad consensus of support, to determine whether it is suitable for consideration under the procedure for Law Commission Bills (see further below). The period within which H.M. Treasury would wish to receive views on the latest Bill is very short (2 July 2014). The latest version of the draft Bill (and the explanatory notes published with it) are different in significant respects to earlier iterations of the draft Bill. This window of time (two weeks) is a very short period within which to offer a response on a matter of such complexity and importance.

In October 2010, the House of Lords approved a procedure for Law Commission Bills which was to be used exclusively for those that attract broad consensus support in Parliament. The joint commission is hopeful that this Bill would be suitable for this procedure, in the knowledge that this last Parliamentary session is particularly short, ending on 30 March 2015. As we understand it, if there are concerns or objections to the Bill in its present form, it might be better that these are put forward on an individual basis that is by individual syndicate, individual company, individual broker or assured (rather than by group or association) in order that the clearest statistical picture can be obtained as to the support or otherwise which the Bill might attract.

English law, in relation to insurance (both marine and non-marine), has been substantially unamended (by statute) for 100 years. Indeed, insurance contract law (both marine and non-marine) is a matter of Common Law and has progressively grown and been adapted over a period of more than 150 years, by the work of the judiciary. The Marine Insurance Act 1906 (which substantially codifies the law) did not change the law, but merely set out the law as it was then understood.

What is now contemplated, however, is a very significant and wide ranging change to insurance contract law (in part affecting consumers and business purchasers), in particular with regard to:

  • non-disclosure;
  • misrepresentation;
  • breach of warranty; and
  • damages for late payment of claims.

So far as business insurance is concerned, it is contemplated that in many respects insurers would be entitled to contract out of the provisions of the new Act. However, it might perhaps be rather difficult to contract out (as a matter of market practice or trading) rather than not being obliged to offer coverage in the first place. And there will, in any event, be stringent ‘transparency’ requirements where effort is made to contract out. An alternative solution (to a wide liberty to contract out) might be to proceed with a Bill that is designed to protect consumers (and perhaps SMEs) only, in much the same way as the law protects consumers in the making of contracts and in obtaining credit, but to exclude business insurance from the scope of reform (including marine, trade, energy and aviation), in much the same way as MAT risks were excluded from the reforms proposed by the Law Commission in its last report in 1980.

It is often said that it is desirable that there should be certainty in the law. This is plainly right in terms of speed, cost and risk in resolving disputes and claims (and works to the benefit of insured and insurer). Where both sides have some confidence on the meaning of the law, the application of statutes and standard contract terms, the thinking is that disputes should be capable of (early) resolution. The ‘Contract Certainty’ initiative, in the insurance market, was designed to further this objective in terms of gathering together all the pieces of paper that make up an insurance (or reinsurance) contract and ensuring that they are put into the hands of the assured or reassured at an early date (albeit, it remains clear that certainty of content - in terms of paperwork - does not necessarily entail certainty of meaning).

As we say, as the substantive law is concerned, the Common Law has progressively inched towards some measure of certainty by progressive adaptation made over more than 100 years. However, if the Insurance Contract Law Bill makes law, much of the law which is accumulated and has been progressively crafted in this way, will cease to apply. English law will then enter into a period of significant uncertainty, which might take decades to resolve. In other words it might take decades (with adaptation of policies and costly litigation in between) to get back to the point where insurance practitioners operate within the same degree of certainty as it might be said they do now.

Wide ranging change may be required to claims handling, to reserving procedures, and to policy wordings.

On 10 June 2014, Hill Dickinson held a seminar at which Jonathan Gilman QC, Claire Blanchard QC and Rhys Clift of Hill Dickinson, spoke on the amendments proposed to insurance contract law on the basis of the draft Bill then available (dated 30 May 2014). The talks were focused on the significant changes contemplated by the Bill under the heading: ‘Insurance Contract Law Bill: Hidden Change and Unintended Consequences’. Further detail may be published in due course.

We shall issue further bulletins on this vital new piece of legislation in the next few months (particularly of course if the draft Bill finds its way onto the Statute Book and becomes law).

Meanwhile, this is a link to the relevant part of the Law Commission’s site on which the latest draft text of the Bill and Explanatory Notes can be found.