The English and Scottish Law Commissions are currently engaged in a wide-ranging review of insurance contract law. Since September 2006 they have published a series of Issues Papers and one formal Consultation Paper setting out their proposals for reform to the law of misrepresentation, non-disclosure, warranties and agency in the context of pre-contract information. Click here for more information about the reform process and previous proposals.
On 14 January 2008, the Commissions published their fourth Issues Paper, which sets out their preliminary thoughts on reforming the law of insurable interest.. This doctrine provides that in order for an insurance policy to be valid, the policyholder must have a sufficient interest in the subject matter of the insurance. The paper's focus is on whether there should continue to be an insurable interest requirement. The Commissions' tentative view is that the indemnity principle offers policyholders sufficient protection against wagering and moral hazard, such that no insurable interest requirement should apply to indemnity insurance. However, they suggest that the requirement should be retained in the life insurance context, acknowledging the instinctive discomfort individuals would feel at the thought of strangers having complete freedom to take out a policy on their lives. It is, however, proposed that the class of persons able to insure others' lives should be extended.
The purpose of the paper is to promote discussion and views from interested parties across the industry are sought by 11 April 2008. A full discussion of the Commissions' proposals will be found in our March 2008 quarterly publication and we will continue to monitor the review process and report developments on InsureReinsure.com.