Following publication of the report of the Law Commissions of England and Wales and of Scotland, making recommendations for reform to modernise business insurance law, the Government has introduced an Insurance Bill to Parliament which includes the majority of those recommendations. The Bill aims to introduce a more modern legal regime to benefit both insurers and their business customers by increasing transparency and certainty over the rules that govern contracts between them. The reforms cover the following main areas:
- Disclosure and misrepresentation in business and other non-consumer insurance contracts:
- amends the duty on business policyholders to disclose risk information to insurers before entering into an insurance contract (duty of “fair presentation” of the risk)
- makes provision about the knowledge or the insured and the insurer
- provides the insurer with a number of proportionate remedies for breach of that duty
- abolishes “basis of the contract” clauses (which have the effect of converting pre-contractual information supplied to insurers into warranties)
- provides that the insurer’s liability should be suspended, rather than discharged, in the event of a breach of warranty (so that insurance coverage is restored after a breach of warranty has been remedied)
- Insurers’ remedies for fraudulent claims
- provides the insurer with remedies when a policyholder submits a fraudulent claim
- confirms that treating a contract as having been terminated does not affect the rights and obligations of the parties to the contract with respect to a relevant event occurring before the time of the fraudulent act
- Good faith and contracting out:
- abolishes any rule of law permitting avoidance of an insurance contract on the basis that the utmost good faith has not been observes by the other party
- Contracting out::
- consumer insurance contracts:
- contractual clauses (other than in agreements settling claims),that would put the consumer in a worse position than under the Bill in relation to representations, warranties or fraudulent claims, are to that extent rendered of no effect
- non-consumer insurance contracts: terms (other than in agreements settling claims):
- that would put the insured in a worse position than under the Bill in relation to representations are to that extent rendered of no effect
- that would put the insured in a worse position than under the Bill in relation to duty of fair presentation, warranties or fraudulent claims, to that extent of no effect unless they comply with transparency requirements
- that would put those covered by group insurance in a worse position than under the Bill in relation to fraudulent claims are to that extent rendered of no effect
- consumer insurance contracts:
- Third Parties (rights against Insurers) Act 2010: amendments in relation to the insured persons to whom that Act applies, and to give the Secretary of State power to change the meaning of “relevant person”
Proposals not taken forward
The Insurance Bill does not implement the following of the Law Commissions’ recommendations in relation to:
- Warranties: The Law Commissions had recommended that where a term relating to a particular type of loss, or loss at a particular time or in a particular location, is breached, the insurer’s liability should only be suspended in relation to that type of loss or loss at that time or place.
- Late payment: The Law Commissions had recommended:
- An implied term in every insurance contract that the insurer will pay sums due within a reasonable time. Breach of that term should give rise to contractual remedies, including damages. In Scotland, a statutory provision would serve to confirm and clarify the position already established at common law.
- Guidance as to factors to be taken into account when considering what constitutes a “reasonable time”.
- Insurers should not be liable for delays caused by genuine disputes.