On 17 July 2014, the Insurance Bill (the Bill) was introduced into the UK Parliament. The Bill was prepared as part of the second stage of the joint review of insurance contract law by the Law Commission and the Scottish Law Commission (the Commissions). The first stage of the joint review resulted in the Consumer Insurance (Disclosure and Representations) Act 2012. The Insurance Bill will be the most significant statutory change to marine insurance law in over a century and, if enacted in its current form, will make major changes to some aspects of the English law of marine insurance.
Proposals for reform
The Bill will introduce new law (replacing the existing common law) and will also amend parts of the Marine Insurance Act 1906 (the MIA 1906). The Bill contains proposals for reforms in areas such as:
- Disclosure in business insurance
Clause 3 of the Bill replaces the duties regarding disclosure and representations that are contained in the MIA 1906. It introduces a new requirement for the insured to make a “fair presentation of the risk” before the parties enter into the insurance contract.
Clause 9 prohibits provisions which purport to convert all representations in either the proposal or the policy into warranties. The principal purpose of this clause is to prohibit “basis of the contract” clauses. However, the insurer is still permitted to incorporate specific warranties into the policy.
Clause 10 repeals the provisions of the MIA 1906 and common law which completely discharge the insurer’s liability from the time of breach of the warranty. Instead, the insurer’s liability will be suspended from the time of a breach of warranty until the breach is remedied. The insurer will not be liable for any loss which occurs during this period, or which can be attributed to something which occurs during this period. If the breach can be remedied, the insurer’s liability will be reinstated once it has been remedied.
- An insurer’s remedies for fraudulent claims
Clause 11 states that the insurer is not liable to pay a fraudulent claim, may recover any sums paid to the insured in respect of that claim and may treat the contract as having been terminated with effect from the time of the fraudulent act. Where the insurer terminates the contract, it is permitted to retain all premiums that the insured has paid and will not be liable for any events which occur after the time of the fraudulent act. However, the insurer will still be liable for events that occurred before the time of the fraudulent act.
In June and July 2014, the Commissions and HM Treasury (the sponsor of the Bill) consulted on a draft version of the Bill. The Bill that was introduced to Parliament is largely the same as the draft Bill. Certain provisions that the Commissions had originally intended to include in the Bill, such as a reform of section 53 of the MIA 1906 (a broker’s liability for marine insurance premium), proved controversial amongst stakeholders and were left out of both the draft Bill and the Bill that was introduced to Parliament.
To enable the Bill to complete its passage through Parliament before the general election in May 2015, a simplified Parliamentary procedure will be used. The procedure is available only for Bills that attract a broad consensus of support. If the Bill receives Royal Assent before the current Parliamentary session ends on or around 30 March 2015, we expect the new Act to enter into force in the first half of 2016.