On 17 July 2014, the Insurance Bill (the Bill) was introduced into Parliament.
This marked a significant step towards completion 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 which resulted in the Consumer Insurance (Disclosure and Representations) Act 2012.
The Bill contains proposals for reforms in areas such as disclosure in business insurance, warranties and an insurer’s remedies for fraudulent claims. 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). However, certain proposals, such as reform of section 53 of the MIA 1906 (a broker’s liability for marine insurance premium) and a statutory definition of insurable interest, proved controversial amongst stakeholders and were not included in the Bill. To enable the Bill to complete its passage through Parliament before the general election in May 2015, a simplified Parliamentary procedure for non-controversial Bills will be used, which is available only for Bills that attract a broad consensus of support.
The Commissions and HM Treasury, the sponsor of the Bill, consulted briefly on a draft version of the Bill in June and July 2014 (the Draft Bill). HFW published a briefing on the Draft Bill which explains some of the proposals in detail. The Briefing can be found at: http://www.hfw.com/The-Insurance-Contracts-Bill-July-2014.
With the exception of three major changes, the Bill is basically identical to the Draft Bill. The three major changes are that:
- The clauses on terms relevant to particular types of loss (clause 11 of the Draft Bill) and damages for late payment (clause 14 of the Draft Bill) have been deleted. The Government’s report on the responses to the Draft Bill explains that the responses showed that there was no consensus on these clauses. In a joint response, the LMA and IUA were of the view that clause 11 was unworkable and that clause 14 should operate only where the insurer refused to pay a claim in the knowledge that it was valid, or was reckless as to whether it was valid.
- The clause regarding the deemed knowledge of an individual acting as agent of the insurer (clause 6(3)(b) of the Draft Bill) has also been removed. This stated that confidential information held by such an individual would not be attributed to the insurer where the information was acquired through a business relationship with someone other than the insurer. The omission of this clause means that the common law position will continue to stand. A practical example is where a coverholder acts for two insurers and issues a policy on behalf of each insurer for similar risks. Information (confidential or otherwise) that is received by the coverholder for the purposes of the first insurer may (but will not necessarily) be attributed to the second insurer.
- The Bill contains new provisions amending the Third Parties (Rights Against Insurers) Act 2010 so that it can be brought into force. An omission in the Act regarding the definition of insolvency events had previously prevented this.
If the Bill receives Royal Asset before the current Parliamentary session ends on or around 30 March 2015, we expect that the new Act will enter into force in early to mid-2016.