On 26 January 2009 the Law Commission published a Consultation Paper on the long criticised illegality defence.

The paper looks at the way the law of contract, tort and trusts responds when a claimant has been involved in some form of illegal conduct and seeks to illicit views as to how the law should respond. It has proved difficult to set down a coherent structure of rules in this area as the defence can be used against claimants in a wide range of contexts. Consequently, the law in this area has been condemned for being arbitrary, uncertain, often unjust and over technical.

In a different approach to its previous papers on this topic, the Law Commission has now recommended that the courts are best placed to develop an unambiguous, just law that is based upon a firm set of public policy principles. These principles include, amongst others, the need to prevent claimants profiting from their wrongs, for example, in the realm of insurance fraud where inflated repair estimates are submitted to insurers, and the importance of maintaining the integrity of the legal system. The Commission has suggested that judges should base their decisions directly upon these rationales and explain their reasoning accordingly.

It remains to be seen how these consultations will impact on the area of insurance contracts. We will continue to keep you updated on further developments. The Law Commission has invited responses to be submitted by 20 April 2009. A full copy of the Consultation Paper can be found by clicking here.