The English And Scottish Law Commissions' Proposals

CONTENTS

First Joint Consultation Paper (July 2007) Issues Paper 4: Insurable Interest (published January 2008) Issues Paper 5: Micro-Businesses (published April 2009) Consumer insurance law: joint report and draft Bill (published December 2009) and the Consumer Insurance (Disclosure and Representations) Bill (May 2011) Issues Paper 6: Damages for Late Payment and the Insurer's Duty of Good Faith (published March 2010) Issues Paper 7: The Insured's Post-Contract Duty of Good Faith (published July 2010) Issues Paper 8: The Broker's Liability for Premiums – Should Section 53 be Reformed? (published July 2010) Issues Paper 9: The Requirement for a Formal Marine Policy: Should Section 22 be Repealed? (published October 2010) Critical issues arising out of the proposals The Commissions' timetable Introduction

The perceived need for reform

The Law Commissions are currently undertaking a joint review of key aspects of insurance contract law. Their stated aim is "to ensure that the law balances the interests of insured and insurer, reflects the needs of modern insurance practice and allows both insured and insurer to know their rights and obligations". Their view of the law as it presently stands is that in specific areas it is failing to deliver and that reform is urgently required. They disagree that self-regulation or the Ombudsman's involvement are suitable substitutes for law reform.

Past history of attempts to reform

This is by no means the first time that there have been calls for reform and, in their current deliberations, the Commissions have looked in some detail at the recommendations made since 1957, particularly those made in the English Law Reform Committee Report of 1957, the National Consumer Council Report of 1997 and the British Insurance Law Association (BILA) Report of 2002. A useful summary of the recommendations made in these earlier reports, along with the industry's and Government's responses, is set out in Appendix A of the First Joint Consultation Paper.

The structure of the Law Commissions' review

In January 2006, the Commissions issued a joint scoping paper which explained that they would be considering the law of misrepresentation, non-disclosure and breach of warranty and asking interested parties whether they believed that any other areas of the law were in need of reform. Responses received indicated a strong desire for a wide-ranging review. Between September 2006 and March 2007 the Commissions proceeded to publish three Issues Papers considering misrepresentation and non-disclosure, warranties, and intermediaries and pre-contract information respectively. Each was followed by a series of seminars and meetings, the feedback from which resulted in the modification of the Commissions' proposals and in the production of the First Joint Consultation Paper in July 2007. A summary of responses to the proposals made in the consumer context was published in May 2008, with the equivalent in the business context published in October 2008. In January 2008, the Commissions published a fourth Issues Paper, considering insurable interest, and in April 2009 published a fifth Issues Paper concerning micro-business. This was followed by the publication of the responses to the fifth paper.

On 15 December 2009 the Commissions published a report and draft Bill designed to implement their recommendations regarding new legislation covering the issue of what a consumer should tell their insurer before taking out insurance. The Consumer Insurance (Disclosure and Representations) Bill is currently under consideration by the Government. In 2010, the Commissions published Issues Paper 6, "Damages for late Payment and the Insurer's Duty of Good Faith" and Issues Paper 7 concerning the insured's post-contract duty of good faith, followed by Issues Paper 8 "Broker's Liability for Premiums – Should Section 53 be Reformed" and Issues Paper 9 "The Requirement for a Formal Marine Policy: Should Section 22 be repealed?".

Driving force behind and aims of the project

From the Commissions' perspective, insurance contract law has not kept pace with the times and can produce results that fail to meet the expectations of the market. The Commissions acknowledge that for consumer insureds, there is a further degree of protection in the form of the Statements of Practice (originally issued by insurers in 1977, updated in 1986), the rules of the Financial Services Authority (FSA) which regulate the conduct of insurance companies and the provision by the Financial Ombudsman Service (FOS) of a dispute resolution service that makes decisions based on the criterion of what is "fair and reasonable".

However, the Commissions argue that these different layers of law, regulation and guidance make it difficult for both insurers and customers to understand the scope of their rights and obligations. The FOS does not, for instance, publish its decisions and many cases fall outside its jurisdiction (including claims over £100,000 and those requiring witnesses to be crossexamined). The Statements of Practice and the FSA rules do not apply to businesses and only those businesses with a turnover of less than £1 million are entitled to bring cases to the FOS.

The Commissions highlight the fact that aspects of the Marine Insurance Act 1906 (MIA) have previously been described as "unfair" because they defeat policyholders' reasonable expectations. If this persists, then, they argue, confidence in the market will be undermined both in the consumer and business markets. There is also the possibility that in the future the European Community will take steps to harmonise insurance contract law across Europe. Although this is not an imminent prospect, the Commissions have argued that the UK should aim to influence such a drive and that it will only be able to do so if the law in this jurisdiction ceases to be...