Insurance: Proposed Law Reform - Business Insurance
In July 2007 the Law Commission and Scottish Law Commission
published a Joint Consultation Paper setting out proposals for
reform of the law relating to non-disclosure, misrepresentation and
breach of warranty. To read our Law Now on the consultation paper
click here. The Consultation Paper made separate proposals for
consumer and business insurance and a summary of the responses
received on business insurance reform has recently been published.
Whilst no definition of "business insurance" is provided,
the wide spectrum of activities it is intended to cover, from a
sole trader to a multinational public limited company, is
clear.
In contrast to consumer policyholders, it was proposed that the
duty to disclose material information on placement should be
retained for business insureds. On the whole, this proposal was
supported. Whilst some responses highlighted the potentially harsh
results for unsophisticated businesses, many felt that this would
be mitigated by the proposed new test for deciding what is material
information that needs to be disclosed.
The proposal that the test for determining whether a matter is
material ought to change from the standard of a prudent insurer to
what a 'reasonable insured' would think was relevant to an
insurer, has met with a divided response. One concern voiced is
that the new test could prove too uncertain in the absence of any
recognised 'reasonable insured' standard.
Key among the proposals is that insurers' remedies for
non-disclosure and misrepresentation should depend on the
insured's state of mind: if an insured acts innocently then the
claim should be paid and if dishonestly then the insurer should be
entitled to avoid. For cases where the insured has acted
negligently the Law Commissions asked whether a proportionate
remedy should be introduced. The majority of responses welcomed
differentiation between negligent and dishonest conduct, although
some underlined the practical problems of a proportionate remedy
and others argued that this would be giving businesses too much
protection.
In relation to warranties of past and present fact, the
majority of respondees agreed with the proposal that making an
insured's answers in a proposal form the basis of the contract
(and so automatically converting all such responses into
warranties) should not be permitted. There was also general
agreement that insurers should not be able to rely on a breach of
warranty of fact unless it is material to the contract or...
To continue reading
Request your trial