Insurance Law Reform: Responses To The Law Commissions' Second Consultation

Responses to the Law Commission and Scottish Law Commission's second consultation paper on proposals to reform insurance contract law are sought by 20 March 2012.

The consultation is part of the Law Commissions' wider review of insurance contract law which has already resulted in reform of the law on pre-contract non-disclosure and misrepresentation for consumer insureds. The present consultation paper, published in December 2011, covers issues relating to:

Damages for late payment; Insurers' remedies for fraudulent claims; Insurable interest; and Policies and premiums in marine insurance. Damages for late payment

The Law Commissions propose introducing a statutory duty on insurers to pay valid claims after "a reasonable time". Under current law in England and Wales (in contrast to the position in Scotland) the insurer is not liable for loss caused by delay or failure to pay a valid claim. The Law Commissions note that this is at odds with the position in other areas of law.

The Law Commissions believe there is general support for reform in this area but accept that any change in the law should not prevent insurers from investigating claims fully. It is proposed that the definition of what is "a reasonable time" should include sufficient time for full investigation and assessment of the loss and that the insurer's time to investigate should only begin on receipt of a "clean claim" which is defined as being "once the insured has provided all material information".

The Law Commissions' thinking has implications for the law of limitation in relation to insurance contracts in England and Wales in particular. The Law Commissions' proposal is that the law should be changed so that the limitation period starts to run following the expiry of a reasonable time after receipt by the insurer of a "clean claim".

In business insurance (but not consumer insurance) the parties would be able to agree to limit or exclude the insurer's liability to pay damages for late payment.

Insurers' remedies for fraudulent claims

Fraudulent insurance claims are a serious and expensive problem, but the Law Commissions consider that the law in this area is unclear. Although it is well established under common law that a person who fraudulently exaggerates a claim forfeits the whole claim, the law is not clear regarding the effect of a fraud on other claims made under the policy. There is a mismatch between this rule and the duty of utmost good faith, for which the remedy...