Insurance Contract Law

Status: We published our second report of this project in July 2014.  We recommended reform to the law of disclosure in business insurance, warranties, insurers’ remedies for fraudulent claims, and late payment

In June 2014, HM Treasury consulted on the draft Bill.  Following this, HMT introduced a version of the Bill into Parliament on 17 July 2014.  The Insurance Bill has now completed its passage through the House of Lords, and has been passed to the House of Commons.

The current draft of the Bill, as amended in the House of Lords, and the Explanatory Notes, are available here.

The Bill includes all of our recommendations apart from the clause relating to late payment, which was not considered suitable for the special procedure for uncontroversial Law Commission Bills.

The Law Commission’s new draft of “clause 11”, concerning terms not relevant to the actual loss, was included in the Bill by amendment in the House of Lords.  We previously published an accompanying note explaining our approach to the drafting.

The Bill also corrects a defect in the Third Parties (Rights against Insurers) Act 2010, so that that Act can be brought into force.  An overview of the changes to the 2010 Act contained in the Insurance Bill is available here.

Further information is available.

Several stakeholders asked how the duty of fair presentation under the Insurance Bill would apply where a single insurance contract covers a number of different people and/or legal entities.  We therefore produced a note setting out our interpretation of the current law and the position under the Insurance Bill.

The project

The Law Commission and the Scottish Law Commission are conducting a joint review of insurance contract law.

The project began in January 2006. The teams working on the project at the two Commissions issued a scoping paper, inviting views on which areas of insurance contract law were in need of reform. In the light of the responses received, the teams published a paper setting out their decisions on the scope of the project. The first consultation, in 2007, covered pre-contract issues in consumer and business insurance. The size of the project led the Commissioners to design a phased programme of work (separating pre-contract consumer and business issues).

Our first report on Consumer Insurance Law was laid before Parliament in December 2009 and the Consumer Insurance (Disclosure and Representations) Bill was introduced in the House of Lords under the Special Bills Procedure in May 2011.  The Bill was a priority for us in 2011. The Bill, now the Consumer Insurance (Disclosure and Representations) Act 2012came into force on 6 April 2013.

The Law Commissions' second joint consultation covering post contractual issues: damages for late payment, remedies for fraudulent claims, insurable interest and policies and premiums in marine insurance, closed in March 2012.  Our third consultation on disclosure in business insurance and warranties was published on 26 June 2012. That consultation closed in September 2012. The results of these consultations fed into the second report and draft Bill, published on 17 July 2014.  This covers disclosure in business insurance, warranties, remedies for fraudulent claims, and late payment.

The elements of our insurance project, and their current status, are illustrated in this diagram.

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Completed elements of the project

Reports, with recommendations

Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment
July 2014
Recommended new legislation covering: what businesses and other non-consumer policyholders should disclose to their insurer before taking out insurance; warranties; insurers’ remedies for fraudulent claims; and remedies for policyholders were an insurer has unreasonably refused a valid claim or paid a claim late. The report was accompanied by a draft Bill. Many of the provisions are included in the Insurance Bill which is currently before Parliament.
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More information

Consumer Insurance Law: Pre-contract Disclosure and Misrepresentation
December 2009
Recommended new legislation relating to the issue of what a consumer should tell their insurer before taking out insurance.  The new legislation encompassed in the Consumer Insurance (Disclosure and Representations) Act 2012 received Royal Assent on 8 March 2012.
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Insurance Contract Law: The Business Insured's Duty of Disclosure and the Law of Warranties
June 2012
Covers the issues relating to a business policyholder’s duty to give pre-contract information to an insurer as set out in sections 18 to 20 of the Marine Insurance Act and considers the law of warranties for businesses and consumers.
Download consultation paper
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Insurance Contract Law: Post Contract Duties and other Issues
December 2011
Covers the issues relating to damages for late payment, Insurers’ remedies for fraudulent claims, insurable interest and policies and premiums in marine insurance and sets out proposals for reforming the law in these areas.
Download consultation paper
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Misrepresentation, Non-disclosure and Breach of Warranty by the Insured
July 2007
Covered both consumer and business insurance, and set out proposals for reforming the law on both pre-contractual information and warranties.
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More information 

Issues papers

The Requirements for a Formal Marine Policy (Section 22)
Issues paper 9, October 2010
Asked whether section 22 and several related sections should be repealed. We suggested that references in the 1906 Act to “policies” should be re-interpreted as reference to insurance contracts, and asked if this would have any unintended consequences.
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The Broker’s Liability for Premiums (Section 53)
Issues paper 8, July 2010
Asked whether there should be reform to bring the broker’s liability into line with the general law on contract and agency.
Download paper
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The Insured’s Post-contract Duty of Good Faith
Issues paper 7
July 2010
Asked whether the law should provide greater clarity on the remedies available to insurers when policyholders act fraudulently after the insurance contract has been formed.
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Damages for Late Payment
Issues paper 6, March 2010
Asked whether an insurer should be liable for a policyholder’s loss suffered as a result of a late payment or non-payment of an insurance claim.
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Micro-businesses - should micro-businesses be treated like consumers for the purposes of pre-contractual information and unfair terms?
Issues paper 5, April 2009
Asks specific questions about protection against unfair terms in insurance contracts for micro-businesses. Puts forward proposals to treat micro-businesses as consumers for the purposes of pre-contractual information. Discusses how a micro-business should be defined.
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Insurable Interest
Issues paper 4, January 2008
Asked whether the law on insurable interest should be repealed. The law is complex, which makes it difficult for both insurers and policyholders to understand and apply.
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Intermediaries and Pre-contract Information
Issues paper 3, March 2007
Considers the position where a mistake or fraud by the agent leads to information not being disclosed or being misrepresented, or where it leaves the insured in breach of a warranty of existing or past facts.
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Issues paper 2, November 2006
Asks whether, for consumer insurance, and possibly for business insurance also, the only remedies that should be available when the insured has made a false statement of fact should be those for misrepresentation.
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Misrepresentation and Non-disclosure
Issues paper 1, September 2006 
Asks whether a new statute should replace the current patchwork by a single system that is coherent and clear, and that is fair in that it meets the reasonable expectations of both consumers and insurers.
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Other project papers

Short paper: Section 83 of the Fires Prevention (Metropolis) Act 1774
March 2009
Asked whether s83, which deals with cases where buildings are damaged by fire, should be repealed. Broadly, s82 gives “interested persons” the right to demand that insurance money is used to reinstate the property, rather than being paid to the policyholder.
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More information 

Policy statement: The Status of Intermediaries - for whom does an intermediary act in transmitting pre-contract information from consumer to insurer?
In March 2009 the Law Commission and Scottish Law Commission published a policy statement on this topic.We proposed a new statutory code for deciding for whom the intermediary acts when it passes pre-contractual information from the consumer to the insurer. These provisions were incorporated into the draft Bill on consumer insurance.
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Forthcoming work

We intend to publish a third and final report addressing insurable interest and policies and premiums in marine insurance.  This will be preceded by an issues paper on insurable interest which we hope to publish in the first half of 2015.

Lessons from Australia

In 1984 the Australians introduced a new Insurance Contracts Act that reformed many of the issues we are considering, including non-disclosure and warranties. The Australian Treasury reviewed those reforms and prepared amendments to their legislation. We were therefore particularly interested to see what the Australians have done, and what effects it has had.

Professor Rob Merkin undertook a legal and practical analysis of the 1984 Act and wrote a paper highlighting the successes and failures of the Australian legislation. It is not intended as Law Commission policy.