UK Insurance Law Reform

In 2006 the law commissions of England & Wales and Scotland embarked on a project to consider the reform of insurance contract law. The project was scoped following a consultation process which resulted in the separation of issues.

The joint Law Commission’s first report concerned Consumer Insurance Law and led to the Consumer Insurance (Disclosure & Representation) Act, 2012 which came into force in April 2013.

A further report concerning business insurance and warranties was published in June 2012. This has been through a consultative process which has now resulted in the publication of a draft Bill which was presented to Parliament earlier this month (July 2014). A full copy of the final report, which includes the draft Bill together with explanatory notes as Appendix A (page 347) can be downloaded at http://lawcommission.justice.gov.uk/docs/lc353_insurance-contract-law.pdf

The preamble to the Bill reads as follows:

Draft of a BILL to: Make provision for a duty of fair presentation in relation to non-consumer insurance contracts and for remedies for breach of that duty; to amend the law relating to representations and warranties in connection with non-consumer insurance contracts, and relating to breach of warranty and certain other terms in contracts of insurance; to make provision in connection with remedies for fraudulent insurance claims and late payment of insurance claims; to amend the law relating to the remedies for a breach of the duty of good faith in connection with contracts of insurance; and for connected purposes.

Of principal interest to claims practitioners are the proposed changes to the law in relation to warranties. As a reminder, under Section 33(3) of the Marine Insurance Act, 1906 a warranty is a condition which must be exactly complied with, whether it be material to the risk or not. In the event of non-compliance with a warranty, the insurer is discharged from liability under the insurance as from the date of the breach even if it is subsequently remedied. These provisions are generally regarded as unreasonably onerous and out of kilter with modern thinking.

The draft Bill provides for the suspension of the cover from the time that the warranty is breached until it is remedied; during this period the insurer is not liable for any loss which may arise. It remains irrelevant whether or not the breach of warranty plays any part in the cause of any loss during the period of suspension.

It should be noted that the Bill may be amended during its course through Parliament.

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