Insurance Contract Law
The Law Commission and Scottish Law Commission are conducting a joint review of insurance contract law.
Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation
Final report and draft Bill
The two Commissions recommend new legislation covering the issue of what a consumer should tell their insurer before taking out insurance. The current law requires consumers to volunteer information about everything which a “prudent insurer” would consider relevant. We think this duty should be abolished. Instead, insurers should be required to ask questions about what they want to know.
On 15 December 2009, the two Commissions published a report and draft Bill designed to implement these recommendations.
The following documents may be downloaded:
Summary
Report and Draft Bill
Impact Assessment
Press Release
Press Outline
The Bill is presented to the UK Parliament to cover England, Wales and Scotland. In our view the law of insurance is a reserved matter (under Head A, Section A3 of Schedule 5 to the Scotland Act 1998).
Consultation paper
The report and draft Bill follow lengthy consultation.
In July 2007 we published a Consultation Paper which covered both consumer and business insurance, and set out proposals for reforming the law on both pre-contractual information and warranties.
The responses to consultation showed widespread consensus for reform in so far as it affected consumers. We have published two summaries of the responses we received to that consultation. The summary of responses on consumer issues was published in May 2008.
Business Insurance Law
There is also support for reform of pre-contractual business insurance law. In October 2008 we published a summary of responses on business insurance reform.
We are planning a programme of future work for early 2010 which includes:
- An issues paper on damages for late payment.
- An issues paper on the insured's post-contractual duty of good faith.
- A policy statement on non-disclosure, misrepresentation and warranties in business insurance.
Previous publications
Issues Paper 5: Micro-businesses - should micro-businesses be treated like consumers for the purposes of pre-contractual information and unfair terms?
In April 2009 the Law Commission and the Scottish Law Commission published an Issues Paper on micro-businesses and pre-contractual information and unfair terms. Research shows that many micro-businesses do not have specialised knowledge of insurance and are increasingly buying their insurance online without the benefit of a broker, in much the same way as consumers do. The Paper asks specific questions about protection against unfair terms in insurance contracts for micro-businesses. It also puts forward proposals to treat micro-businesses as consumers for the purposes of pre-contractual information. Finally it discusses how a micro-business should be defined.
We received 49 responses and published a summary of these responses in November 2009. The consultation revealed that a majority supports a change in insurance contract law so that micro-businesses would be treated like consumers for the purposes of pre-contractual information and unfair terms. A press release is available. We now intend to develop our policy on micro-businesses and larger businesses in light of the responses we have received. We hope to publish a policy statement on non-disclosure, misrepresentation and warranties in business insurance contract law in Spring 2010.
Policy statement on 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, having promised to do so in the summary of responses on consumer insurance reform. The policy statement sets out proposals for 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 will be incorporated into the draft Bill on consumer insurance (though similar principles may also be relevant to small businesses).
Section 83 of the Fires Prevention (Metropolis) Act 1774
In line with responses to the scoping paper published at the beginning of the project, the Law Commission considered whether section 83 of the Fires Prevention (Metropolis) Act 1774 ought to be repealed, amended or left alone. This provision was originally intended to prevent arson and fraud. Its language is antiquated and its meaning is not clear. However, it has occasionally featured in recent case law. It has been used to enable persons interested in insured property, but who are not policy holders to claim insurance monies following a fire.
In March 2009 we published a short introductory paper and received 14 responses. In February 2010, we published a summary of the responses we received. Most respondents argued for section 83 to be preserved, either as it is at the moment or with only minor amendments.
Insurable interest
In January 2008 we published an Issues Paper on Insurable Interest, asking whether there was still a need for this doctrine. If so, should the categories of people entitled to insure the lives of others be extended? We received a good response, and will be developing proposals in due course.
Scoping and issues papers
On 18 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 they received, the teams published a joint paper giving their decisions on the scope of the project.
The teams then developed their preparatory thinking for the first consultation paper through a series of issues papers. Thus our July 2007 consultationpaper was preceded by three issues papers on the topic.
Issues Paper 1: Misrepresentation and Non-Disclosure (published September 2006)
Issues Paper 2: Warranties (published November 2006)
Issues Paper 3: Intermediaries and Pre-Contract Information (published March 2007)
Lessons from Australia
In 1984 the Australians introduced a new Insurance Contracts Act, which reformed many of the issues we are considering, including non-disclosure and warranties. Recently 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.
To that end, Professor Rob Merkin undertook a legal and practical analysis of the 1984 Act. His paper highlights the successes and failures of the Australian legislation. It is not intended as Law Commission policy.
List of publications
Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation: Report and Draft Bill (published 15 December 2009)
Consultation Paper: Insurance Contract Law: Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured (CP182) (published July 2007)
Responses to Consultation Paper (consumer insurance) (published May 2008)
Responses to Consultation Paper (business insurance) (published October 2008)
Issues Paper 1: Misrepresentation and Non-Disclosure (published September 2006)
Issues Paper 2: Warranties (published November 2006)
Issues Paper 3: Intermediaries and Pre-Contract Information (published March 2007)
Issues Paper 4: Insurable Interest (published January 2008)
Issues Paper 5: Micro-businesses (published April 2009)
Responses to Issues Paper 5 (micro-business insurance) (published November 2009)
Scoping Paper (published January 2006)
Joint Paper on Scope: Analysis of Responses and Decisions on Scope (published August 2006)
Reforming Insurance Law: Is There a Case for Reverse Transportation? Rob Merkin (published 2007)
Introductory Paper: s 83 Fires Prevention (Metropolis) Act 1774 (published March 2009)
Responses to Introductory Paper: s83 Fires Prevention (Metropolis) Act 1774 (published February 2010)
More information
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For more information, or to submit your views, contact the commercial and common law team. Further information is available from the team page.
NOTE - We are happy to provide information about our projects. However, we cannot give legal advice or deal with individual cases. Nor do we provide legal research to assist with student assignments. This does not affect your rights under the Freedom of Information Act 2000 to request information.