Misrepresentation, Non-Disclosure and Breach ... - Law Commission

1.50 The parties should be free to depart from good practice where they agree to do
so. For business insurance it is important to preserve flexibility for the parties to
make the arrangements that suit them best. For example, a particular insured
may be happy to agree that the insurer should have rights that depart from the
“norm” in exchange for a reduced premium.
1.51 That should remain possible, subject to a proviso. The agreement should be a
genuine one in the sense that the insured was made reasonably aware of the
terms on offer. When the terms are in a standard form policy, there is a risk that
even terms to which the policyholder has “signed up” do not in fact meet its
reasonable expectations. In Parts 5 and 8 we set out proposals to address the
problems of standard form contracts.
Confidence in the market place
1.52 Where insurance fails to meet customers’ reasonable expectations, confidence in
the market can be undermined. Dissatisfied customers spread the word, and
those who have had an insurance claim rejected frequently have a deep sense of
grievance. We are concerned that the bad press from which insurers sometimes
suffer may deter consumers from buying insurance when it would be in their best
interests to do so. It is clear from the comments we have received that some
insurers share this concern.
1.53 In relation to business insurance, there may be an additional problem. The
market for many kinds of business insurance is international. UK insurance law
has been described as the least insured-friendly of all western jurisdictions. 30 We
have been struck by how far it is now out-of-line with the standards adopted in
other European and Commonwealth jurisdictions, and with those of most states
in the USA. The English concept of a warranty, for example, has been described
as “a prodigal aberration” from generally understood European principles of
fairness. 31
1.54 The fact that UK insurance law differs from that of its competitors may be a
positive advantage. The parties may prefer UK law because, though it can
operate harshly, it is predictable, and does not depend on vague standards of
fairness. However when, in the absence of an express term, the law allows
insurers to act in a way that contravenes recognised good market practice, there
is a risk that insureds will find their expectations of UK law disappointed. They
may turn away from UK law to systems that are less harsh, or at least that require
the position to be made more transparent.
1.55 We have received conflicting views about whether the present state of English
law deters businesses from seeking insurance in the London market. Some
brokers have suggested that it is a factor; others suggest that the attractiveness
of the London market ebbs and flows according to many complex factors. We
would be interested in receiving views on this point.
30 Interviews with insurance lawyers.
31 John Hare, The Omnipotent Warranty: England v The World (November 1999). This paper
was presented at the International Marine Insurance Conference, see
http://web.uct.ac.za/depts/shiplaw/imic99.htm (last visited 1 May 2007).
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