Insurance Contracts CP - Law Reform Commission

uberrima fidei, regulatory requirements under Irish financial services regulation, and best practice
requirements as they have developed with the Irish Insurance industry.
(2) Reform Proposals in the United Kingdom – support for legislative changes
1.59 While the issue of insurance contract law reform has been under review in the United Kingdom
since 1954, it is a remarkable fact that until 2011 no Bill had been presented to Parliament by any
Government. The Law Reform Committee, following its appointment in 1954, expressed a general view
that legislative intervention to improve the position of insureds constituted an interference with freedom of
contract but the Committee still felt able to recommend that the duty of disclosure should be adjusted to
replace the prudent insurer test of materiality with a reasonable insured test. The Committee also
suggested that warranties of fact should not be allowed to be effective when a proposer was able to show
that any misstatement made was true to the best of his knowledge and belief. When the Law
Commission of England and Wales revisited these matters in 1980 the arguments by the insurance
industry favouring self regulation via statements of practice were swept aside on the ground that the duty
of disclosure was unfair and that statements of practice lack the force of law. ―Basis of contract‖ clauses
and warranties of fact set out in proposal forms were also the subject of recommendations that would
have reduced the insurer‘s rights to avoid policies. It is particularly interesting to note that in its 1980
Report the Law Commission specifically rejected the arguments that any reforms should be limited to
consumer insurance.
1.60 In the period between January 2006 and December 2009, the Law Commissions of England
and Wales, and of Scotland, have issued a number of documents, a scoping paper, Issues Papers, and a
Consultation Paper with summaries of responses thereto, and, most recently, a final report and draft bill.
These documents have ultimately led the Law Commissions to reformulate both their agenda and reform
timetable and several of their initial legislative proposals. In particular, the Final Report sets out a rather
modest number of measures that are confined to the consumer insurance duty of disclosure, remedies for
misrepresentation and basis of contract clauses. Nevertheless, the Law Commissions have remained
consistent in arguing for legislative reform of insurance contract law on the basis that:
the law should be brought into line with both the Financial Ombudsman Service decisions and
industry practice which requires an insurer to have asked clear questions before the insurer may
avoid a policy for non-disclosure; indeed the Law Commissions go so far as to recommend the
abolition of the residual duty of disclosure in consumer insurance;
codification of best practice would simplify the law and improve consumer confidence in the
insurance industry
reform should also seek to align the position of small businesses with the reform proposals
outlined in relation to consumer insurance;
proposed reforms should include revision of the right of an insurer to avoid policies on the basis
of misrepresentation and breach of warranty, with an insurer‘s rights of avoidance being replaced
in certain instances by financial remedies;
in cases of fraud however, the position of an insurer should remain as it currently is.
1.61 In 2011, the UK Government introduced into the House of Lords the Consumer Insurance
(Disclosure and Representations) Bill 2011. This Bill is to be processed by reference to the speedy
procedures available in respect of non controversial Bills that involve implementation of Law Commission
proposals. The Bill is the first legislative text to emerge from a detailed and schematic set of insurance
contract law topics that have been the subject of issues papers and consultations. These include subjects
relating in particular to sections 22 and 53 of the Marine Insurance Act 1906 as well as general topics
such as insurable interest, the insured‘s post-contract duty of good faith, damages for late payment and
warranties. 87 In this Consultation Paper the Commission seeks to provide a set of reform proposals that
will cover many of the topics that have occupied the English and Scottish Law Commissions.
87
At the time of writing (November 2011), the Committee Stage in the House of Lords had been held on 19
October 2011, and the Report Stage in the House of Lords was scheduled for 20 December 2011.
26