UK: Commissioner Highlights Key Future Developments for Insurance Contract Law Reform Project

On 16 October 2009, the Law Commissioner, David Hertzell addressed a meeting of the British Insurance Law Association to highlight some of the key developments on this project.

He noted that one important phase was coming to a close, with the publication of the 2009 Consumer Bill and Final Report in December. There has, from the outset of the project, been very strong support for consumer law reform. In a preview of the contents of the draft Bill, Mr Hertzell noted that the duty of disclosure for consumers will be abolished. The all or nothing remedy of avoidance for misrepresentation will be replaced by a hierarchy of remedies. Where the consumer insured has behaved reasonably, the insurer will pay the claim.  Where the insured has been careless, the Bill introduces a new concept for English insurance law of proportionality, whereby consideration is given to what the insurer would have done had he known the true position. Only if the consumer insured has acted deliberately or recklessly will the insurer have the right to avoid.

With respect to intermediaries, the Commission proposes to codify the current law, retaining basic agency principles. In determining whether an intermediary is acting for the insurer or the insured, there will be decisive factors and also persuasive factors which, while not binding, will be factors for courts to take into consideration.

The Commissioner also gave a preview of the responses received in respect of the most recent consultation on Micro-businesses. The Commission's preliminary view has been that for the purposes of pro-contractual information, Micro-businesses should be treated as consumers and this view was supported by 60% of those responding to the consultation. The rationale for the significant minority disagreeing with the proposal was not easy to discern and required further input. With respect to a bright-line definition for Micro-businesses, two of the possible tests had been overwhelmingly rejected in the responses. A significant majority however agreed that the definition should be based on a combination of number of employees and annual turnover, thus aligning it with the jurisdiction level for the Financial Ombudsmen Service.

Finally, the Commissioner gave some indication of their thinking relating to the payment of damages for the late payment of a claim. The current position under English law ( Sprung V Royal Insurance) is that where an insurer has delayed in paying a claim, the policyholder has no right to be compensated for any consequential losses and is merely entitled to interest. The Commission prefers, at this stage, to leave the new Supreme Court to overturn the findings of the Court of Appeal in Sprung. It is however considering revisions to S17 of the Marine Insurance Act 1906, whereby delay in payment of a claim as a result of dishonesty, malice or maladministration on the part of the insurer, in breach of his duty of utmost good faith, would result in a remedy of damages for the insured rather than avoidance. Further details of these proposals will be published early in 2010.