INSURANCE LAW REFORM

Critical Appraisal: Insurance Contract Law Reform

Critical Appraisal: Insurance Contract Law Reform

Introduction

The reforms proposed by the Joint Commission considering the insured businesses are as a result of the review of Insurance Contract Law. The Joint Commission comprises of English and Scottish Law Commission. Two issues which were considered in the third consultation paper; which was published on June 26th, 2012, are the duty of policyholders pertaining to the businesses to supply pre-contract information to the insurer in addition to the law of warranties. They were first considered in the consultation paper of 2007 where the duty of disclosure was discussed as to how it applied to both consumers and the businesses. This discussion in 2007 prompted strong support for the reform of consumer law pertaining to the domain. Subsequently the Consumer Insurance Act received the Royal Assent in the March of the year 2012 and is hoped to be made effective in 2013. But to focus on the insured businesses, it was indicated by the respondents that the law should be reformed for business insurance as well. This led to another consultation, the paper regarding which was published in December 2011. It covered the damages for the late payment, insurable interest, specifics pertaining to the marine insurance and remedies regarding fraudulent claims. The process is deemed to be completed by the end of 2013 along with the formulation of relevant draft bills.

Critical Appraisal

The law is basically reformed to facilitate accurate precise exchange of correct information between the business and the insurer. It is the business policyholder who knows the risks in the business that is insured; insured risk, more than the insurer himself. Thus it is to be made imperative that the insurance contract is made on the basis of frank exchange of information. Considering the current law, prospective businesses are required to disclose material circumstances to the insurance firm, which is good practice as it prompts efficiency and cost-effectiveness since the insurers then seek to provide insurance for disparate huge as well as specialised risks. But regardless of the efficacy, Duty of Disclosure is not effective which can be contributed to its ambiguous nature, which could directly impact the business negatively by significant magnitude as the consequences are harsh. Thus the reform was prompted.

Marine Insurance Act 1906

The law in the area is codified as Marine Insurance Act 1906. This is applied by the court onto all types of the businesses; either it is a small business or a larger operation. Section 18 of the Act places the onerous Duty of Disclosure pertaining to the information only upon the business policyholder, before the contract is undertaken with the insurer. Thereby resulting in the statute indicating that the insurer is not required to ask any question, making the policyholder responsible to figure out what the insurer would deem as important to be let known.

Now, as it requires the insurer to convey all the material circumstances; which as defined by section 18(2) is every circumstance that could impact the prudent ...