Appeal court judges say current law should be watered down

Senior judges have called for a change in the law on non-disclosure in insurance, after criticising the current law for leaving policyholders open to "injustice".

The Court of Appeal said policyholders who disclosed untrue allegations of criminal or civil charges in order to prevent their policies being voided for non-disclosure were being penalised. In some cases, premiums were inflated or cover was refused, the judges said.

Lord Justice Longmore said it was time for the law on non-disclosure to be "watered down" so people were only required to disclose facts which they knew, or expected, were relevant to the insurer's decision on whether to accept the risk.

The comments came as the Court of Appeal upheld a Commercial Court ruling that an insurer was entitled to void a policy on the grounds of non-disclosure of outstanding charges even when the charges proved unfounded.

Martin Bakes, partner with law firm Herbert Smith, said: "The judgment is of interest because it suggests the Court of Appeal considers that its own powers to mitigate the harsh effects of the law of non-disclosure are limited.

"It remains to be seen whether the legislature will accept the Law Comm-ission's forthcoming proposals for reform, as certain judges have actively encouraged it to do."

The Law Commission is currently looking at reform of the law on non-disclosure, along with other areas of insurance law. A consultation paper will be published next year, and an informal discussion paper on the duty of disclosure will be circulated in the coming months.

Nigel Davenport, associate partner with law firm Eversheds, said: "It seems very likely that the commission will recommend changes to the law, but it appears genuinely willing to consult on the extent of those recommended changes, and in particular whether they will extend to non-consumer insureds."

Professor Hugh Beale, the commissioner heading the insurance contract law review, said: "Lord Justice Longmore's proposal will be given very careful consideration in those papers."