Law Commission proposes overhaul of business insurance disclosures

The Law Commission has proposed new reforms determining the level of information disclosed by businesses to insurance firms when buying policies.

The new proposals also enable insurers to avoid a claim if policyholders deliberately conceal information.

Under the new plans put forward by the Law Commission in conjunction with the Scottish Law Commission, in all other circumstances, the outcome would depend on what the insurer would have done had it known the full facts.

On the same day, a new report on the UK manufacturing industry released by insurance governance experts Mactavish has highlighted a dangerous build up of increasing claim disputes, inadequate risk governance by manufacturers, and the failure of brokers and insurers to provide fit-for-purpose protection to their clients.

The report, which is based on in-depth consultations with 140 manufacturing businesses across Britain over the past year, found a number of potentially critical oversights and blind spots that could result in companies failing because an insurance claim isn’t paid out or is delayed longer than it is able to sustain its business.

The main findings of the report include:

·         The manufacturing and engineering sector being let down by weak governance around risk and insurance leaving them needlessly exposed

·         A lack of proactivity from brokers and insurers to keep up with change, creating gaps in protection and driving an increase in disputed demands

·         Insurance policies proving increasingly unreliable in terms of major losses, with few aware of the problems or taking steps to address them

·         Companies not geared up for the Law Commissions proposed legal reforms

The Law Commissions proposals will seek to overhaul the current law which is based on the Marine Insurance Act 1906.

The current law states that businesses must disclose every material circumstance they know or ought to know before taking out insurance.

The Law Commissions said the law should support the commercial aspirations of both the insurer and the policyholder with the former expected to be knowledgeable and competent and the latter making a fair presentation of the risk.

David Hertzell, the Law Commissioner leading the project for England and Wales, said: “We need to ensure that the law supports our world-leading insurance industry.

“Rules designed in the nineteenth century need to be updated. Many of the definitions and principles we are proposing are already found in the current case law.

“Embedding them in the statute would make the law clearer and fairer for insurers and their clients.”

Scottish Law Commissioner Professor Hector MacQueen said: “The law in this area is based on the Marine Insurance Act of 1906 and has fallen out of date.

“Large, complex, international corporations struggle to cope with its requirements as much as their smaller counterparts because the present rules and remedies are weighted against them all.

“We are offering the industry and its business policyholders an opportunity to come together to develop definitions, principles and protocols that make for clearer, fairer law.”

The two Commissions are also consulting on the law of warranties in insurance contracts and have proposed that a breach of warranty should suspend rather than discharge the insurer’s liability. Where a term is designed to reduce a particular type of risk, liability should be suspended only in relation to that risk, they said.

These proposals would be mandatory for consumers and in business insurance the parties would be able to contract out these provisions, provided they did so in clear terms and the term was brought to the attention of the other party.