Back in July 2014 the Law
Commission, a public advisory body sponsored by the Ministry of Justice, put a
report forward to Government. It consisted of a set of recommendations for
reforms to non-consumer insurance in the UK. It also included a draft bill
called the Insurance Bill.
Reforms to commercial
insurance have been long awaited. Currently, insurance law is based on the
Marine Insurance Act of 1906. Naturally a law of this age can only be
considered outdated and it is hard to imagine how it could possible reflect the
expectations of businesses when arranging insurance. Precisely why insurance
disputes are so common.
Duty
of Disclosure
One of the areas of
insurance that is due to undergo reform is known as duty of disclosure. Current
insurance law requires that anyone arranging cover has a duty to disclose to
the insurer ‘every material circumstance’ that could ‘influence the judgement
of a prudent insurer’ in whether or not to accept a risk and in setting the
premium. The Law Commission recognised a number of issues with this saying understanding
of the system and how to comply with it was generally not good enough. They
also identified that the penalties for non-disclosure – i.e. refusing a claim
outright – were far too tough.
In response to these
issues, the Law Commission has put forward a variety of recommendations. One of
these is to replace duty of disclosure with a ‘duty of fair representation’
which will detail what needs to be disclosed and how. A system of balanced
remedies in the event of a breach has also been suggested.
Insurance
Warranties
A second aspect of
insurance intended for reform is warranties. This is another area where great
confusion lies. Warranties are promises you make to do or not do something as
part of your insurance contract. They could be anything from installing a
certain type of alarm or locks to employing a health and safety officer.
Breaching warranties can have very serious consequences. Failing to comply can
lead to the insurer being fully discharged from liability from the point where
the breach occurs.
What this means is that
even if a breach had been put right before a loss was suffered, a claim could
be thrown out with the insurer not being liable. Even worse, the breach doesn’t
have to be connected to the loss for the insurer to be discharged from
liability. So for example, if you had agreed to a warranty that required you to
install a burglar alarm but failed to do so, then your premises suffered a
fire, your claim for losses would not be paid out, even though the fire could
not have been prevented with the presence of a burglar alarm.
Good
News for Businesses
Once these and other
issues undergo reform, it can only spell good news for businesses where
insurance is concerned. The Insurance Bill was introduced in the House of Lords
on 17 July 2014 and has gone through a number of stages. A line by line
examination of the Bill took place during report stage on 8 January 2015
and a third reading, offering a final chance to amend the Bill, is scheduled
for 15 January. Only after this takes place can the Bill receive Royal Assent.
Here at Office Assistants
your Essex bookkeepers will be
keeping an eye on what happens so we can report back and let you know.
