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Transcript of Insurance Contract Law: Business Disclosure; Warranties ... Law Commission Insurance Contract Law:

  • Law C

    omm

    issionInsurance C

    ontract Law: B

    usiness Disclosure; W

    arranties;Joint R

    eport

    Scottish Law

    Com

    mission

    Insurers Rem

    edies for Fraud

    ulent Claim

    s; and Late P

    ayment

    LC 353 / S

    LC 238

    41872 Cm 8898 Law LC353 Cover.indd 1 09/07/2014 12:41

    Insurance Contract Law: Business Disclosure; Warranties; Insurers' Remedies for Fraudulent Claims; and Late Payment

    Law Com No 353 / Scot Law Com No 238

  • The Law Commission and The Scottish Law Commission (LAW COM No 353) (SCOT LAW COM No 238)

    INSURANCE CONTRACT LAW: BUSINESS DISCLOSURE; WARRANTIES; INSURERS REMEDIES FOR FRAUDULENT CLAIMS; AND LATE PAYMENT Presented to the Parliament of the United Kingdom by the Lord Chancellor and Secretary of State for Justice by Command of Her Majesty

    Laid before the Scottish Parliament by the Scottish Ministers

    July 2014 Cm 8898 SG/2014/131

  • ii

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  • iii

    THE LAW COMMISSION AND

    THE SCOTTISH LAW COMMISSION The Law Commission and the Scottish Law Commission were set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are: The Right Honourable Lord Justice Lloyd Jones, Chairman, Law Commission Professor Elizabeth Cooke

    David Hertzell Professor David Ormerod QC Nicholas Paines QC The Chief Executive of the Law Commission is Elaine Lorimer. The Law Commission is located at 1st Floor, Tower, 52 Queen Annes Gate, London SW1H 9AG. The Scottish Law Commissioners are: The Honourable Lord Pentland, Chairman, Scottish Law Commission

    Laura J Dunlop QC Patrick Layden QC, TD Professor Hector L MacQueen Dr Andrew J M Steven The Chief Executive of the Scottish Law Commission is Malcolm McMillan. The Scottish Law Commission is located at 140 Causewayside, Edinburgh, EH9 1PR. The terms of this report were agreed on 3 July 2014. The text of this report is available on the Internet at: http://lawcommission.justice.gov.uk/areas/insurance-contract-law.htm http://www.scotlawcom.gov.uk/publications/

  • iv

    THE LAW COMMISSION

    THE SCOTTISH LAW COMMISSION

    INSURANCE CONTRACT LAW: BUSINESS DISCLOSURE; WARRANTIES; INSURERS REMEDIES

    FOR FRAUDULENT CLAIMS; AND LATE PAYMENT

    CONTENTS

    Page

    Detailed contents of chapters vii

    Table of abbreviations xviii

    Glossary of terms xix

    Main project publications xxi

    Main texts xxiii

    PART 1: INTRODUCTION

    Chapter 1: Introduction 3

    Chapter 2: The scope of the recommendations and key definitions 18

    PART 2: FAIR PRESENTATION

    Chapter 3: Fair presentation: introduction 27

    Chapter 4: The current law 34

    Chapter 5: The case for reform 45

    Chapter 6: Overview of recommendations 62

    Chapter 7: Detailed recommendations: the duty of fair presentation 69

    Chapter 8: Detailed recommendations: the insureds knowledge 82

    Chapter 9: Detailed recommendations: the brokers knowledge 102

  • v

    Chapter 10: Detailed recommendations: the insurers 114 knowledge and other exceptions

    Chapter 11: Detailed recommendations: remedies 130

    PART 3: WARRANTIES

    Chapter 12: Warranties: introduction 153

    Chapter 13: The current law 157

    Chapter 14: The case for reform 165

    Chapter 15: Overview of recommendations 171

    Chapter 16: Detailed recommendations: basis of the contract clauses 175

    Chapter 17: Detailed recommendations: where the breach of warranty 178 is remedied

    Chapter 18: Detailed recommendations: terms relevant to 193 particular descriptions of loss

    PART 4: REMEDIES FOR FRAUDULENT CLAIMS

    Chapter 19: Remedies for fraudulent claims: introduction 207

    Chapter 20: The current law 210

    Chapter 21: The case for reform 218

    Chapter 22: Overview of recommendations 222

    Chapter 23: Detailed recommendations 230

    PART 5: LATE PAYMENT

    Chapter 24: Late payment: introduction 249

    Chapter 25: The current law 252

    Chapter 26: The case for reform 260

    Chapter 27: Overview of recommendations 276

    Chapter 28: Detailed recommendations 280

    PART 6: GENERAL ISSUES

    Chapter 29: Contracting out 303

    Chapter 30: Good faith 317

    Chapter 31: Compulsory insurance 329

  • vi

    Chapter 32: List of recommendations 340

    APPENDICES

    Appendix A: Draft Bill and Explanatory Notes 347

    Appendix B: Proportionate remedies on variations 386

    Appendix C: List of consultees 392

  • vii

    DETAILED CONTENTS OF CHAPTERS

    Paragraph Page

    PART 1: INTRODUCTION

    CHAPTER 1: INTRODUCTION 3

    A new Insurance Contracts Act 1.5 4

    Previous reports 1.7 4

    A history of the project 1.9 5

    The case for reform 1.16 7

    Problems in practice 1.33 10

    The effect of quality uncertainty 1.39 12

    The approach of the draft Bill 1.49 14

    Legislative competence and compatibility with the European 1.52 15 Convention on Human Rights and EU law

    Support for reform 1.53 15

    The structure of this Report 1.58 16

    Thanks 1.62 17

    CHAPTER 2: THE SCOPE OF THE RECOMMENDATIONS AND KEY 18 DEFINITIONS

    Introduction 2.1 18

    The definition of insurance 2.5 18

    A contractual relationship: the insured and the insurer 2.10 19

    Consumer and non-consumer insurance 2.13 19

    One regime for all business insurance 2.22 21

    The role of the Financial Ombudsman Service 2.31 22

    Lead-in time 2.35 23

    Application 2.37 24

    Extent 2.38 24

  • viii

    PART 2: FAIR PRESENTATION

    CHAPTER 3: FAIR PRESENTATION: INTRODUCTION 27

    Reforming the duty for non-consumer policyholders 3.4 27

    The current duty of disclosure 3.7 28

    Problems 3.11 28

    Consultation on the duty of fair presentation 3.12 29

    Support for reform 3.20 31

    The structure of this Part 3.23 32

    CHAPTER 4: THE CURRENT LAW 34

    The Marine Insurance Act 1906 4.2 34

    Section 17: a contract of the utmost good faith 4.3 34

    Section 18: the duty of disclosure and exceptions to the duty 4.7 35

    Section 19: disclosure by the broker 4.34 41

    Section 20: misrepresentations 4.36 41

    The insurers remedies for breach 4.44 43

    Conclusion 4.49 44

    CHAPTER 5: THE CASE FOR REFORM 45

    Five problems with the current law 5.6 46

    An evolutionary approach to reform 5.44 54

    The contrary arguments 5.55 57

    Conclusions on the need for reform 5.74 60

    CHAPTER 6: OVERVIEW OF RECOMMENDATIONS 62

    A duty of fair presentation for all non-consumer insurance 6.4 62

    Building on the current law 6.5 63

  • ix

    The recommended reforms 6.6 63

    A default regime 6.22 66

    Differences between consumer and non-consumer insurance 6.27 67

    CHAPTER 7: DETAILED RECOMMENDATIONS: THE DUTY OF FAIR 69 PRESENTATION

    Application: non-consumer insurance contracts 7.4 69

    The duty of fair presentation 7.6 69

    Disclosure 7.21 72

    A reasonably clear and accessible manner 7.41 77

    A duty not to make misrepresentations 7.47 78

    Recommendations 81

    CHAPTER 8: DETAILED RECOMMENDATIONS: THE INSUREDS 82 KNOWLEDGE

    The current law 8.7 83

    The case for reform 8.31 88

    Recommendation: defining what an insured knows 8.45 91

    Recommendation: defining what an insured ought to know 8.77 97

    Contracting out 8.92 100

    Recommendations 100

    CHAPTER 9: DETAILED RECOMMENDATIONS: THE BROKERS 102 KNOWLEDGE

    The current law 9.5 102

    The case for reform 9.19 106

    The agents knowledge: our recommendations 9.25 107

    Knowledge of an agent responsible for arranging the insureds 9.28 107 insurance

  • x

    A reasonable search of information held by the insureds agent(s) 9.37 109

    Confidential information 9.41 110

    Who does the agent act for? 9.47 111

    The agents liability to the insured 9.48 111

    Recommendations 112

    CHAPTER 10: DETAILED RECOMMENDATIONS: THE INSURERS 114 KNOWLEDGE AND OTHER EXCEPTIONS

    Section 18(3)(b): the current law 10.6 115

    The case for reform 10.28 119

    The insurers knowledge: our recommendations 10.34 120

    Other exceptions to the duty of fair presentation 10.64 126

    Recommendat