The Law Commissions' provisional proposals for change received
widespread support, though the Commissions, which exist to
recommend law reform when it is needed, stressed that they have not
yet formulated their final recommendations on consumer insurance
law reform.
There were more than 100 responses to the consultation, which
covered pre-contract disclosure of information, warranties and the
role of the broker in both consumer and business insurance.
The paper proposed that consumers should no longer be under a
duty to volunteer information to insurers when applying for
insurance. They would only be required to answer honestly and with
reasonable care any questions asked.
It also proposed that instead of being entitled to avoid the
contract altogether for an inaccurate or misleading statement, as
under the current law, insurers would have a range of remedies
depending on the degree of fault.
The proposals also aimed to bring the law more into line with
current industry practice by severely restricting the occasions
when insurers can avoid liability by relying on a consumer's breach
of a warranty. Even in such cases, insurers would have to show the
breach caused or contributed to the loss claimed under the
policy.
Support for the consumer proposals was received from consumer
groups, brokers, lawyers and insurers themselves. Of the 39
insurers and insurance organisations that responded, only four were
opposed to reform.
"We are encouraged by the widespread support for reform,
particularly from the insurance industry," said the Law Commissions
in a joint statement. "The great majority of consultees agreed that
there is an urgent need for clear, accessible legislation on
consumers' duties to provide pre-contract information and insurers'
remedies where information is not provided."
The Commissions will now prioritise the preparation of a final
report and draft bill on pre-contract information in consumer
insurance, to be published in the summer of 2009.
The law on warranties will be dealt with later, alongside any
forthcoming business insurance law reforms. Proposals aimed at
clarifying the role of the broker will also be revisited.
The Commissions had hoped to clarify the law on whether a broker
or intermediary acts as agent of the insurer or the insured when he
receives pre-contract information. The issue is important because
it determines who bears the risk of the broker getting it
wrong.
Their solution was to suggest the broker be treated as acting
for the insurer unless clearly independent and acting on the
insured's behalf. But the mixed responses received to the proposals
– particularly what is meant by "independent" – means they will be
looking into this area again.
A summary of responses to the proposals for business insurance
will be published shortly. Further Issues Papers on
post-contractual duties of good faith and on whether insurers
should be liable to pay damages for the late payment of claims are
planned for this autumn.
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