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 Naturally a law of this age can only be considered outdated and it is hard to imagine how it could possible reflect the expectations of businesses when arranging insurance.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.
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.