The Law Commissions’ Consultation Paper of December 2011

The long-awaited result of consultation on the various Issues Papers issued by the English and Scottish Law Commissions was published on 20 December 2011. English Law Commission Consultation Paper 201 and Scottish Law Commission Consultation Paper 152 is a lengthy document which addresses five issues: Issues Paper 4, Insurable Interest, January 2008; Issues Paper 6, Damages for Late Payment and the Insurer’s Duty of Good Faith, March 2010; Issues Paper 7, The Insured’s Post-Contract Duty of Good Faith, July 2010; Issues Paper 8, The Broker’s Liability for Premiums, July 2010; and Issues Paper 9, The Requirement for a Formal Marine Policy, October 2010. A further matter, the possible reform of the Fires Prevention (Metropolis) Act 1774, which was the subject of a short discussion paper in 2009, is dealt with briefly by the Law Commissions, but only to dismiss the need for reform. The Consultation Paper lists a series of questions to be answered by respondents. The analysis here outlines the most important of the proposals which are the subject matter of those questions.

Damages for late payment

The problem here is well known. In Sprung v Royal Insurance (UK) Ltd [1999] Lloyd's Rep IR 111 the Court of Appeal held that English law (in contrast to Scottish law) did not recognise any action for damages for late payment of insurance proceeds, so that an assured who suffered consequential loss by reason of late payment could not recover that loss from his insurers. A number of separate strands of legal thought are to be found in this rule: the insurers’ duty is to hold the assured harmless, so that as soon as a loss occurs the insurers are liable in damages, and damages are not payable for late payment of damages ( President of India v Lips Maritime Corporation (The Lips) [1987] 2 Lloyd's Rep. 311); there is no implied obligation on the insurers to pay within a reasonable time ( Insurance Corporation of the Channel Islands Ltd v McHugh [1997] LRLR 94); the Marine Insurance Act 1906 does not recognise any liability other than that set out in the Act itself ( Apostolos Konstantine Ventouris v Mountain (The Italia Express) (No 2) [1992] 2 Lloyd's Rep. 281); and insurance policies do not fall into that category of contracts made to confer peace of mind on the customer so that there cannot be damages for discomfort and hurt feelings ( The Italia Express).