Further consultation on business insurance

On 26 June 2012 the English and Scottish Law Commissions published Consultation Paper No 204 (England) and Discussion Paper No 155 (Scotland), the third in the series of consultation papers to emerge from the current review of insurance law. This document addresses the duty of disclosure in business insurance, and also warranties. Given the complex nature of the problems and the variety of views expressed to date, the Consultation Paper does not make firm recommendations but instead has made a number of suggestions which have been opened up for further consultation, many of which are based on whether business insurance should follow the lead of the Consumer Insurance (Disclosure and Representations) Act 2012. The proposals do not go that far but nevertheless involve significant changes to the Marine Insurance Act 1906. Responses are requested by 26 September 2012, with draft legislation to follow by the end of 2013.

Retaining the duty of disclosure

The arguments for and against a duty of disclosure are well known and comprehensively rehearsed by the Law Commissions. In favour of the duty are the considerations that: insurers do not know the intricacies of the operations of the assured; the London market operates on the basis of disclosure; the use of brokers mitigates many of the difficulties faced by proposers; and a requirement to ask questions could lead to the use of long questionnaires and also sweeping up questions where the assured is asked whether there is anything else that he wants to disclose. As against that: large (and particular international groups of) companies find compliance difficult because of the range of people within the organisation who might hold material information; the duty is not well understood; underwriters may act passively and only make investigations when a loss occurs (underwriting at the claims stage); the remedy of avoidance may be exercised for a relatively trivial breach; and legal disputes are rife.