Disclosure: Airmic backs Law Commission over disclosure rules

Airmic has formally responded to the Law Commission with strong backing for its plans to reform the legal framework covering commercial insurance.

The Law Commission white paper, published in the summer, proposes reform of the Marine Insurance Act, the legislation that forms the basis for UK insurance law. The proposals would clarify the burden of disclosure placed on the buyer when applying for cover.

In its response, Airmic expresses the view that disclosure requirements should be made clearer and proportionate to the size of the company seeking cover. It says that a claim should be declined on grounds of non-disclosure only in cases where the application for insurance was made dishonestly or where relevant information was knowingly withheld. Furthermore, it says that non-disclosure of information should only affect a claim if cover might have been declined or the terms altered had the underwriter known about it when issuing the policy.

Airmic has for several years been calling for fundamental changes to UK commercial insurance law, arguing that the potential remedies available to the insurer for nondisclosure are disproportionate and place an undue and sometimes impossible disclosure requirement on the buyer. This leaves them potentially exposed to claims being turned down, or even having the policy avoided altogether on grounds of non-disclosure, even where the buyer has acted in good faith when buying the policy.

As reported in last month’s Airmic News, a survey of Airmic members, 96% supported reform of the Marine Insurance Act.

95% agreed that the concept of material circumstance and knowledge should be clarified in legislation. 95% also felt that an insurer who fails to give sufficient care to asking the right questions should not be allowed to use nondisclosure as a reason for not paying a claim. 94% said that, to obtain a remedy for non-disclosure or misrepresentation, the insurer should demonstrate either that the information would have affected the terms of the policy or that cover would have been declined.

Another member survey conducted in May found that 28% of the sample had had a claim refused in the past two years, with 10% being challenged on grounds of non-disclosure.

Airmic Disclosure Guide:

There has been heavy demand from members for the guide to disclosure written by technical director Paul Hopkin, which was published in June. The pdf includes the model clause produced by Airmic with support from Herbert Smith for insertion into insurance contracts.

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