Insurance Law – Airmic hails progress

There has been a warm welcome for draft new legislation from the Law Commission that would ease the disclosure burden on corporate insurance buyers. 

Airmic has welcomed proposals from the Law Commission to amend the laws governing commercial insurance, published on January 28. Chief executive John Hurrell said the changes would go a significant way towards achieving a fairer, more workable system.

The association has been campaigning for several years for amendments to the Marine Insurance Act, which provides the legal framework for all commercial insurance in the UK, arguing that it can place an impossible burden on the buyer. Insurers may avoid claims on grounds of non-disclosure of material information, even when the underwriter has not requested that information and would still have agreed to provide cover if it had been made available.

Whilst not removing the need for disclosure, the new draft Insurance Bill significantly modifies the buyer’s obligations. A proposal would be within the rules if it “discloses every material circumstance which the proposer knows or ought to know, or …gives the insurer sufficient information … to put a prudent insurer on notice that it needs to make further inquiries.”

The draft legislation proposes, in addition, that penalties should be proportionate where there has been an innocent and unintended failure to make adequate disclosure; at present a minor breach can result in total refusal to pay a claim.

“These changes have the potential to make the law much less draconian and to give risk managers greater confidence in the products offered by insurers in the London market,” said Hurrell. “We would like to clarify some of the meaning around disclosure, but there can be no doubt that the Law Commission’s proposals are an important step forward. We also welcome the intentions on proportionality.

“The Law Commission has yet to announce its plans in relation to warranties, and we are confident that these will also be welcome.”

Any legislation will take effect next year at the very earliest. It is highly likely, however, to be delayed until after the election in May 2015.

Airmic has produced a series of member guides and model clauses, in partnership with law firm Herbert Smith Freehills, on disclosure, warranties and basis clauses. These are intended to help risk managers overcome shortcomings in the legal framework pending any changes to insurance law.

John Hurrell – seeking clarification