Business insurance contract law reform video

David Hertzell, commercial insurance law commissioner, outlines the proposed reforms to insurance contract law related to the business insured's duty of disclosure and the law of warranties. This 30 minute video is part of a series of CPD videos produced by the CII Faculties for members.

The paper, the third and final consultation paper in the English and Scottish Law Commissions' joint review of insurance contract law was published on the 26 June and the consultation period closes on 26 September 2012.

 View the accompanying lecture slides »

  View the Law Commission report on which this lecture is based »

What is covered in the paper?

The business insured's duty of disclosure

Under current law, a business policyholder has a duty to disclose every material circumstance it knows about the risk it wants to insure. Failure to do so entitles the insurer to avoid the contract, which means the insurer may treat it as if it did not exist and refuse all claims.

The duty is unclear and sometimes poorly understood, while the consequence of breach is too harsh. There is evidence that the duty does not work well in practice. The commission's proposals aim to clarify how policyholders are expected to comply with the duty when presenting a risk to insurers and to encourage insurers to assist them in that task. They also propose fairer remedies for breach where the policyholder has not been dishonest.

The law of warranties

An insurance warranty is an important term which, unless exactly complied with by the policyholder, results in the automatic discharge of the insurer's liability for loss. It makes no difference if the breach is trivial, not material to the risk or if the policyholder remedies the breach prior to loss being incurred.

The commission proposes that breach of a warranty should suspend the insurer's liability for the duration of the breach; remedy of the breach restores liability.  Where a term is designed to reduce a particular type of risk, they propose that liability is suspended only in relation to that risk. This would be mandatory for consumer insurance but subject to freedom to contract for business insurance.

The commission welcomes responses to its proposals.  For more information on this consultation please visit the Law Commission website.