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