Insurance law

[Part of project now completed]

Commissioner
Professor Hector MacQueen

Team members
Gillian Swanson, Project Manager
Victoria Wright, Legal Assistant

We are assisting the Law Commission for England and Wales with a project to reform insurance contract law.  The first part of the project, on disclosure and representations in consumer law, is complete and has been implemented by the Consumer Insurance (Disclosure and Representations) Act 2012.   Royal Assent was granted on 8 March 2012 and we hope that the Act will come into force in a year’s time.   The new legislation followed the procedure for uncontroversial Law Commission Bills. 

The 2012 Act derives from the recommendations in our joint Report on Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation (Scot Law Com No 219) which was published in December 2009.  A Summary, News Release, Press Outline and Impact Assessment are available. 

The Scottish Government gave their initial response to the Report in March 2010 and gave a further response following the successful passage of the Bill through the UK Parliament. 

The scheme recommended by the Commissions (now encompassed in the Consumer Insurance (Disclosure and Representations) Act 2012) is best thought of as a series of questions that the insurer, court or ombudsman must ask before deciding to reject all or part of a claim.

The Act:

• will apply only to consumers and will deal only with the issue of what a consumer must tell an insurer before entering into or varying an insurance contract. It will abolish the consumer’s duty to volunteer material facts. Instead, consumers must take reasonable care to answer their insurer’s questions fully and accurately. If consumers do volunteer information, they must take reasonable care to ensure that the information is not misleading, and
• will prescribe the insurer’s remedies where it has been induced by a misrepresentation to enter into an insurance contract. The insurer’s remedy will depend on the consumer’s state of mind:
  • if the misrepresentation was honest and reasonable, the insurer must pay the claim. The consumer is expected to exercise the standard of care of a reasonable consumer, taking into account a range of factors including the type of insurance policy and the clarity of the insurer’s question.
  • if the misrepresentation was careless, the insurer will have a compensatory remedy based upon what the insurer would have done had the consumer taken care to answer the question accurately. If the insurer would have excluded a certain illness, for example, the insurer need not pay claims which would fall within the exclusion but must pay all other claims. If the insurer would have charged more for the policy, it must pay a proportion of the claim.
  • if the misrepresentation was deliberate or reckless, the insurer may treat the policy as if it never existed and may decline all claims. It will also be entitled to retain the premiums, unless there is a good reason why they should be returned.
• will abolish “basis of contract” clauses. This will bring the law into line with recognised good practice.
• will establish a statutory code to determine for whom an intermediary (an agent or broker) acts when arranging insurance.
• includes special provisions for group schemes and for insurance taken out on the life of another.
• will prevent insurers from including terms in insurance contracts which put the consumer in a worse position in respect of pre-contract disclosure and representations than the Act permits.  

Summary table of papers relating to this part of the project:

NB For a list of all papers published in the insurance contract law review, please see the current insurance contract law project page.

For further information, please contact info@scotlawcom.gov.uk.