Law review scope is to be defined

In March 2005, the Law Commission announced its intention to review insurance law on the basis that it is "incoherent and arguably unfair to the insured ... made tolerable only by codes of practice that in effect disapply parts of the law". On 18 January 2006, the Law Commission, together with the Scottish Law Commission, issued a scoping paper inviting comments on which areas of insurance contract law are seen to cause most difficulties.

Two key areas that will definitely be reviewed are non-disclosure and breach of warranty, including whether a causal link with the loss should be required. In relation to non-disclosure, the question of whether proportionality should be introduced will also be considered.

Other possible areas for review include: insurable interest; a statutory definition of insurance; agency; subrogation; 'worthless' policies; joint insureds; contract certainty; post-contractual good faith; fraud, including a possible definition; repeals; and damages for unjustifiable delay.

For brokers, the rules on agency are clearly relevant. Under current law, the different hats worn by brokers during a transaction can lead to a lack of clarity over their role and perceived allegiance. In any review we believe a distinction should be drawn between a commercial and a consumer/small business insured, as often the consumer will assume the broker is actually his insurer.

The Law Commission cites Roberts v Plaisted (1989), where Mr Roberts insured a hotel through a Lloyd's broker. The hotel operated a disco, which the broker was shown when he inspected the premises. However, following a fire, underwriters avoided the contract on the ground of non-disclosure of the disco. Following this decision, the Financial Ombudsman has indicated that it will in appropriate cases hold insurers responsible for the defaults of intermediaries.

Other issues under this heading include: the involvement of intermediaries in the claims process; payment of premium to an intermediary which is not passed to the insurer; and fraud by the intermediary.

Confirmation of the scope of the review is anticipated shortly. During the next 12 months, the Law Commission is expected to circulate a series of position papers on individual topics for comments from the market. A consultation paper is likely to follow in 2007 and draft bill in 2008.

- Beachcroft Wansbroughs is hosting a series of seminars to discuss the various position papers. If you would like to attend, please email cshakespeare@bwlaw.co.uk.