UK Law Reform

The Law Commission and the Scottish Law Commission are conducting a joint review of insurance contract law. The third consultation on the insured’s duty of disclosure and law of warranties was published on 26 June 2012.

Under current law, a business policyholder has a duty to disclose every material fact known about the risk to be insured. Failure to do so may lead the insurer to refuse claims.  In some cases, not every material fact is known.  Information may not be deliberately withheld.  The proposal is that insurers ask the relevant questions to help ensure that every material fact is disclosed. Fairer consequences of breaches where the policyholder was not deliberately misleading are also being proposed.

An insurance warranty is an important term.  Unless the insured exactly complies with the conditions of a policy, the insurer may refuse claims.  It makes no difference if the breach is trivial, not material to the risk or if the policyholder remedies the breach prior to the loss incurred.

For example if a policy requires stock to be stored 6 inches off the floor to minimise flood damage and the insured does not comply, the insurer may not pay a claim following a burglary.

Proposals include that the insurer’s liability is suspended only for the duration of the breach and were applicable be relevant to the particular risk only. This would be subject to freedom of contract for business insurance.

Get in touch, talk through your insurance needs, and make sure you and your business are covered by the right policies.