David Whear warns practitioners not to ignore the Law Commission's review of insurance contract law.
Lloyd's and London market practitioners have a lot on their plates. Aside from the trivial task of trying to manage a profitable enterprise in an environment where traditional assumptions about risk have moved immeasurably, issues such as contract certainty, Solvency II and broker transparency occupy valuable management time. It is perhaps unsurprising then that the seemingly turgid subject of the UK Law Commission's review of insurance contract law has to date received little attention.
While issues such as contract certainty have dominated the headlines, it is undoubtedly the case that significantly more money is spent on legal disputes concerning non-disclosure and breach of warranty than on whether a contract does exist or what it covers. You can have the most clearly-drafted contractual provisions you like, but if a number of the underlying legal principles are unclear, the end result may still be uncertainty.
There is also the unsatisfactory situation in the retail sector where policyholders are able to refer disputes to the Ombudsman, who often makes decisions to patch up unsatisfactory law – resulting in further legal and operational uncertainty.
The Law Commission will review misrepresentation, non-disclosure and breach of warranty. There are also a range of other issues which it may review, including “fraudulent claims” and whether there should be a special definition of fraud. (Given the Association of British Insurer's estimate that there is some £16bn of insurance fraud a year, this is an area that insurers simply cannot ignore.) The review may also consider whether there should be “codification” of insurance law and, if so, whether different codes should apply to the retail and commercial markets. These are matters which could have real significance – particularly if there are moves to amend the principles behind misrepresentation and non-disclosure.
It is unquestionable that, as the Law Commission has said, insurance law is “undoubtedly in need of reform”. It is also unquestionable that reform could have a significant impact on insurers' assessments of their legal and operational risk. It is a debate to which they should actively contribute.