Unfair insurance law should be changed, says Law Commission

Insurance law is inappropriate to modern life and can trap honest policy holders and leave them without cover, according to The Law Commission of England and Wales. The law reform body has proposed changes to crucial parts of insurance law.

Many of the principles of insurance law date back to the Marine Insurance Act from 1906. "We have concluded that some principles embodied in the 1906 Act are no longer appropriate to a modern insurance market, and do not meet policyholders’ reasonable expectations," said the Commission's consultation document on reform.

Reform was previously proposed as far back as 1957, and the original Marine Insurance Act has been modified by what the Commission says is a confusing muddle of codes, Financial Ombudsman rules and agreements from the insurance industry not to apply all their legal rights in full.

"In our view, the existence of the Ombudsman should not be regarded as a substitute for law reform," said a Law Commission statement. "The present position is increasingly incoherent, with a growing gulf between the unsatisfactory law on the one hand, and a patchwork of codes, rules and Ombudsman principles on the other. We are also conscious of the fact that there are policyholders – including some in vulnerable classes – who are less likely to make use of the service offered by the Ombudsman, and may therefore face the full rigour of the law."

The Commission has issued a consultation on changes to the law relating to misrepresentation and non-disclosure, breach of warranty and intermediaries and pre-contract information.

The reform proposed includes introducing special terms into standard term contracts, because there is no equivalent in business insurance to consumer legislation protecting buyers against unfair terms in contracts.

The consultation is being run by The Law Commission and The Scottish Law Commission and the closing date for submissions is 16th November.