Joint UK/Scottish Law Commission Review of Insurance Contract Law

The Law Commission (United Kingdom) and the Scottish Law Commission have been conducting a joint review of insurance contract law since 2007.

In July 2007, they published a Consultation Paper outlining proposals for the reform of insurance law in the areas of pre-contractual information and warranties.

In 2008, they published a summary of responses on consumer insurance reform as well as a summary of responses on business insurance reform.

This month, they published a policy statement on consumer insurance reform, judged to be the area most urgently in need of change:

"This paper is part of the Law Commissions’ joint review of consumers’ obligations to give information to insurers before entering an insurance contract. It considers the legal consequences where an intermediary acts negligently or dishonestly in transmitting pre-contract information from consumer to insurer (...)"

"It is therefore important to know whom an intermediary acts for when helping a consumer complete an insurance application. Unfortunately, the law in this area is uncertain, as the courts and the FOS [Financial Ombudsman Service] struggle to apply early 20th century cases to a rapidly changing market place (...)"

"In this paper we propose a new statutory code, based largely on the existing law. Where the current law does not provide clear answers, we have supplemented it by drawing upon FOS practice and industry understanding."

"The aim is to find a balance. Insurers should bear responsibility for those intermediaries within their control, and have appropriate incentives to exercise that control in a way that prevents problems from occurring. Insurers should not, however, be liable for the actions of genuinely independent agents."