The Law Commissioner, Mr David Hertzell, provided a welcome preview of the business insurance responses received to Consultation Paper 1, the full details of which are not to be published until the Autumn. Mr Hertzell congratulated the market on the strength of its response and the resulting very broad consultation. Over 100 responses have been received from many sectors including insurers, business buyers, academics, lawyers and brokers, although it was noted that input from brokers had been quite light compared to other sectors.
Mr Hertzell reported that on a general level, there was overwhelming support of the need for reform. For business insurance, there was broad support for the idea of a default regime, with the freedom for parties to contract out through bespoke wordings, although the Commission accepted that the thinking surrounding the freedom to contract out needed to be more developed. There was majority support for the retention of the duty of disclosure for business insurance. The support for a hierarchy of remedies matched against policyholder actions (whether reasonable, negligent or dishonest) was less marked with respect to business insurance. Similarly, in the business insurance context, there was less support for the replacement of the ‘prudent underwriter’ test with that of the ‘reasonable insured’, probably reflecting the business reality of that market.
With respect to warranties, there was majority support for a number of the proposals, including the abolition of ‘basis of contract’ clauses and for the need for a causal contribution between breach and loss before the insurer has a remedy. Key areas for opposition included the controls proposed by the Commission with respect to Standard Terms of Business. Current proposals provide that in business insurance, parties can contract out of the default regime but if they contract on standard terms and the terms give greater rights to the insurer than the default regime to refuse claims for inaccurate pre-contract information, the insurer cannot rely on those terms if they defeat the Insured’s reasonable expectations. The Commission recognises that even complex risks will be written on Standard Terms and anticipate that following analysis of responses to this issue, there may need to be further adaptation of their proposals.
A further blog entry will report upon the detail of the responses to the proposals for business law reform once they are published in the Autumn. In the meantime, for a summary of the responses to the proposals for consumer insurance, please see the blog entry of 2 June 2008.