‘That wicked rule, that evil doctrine … ’: Reforming the Law on Disclosure in Insurance Contracts

Date01 November 2012
AuthorPhilip Rawlings,John Lowry
Published date01 November 2012
‘That wicked rule, that evil doctrine ...’:Reforming the
Law on Disclosure in Insurance Contracts
John Lowry*and Philip Rawlings**
consumer assured’s duty to volunteer information, heralds the first successful outcome of the
English and Scottish Law Commissions current insurance contract law reform project.This paper
outlines the defects of the common law duty of disclosure which the Law Commissions sought
to address. It goes on to consider why previous legislative attempts failed, the self-regulatory
measures introduced by the insurance industry as a means of resisting earlier pressure for statutory
intervention, and how that resistance broke down. Finally, it examines the scope of the 2012
reforms and the current consultation being undertaken in respect of the duty of disclosure in
relation to business insurance.It concludes by assessing the significance of the statute in providing
a necessary impetus for future insurance law reforms.
Aspects of the duty of disclosure owed by an assured to an insurer have long
attracted strong criticism from formal inquiries,1academic commentators2and
judges.3Yet, while successive governments acknowledged problems existed, they
have shown no sustained enthusiasm for legislation. In part, this is because such
reform inevitably ranks low in the list of government prior ities.But it also chimes
in with an ideological conviction that government should not interfere in the
operation of the free market. Not sur prisingly, this has been the view of the
insurance industry.While acknowledging that the law was not entirely satisfactory,
*Professor of Commercial Law, University College London.
**The Roy Goode Professor of Commercial Law, CCLS, Queen Mary University of London. We
thank the anonymous referees for their insightful comments on an earlier draft.The usual caveatapplies.
The quote in the title is from Greville Janner MP, HC Deb vol 89 col 673 20 December 1985.
1 Law Reform Committee, Fifth Report, Conditions and Exceptions in Insurance Policies Cmnd 62
(1957); Law Commission, Insurance Law: Non-Disclosure and Breach ofWarranty Cmnd 8064 (1980);
J. Birds, Insurance Law Reform; The Consumer Case for a Review of Insurance Law (London, NCC,
1997); Report of the Sub-Committee of the British Insurance Law Association,Insurance Contract
Law Reform: Recommendations to the Law Commission (London: Centre for Financial Regulation
Studies London Guildhall University, 2002).
2 See, for example, R.A. Hasson, ‘The Doctrine of Uberrima Fides in Insurance Law: A Critical
Evaluation’ (1969) MLR 615;J. Lowry ‘Redrawing the Parameters of Good Faith in Insurance
Contracts’ (2007) CLP 338.
3 Sir Andrew Longmore,‘An Insurance Contracts Act for a New Century?’ Pat Saxton Memorial
Lecture, Br itish Insurance Law Association Trust, 5 March 2001 at http://www.bila.org.uk/
lecture_scripts/lectsaxt.asp (last visited 12 July 2012). See also Lambert vCo-operative Insurance
Society Ltd [1975] 2 Lloyd’s Rep 485 (CA),where Lawton and Cairns LJJ called for Parliamentary
intervention to address the injustices;and Regina Fur Company Ltd vBossom [1957] 2 Lloyd’s Rep
466 (Pearson J); [1958] 2 Lloyd’s Rep 425 (CA).
© 2012The Authors.The Modern Law Review © 2012 The Modern Law Review Limited. (2012) 75(6) MLR 1099–1122
Published by BlackwellPublishing, 9600 Garsington Road, Oxford OX42DQ, UK and 350 Main Street, Malden,MA 02148, USA
the industry claimed it was necessary for the protection of insurers to impose a
broad duty of disclosure on assureds,and, at the same time,convinced government
that insurers could be trusted not to use their rights oppressively, particularly in
relation to consumers.
This history makes it all the more surprising that the English and Scottish Law
Commissions managed to convince the government and the industry of the need
for the Consumer Insurance (Disclosure and Representations) Act 2012 to the
extent that it was introduced in the House of Lords through the Uncontroversial
Law Commission Bill Procedure.4What had become increasingly evident was the
mismatch between, on the one hand,the law embodied in the Mar ine Insurance
Act 1906,which is the pr incipal statute applicable to both non-marine and marine
insurance contracts and to business and consumer assureds,and, on the other hand,
the standards required of insurers in their treatmentof consumer assureds as a result
of industry codes of practice, regulations introduced by the Financial Services
Authority (FSA) and awards made by the Insurance Ombudsman Bureau and,
subsequently,the Financial Ombudsman Service (FOS).As Lord Justice Longmore
pointed out,‘It has been a long time since the law of insurance . . . departed from
what has been accepted by respectable insurers as being good practice.5
As is discussed below, this confusion of parallel systems became increasingly
difficult to defend – or, rather, defence lost its point – and the Bill enjoyed ‘a
broad consensus of support from industry, consumer groups and regulators’.6The
ensuing statute focuses on disclosure and misrepresentation in consumer insur-
ance contracts,7ignoring other areas of difficulty or reserving them for later
consideration. For example, warranties were part of the original consultation, but
were separated out,along with the post-contractual duty of good f aith.8In order
to appreciate the nature of the reforms introduced by the 2012Act, it is necessary
to outline the reasons for the attacks on the existing law; why there had been
resistance to reform and how this was overcome; and how both the criticism of
the law and the resistance to change have shaped the new legislation.
The common law duty of disclosure emerged from a general proposition
advanced by Lord Mansfield CJ in Carter vBoehm:9‘Good faith forbids either
4 House of Lords, Procedure Committee:1st Report of Session 2007–08: Law Commission Bills HL 63 (2008).
5 House of Lords, Evidence beforeThe Special Public Bill Committee on the Consumer Insurance (Disclosure
and Representations) Bill 11 October 2011, oral evidence at http://www.publications.parliament.
uk/pa/ld201012/ldselect/ldspbc/219/21902.htm (last visited 12 July 2012).
6ibid, Lord Sassoon, 1 at http://www.publications.parliament.uk/pa/ld201012/ldselect/ldspbc/
219/21903.htm (last visited 12 July 2012). See also the Explanatory Notes to the Bill at http://
www.publications.parliament.uk/pa/bills/lbill/2010-2012/0068/en/2012068en.htm (last visited
12 July 2012).
7 HL Deb vol 728 col GC89 13 June 2011, Lord Sassoon.
8 See the Law Commission and the Scottish Law Commission Report, Consumer Insurance Law:
Pre-contract Disclosure and Misrepresentation Cm 7758 (2009) at http://lawcommission.justice.gov.
(last visited 12 July 2012).
‘That wicked rule, that evil doctrine ...’
© 2012 TheAuthors. The Modern Law Review © 2012The Modern Law Review Limited.
1100 (2012) 75(6) MLR 1099–1122

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