The Insurance Act 2015: Rebalancing the Interests of Insurer and Assured

AuthorRob Merkin,Özlem Gürses
Published date01 November 2015
Date01 November 2015
The Insurance Act 2015: Rebalancing the Interests of
Insurer and Assured
Rob Merkin*and Özlem Gürses**
The Insurance Act 2015 is the first piece of legislation since the eighteenth century to seek to lay
down new principles governing the formation and operation of insurance contracts. Exactly 250
years after Lord Mansfield articulated the routinely-cited principle of utmost good faith in
insurance law in Carter vBoehm (1766) 2 Burr 1905, that principle has been recast, with important
implications for both the pre- and post-contractual duties of the parties. The Insurance Act has
also imposed important restrictions on the enforcement of policy terms by insurers, and clarifies
the law affecting fraudulent claims. The Marine Insurance Act 1906, a codifying measure, looks
increasingly outmoded.
The law of insurance as it stood in 2013 had its origins in the practices first
adopted in Edward Lloyd’s Coffee House1from which policies were first issued
in December 1720. The Bubble Act 1720 which sought to prevent the diversion
of funds into speculative and often fraudulent schemes encouraged partly by the
success of the South Sea Company, outlawed the writing of marine insurance by
all companies other than two recipients of royal charters, London Assurance and
Royal Exchange. Unincorporated associations were unaffected, Lloyd’s rapidly
becoming dominant and establishing in effect a monopoly in the formative
period of insurance law2– to all intents and purposes, marine insurance law3–in
the century preceding the repeal of the Bubble Act in 1825. The core principles
in Lord Mansfield’s seminal judgments in his stewardship of the Court of King’s
Bench from 1756 to 1788,4adopted and indeed extended by his various judicial
*Lloyd’s Professor of Commercial Law, University of Exeter.
**Associate Professor in Law, Southampton Law School.
1 See also: H. H. Lay, History of Marine Insurance (London: Post Magazine, 1925); C. Wright and C.
E. Fayle, A History of Lloyd’s (London: Macmillan, 1928); D. E. W. Gibb, Lloyd’s of London: A
Study in Individualism (London: Macmillan, 1956).
2 The Report, with minutes of evidence, and accounts, from the Select Committee on Marine Insurance, 1810
(226), noted that less than 4% of the value of risks written were attributable to the chartered
companies. Other than insurance offered by illegal associations, Lloyd’s accounted for the rest.
3 Policies on lives and fire policies on wooden buildings, were also a part of the market, but gave
rise to relatively few disputes.
4Carter vBoehm (1766) 3 Burrow 1905; London Assurance Company vSainsbury (1783) 3 Doug KB
244; Bermon vWoodbridge (1781) 2 Douglas 781; Bond vNutt (1777) 2 Cowper 601; De Hahn v
Hartley (1786) 1 Term Report 343; Hamilton vMendes (1761) 2 Burrow 1198; Loraine v
Thomlinson (1781) 2 Douglas 585; Manning vNewnham (1782) 3 Douglas 130; Mason vSainsbury
(1782) 3 Douglas 61; Stevenson vSnow (1761) 3 Burrow 1237; Tyrie vFletcher (1777) 2 Cowper
666; Vallejo vWheeler (1774) 1 Cowper 143.
© 2015 The Authors. The Modern Law Review © 2015 The Modern Law Review Limited.
(2015) 78(6) MLR 1004–1027
Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
disciples, and then applied to other forms of insurance and in an era for which
they were never designed, held sway. Asymmetry of underwriting information,
the driving force behind the development of marine insurance law, had to a
significant extent been eroded by the middle of the twentieth century. The most
obvious manifestations of eighteenth century influence were the law relating to
utmost good faith (imposing a pre-contractual duty of disclosure on applicants
for insurance, in addition to the generally applicable obligation not to make false
statements) and to warranties (draconian terms whose breach terminated the risk
under the policy).
Mitigation for consumers was found only by the voluntary adoption by parts
of the insurance industry of Statements of Practice in 1977 and 1986, promising
fair handling of claims, and of the Insurance Ombudsman Bureau in 1981,
charged with the duty of resolving disputes by reference to ‘good insurance
practice’ rather than legal principle. Fair claims handling principles now have
statutory force under the Financial Services and Markets Act 2000, which
authorised the making by the regulator (now the Financial Conduct Authority)
of the Insurance Conduct of Business Rules (ICOBS) and which established the
Financial Ombudsman Service with the jurisdiction to give legally binding
determinations in consumer cases. But the law itself remained untouched, and
indeed the 2000 or so cases decided up to that point had been codified by
Chalmers in the Marine Insurance Act 1906, thereby all but inhibiting significant
developments in the law to match changing times and markets.
Insurance law reform has been on the agenda in the UK for over 50 years.
The Law Reform Committee, the forerunner of the Law Commission, report-
ing in 1957,5made limited suggestions for reform, but those elicited no response.
The Law Commission produced further reform proposals in 1979 and 1980,6but
they were largely developed to forestall a harmonisation programme at the time
under consideration by the European Commission: when the risk of the latter
dissipated, the incentive to implement the former evaporated. The matter was
not revisited until, prompted by the deliberations of Law Reform Committee of
the British Insurance Law Association in 2004,7the English and Scottish Law
Commissions launched a joint reform programme in 2006. That programme in
its original conception was one of overall codification, but ambitions narrowed
over time and the focus shifted to a small number of key areas. The Law
Commissions’ programme will terminate in 2015, but the main work has been
done.8This has consisted of a series of Issues Papers, Consultation Papers9and
5Conditions and Exceptions in Insurance Policies Cmnd 62 (1957).
6 Law Commission, Working Paper no 70 (1979); Law Commission Report no 104 (1980).
7 A body whose membership is drawn from all stakeholders in the insurance industry, providers,
users, advisers and commentators alike, see (last accessed 18 August 2015).
8 The outstanding issues are insurable interest and the form of marine policies. The former was
addressed in a Consultation Document published on 27 March 2015, rejecting sweeping changes
to the law, Issues paper 10, Insurable interest- updated proposals at http://lawcommission.justice (last accessed 18 May 2015).
9 The Law Commissions’ Consultation Papers and reform proposals were extensively discussed in
the literature. See, eg, M. Clarke, ‘Insurance warranties: the absolute end?’ [2007] LMCLQ 474;
R. Merkin and J. Lowry, ‘Reconstructing Insurance Law: The Law Commissions’ Consultation
Paper’ (2008) 71 MLR 95; J. Lowry and P. Rawlings, ‘“That wicked rule, that evil doctrine . . .”:
Rob Merkin and Özlem Gürses
© 2015 The Authors. The Modern Law Review © 2015 The Modern Law Review Limited. 1005(2015) 78(6) MLR 1004–1027

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