UK: Current Insurance Law Reforms

Last Updated: 15 June 2010
Article by Jeremy Hill and Christopher Henley

Insurance briefing from Debevoise & Plimpton LLP published in the March 2010 issue of The In-House Lawyer.

FOR OVER 100 YEARS PROPERTY AND liability insurance law has largely been governed by the Marine Insurance Act 1906, a product of careful thought and drafting that codified the previous 200 years of case law. Times have changed, however, particularly in the speed of communications, the availability of information and the development of the law. The asymmetry of the parties' positions, whereby the insured knew everything about its affairs and the insurer knew nothing, is today very different. This has resulted in a great deal of activity in the review by trade bodies and the Law Commissions (of England and Scotland) of insurance law over the past ten years, culminating in two recent bills, the Third Parties (Rights against Insurers) Bill (the Third Parties Bill) and the Consumer Insurance (Disclosure and Representations) Bill (the Consumer Insurance Bill).


The Third Parties Bill received its second reading in the House of Lords on 9 December 2009 and is intended to modernise the Third Parties (Rights against Insurers) Act 1930 (the 1930 Act), codify the current law, and make it quicker, easier and cheaper for a victim to recover compensation from an insurance company directly. The 1930 Act was intended to allow victims (especially of motor accidents) to receive insurance payments directly instead of their payment into the insolvent insured's estate. The Third Parties Bill should enact the following changes:

  • In circumstances where the insured is the subject of any insolvency event, there is a statutory transfer of their rights to any third party to whom a liability is owed by the insured. That third party can then issue proceedings against the insurers to establish both the insolvent insured's liability and the potential liability of the insurers. The need for multiple proceedings (against the insured third party to establish their liability to the claimant and against the insurers) will be removed.
  • The definition of an insured person is widened to take into account the immense changes in both the insurance and insolvency landscape since 1930. It will now include individuals, incorporated and unincorporated bodies, and certain trusts. The Third Parties Bill updates the current insolvency processes by including company and individual voluntary arrangements.
  • Liabilities incurred voluntarily. such as legal expenses insurance, health insurance and car repair insurance, will now be covered.
  • Currently, the worst scenario for a claimant is to bring proceedings to restore the insolvent insured to the Companies Register, then bring proceedings against the insolvent insured to obtain a judgment and establish their liability to the claimant, and then bring proceedings against the insurers to obtain a claim under the insurance policy. At this point the insurers could use any valid defence under the policy that they would have used against the insured, so that the claimant would have wasted large amounts of time and money in a search that could have been revealed as fruitless at the outset. Third parties may now write to several parties, such as the personal representatives or liquidator of an insolvent insured, its insurers (if they can be identified) and any other party able to provide information relating to the insurance, including brokers, adjustors and surveyors. This should reduce the number of fruitless claims against insurers, but of course may increase the claims that would at least have some prospect of success on the basis that there is some insurance in place that should respond to the loss.

As usual, the insurer is entitled to take any defence that it could have raised against the insured, subject to three exceptions:

  1. where the insured is required to take action under the policy, eg notifying the insurer of likely liability or of the event giving rise to the loss, then compliance by the third party with the relevant condition is sufficient to discharge the term;
  2. where the policy contains a condition with which the insured cannot comply because it has been dissolved, then the statutory transfer of rights will occur without that condition, so effectively the third party simply need not comply; and
  3. a clause requiring the insured to pay the victim before the insurer can be liable to indemnify the insured will not apply to the statutory transfer.

The Third Parties Bill does not apply to reinsurers and therefore the current uncertainty in relation to the operation of cut-through clauses by an insured against a reinsurer will remain.

The Third Parties Bill is currently before the House of Commons but it still needs to complete several stages before it can receive royal assent and become law. Given the current uncertainty over the general election, it is unlikely that Parliament will be able to complete the process, but when considering the need for the Act and its general all-party support, it is likely that it will become law relatively soon.


The Consumer Insurance Bill relates only to consumer insurance, which involves contracts of insurance entered into by individuals wholly or mainly for the purposes unrelated to that individual's trade, business or profession. The comprehensive code identified in 2006 as the goal of the Law Commissions has been reduced considerably, and now relates to pre-contract disclosure and misrepresentation and intermediaries, while warranties, post-contractual good faith and interest on late payment of claims have been deferred. In essence it codifies what the Financial Ombudsman Service already does for consumers. The position of non-consumers will be addressed later this year and it is likely that some of the current proposals will reappear, although perhaps watered down.

The most important reform is the abolition of the duty of disclosure, which is the bedrock of the insurers' investigation of the moral hazard of the insured and the font of its draconian remedy of avoidance, which when applied means that the insurance contract simply never existed. It is designed to ensure that the potential insured reveals to the insurer all material aspects of the risk. It is not possible to oust these new rules by contract, which would include choosing another law as the applicable law of the policy. The duty of disclosure is replaced by a new duty to take reasonable care not to make a misrepresentation. Reasonable care is defined in very general terms and operates in the light of all relevant circumstances, of which the Consumer Insurance Bill provides some illustrations. For example:

  • the type of consumer insurance policy;
  • any explanatory material or publicity produced by the insurer;
  • the clarity and focus of the insurer's questions; and
  • whether or not the agent was acting for the consumer.

The test of reasonableness is objective – the reasonable consumer – with a subjective element in that the consumer's characteristics are to be taken into account if the insurer was or should have been aware of them. Any element of dishonesty on the part of the consumer will still have terminal consequences, even if the answer that they gave would also have been given by an honest insured. The test of reasonableness is explained by the Law Commissions in their report. An insured will have acted reasonably if:

  • the question was general and a reasonable consumer would not understand that the insurer was asking about particular information;
  • the consumer has reasonable grounds for believing what it said was true;
  • a reasonable consumer would not have appreciated that the insurer would have wanted to know about that fact;
  • it is reasonable for the consumer to assume that the insurer would obtain the information for itself; or
  • the insurer indicated that it would obtain information from a third party.

A positive statement is required to found a misrepresentation, although this would be included by any failure of a consumer to comply with an insurer's request to confirm particulars previously given. The insurer still has to prove that it was induced by the misrepresentation to enter into the contract.

If the misrepresentation is deliberate or reckless, the insurer may avoid the contract and retain the premium. If the misrepresentation is careless then a new concept is introduced, that of proportionality, where instead of a absolute remedy of avoidance, the insurer is simply placed in the position that it would have been in had it known the true facts, for example charging more premium. The insurer would still be entitled to avoid the contract if it (the insurer) would not have entered into the contract had the careless misrepresentation not been made, but must return the premium (which reflects the common law).


It has always been a source of some dispute for whom and in what capacity an intermediary may be acting. During that last wave of contingent commissions paid by insurers to brokers for a more focused introduction of insurance business, the underlying documentation seeking to valorise such payments contained several ingenious rationales to justify the work carried out by brokers for the benefi t of insurers. The courts have leaned gently towards the possibility of dual agency but the tenor of case law over the past 200 years is that an intermediary acts for one party only at any one time, unless it can obtain the informed consent of that party to act also for the other. The Consumer Insurance Bill looks at this and states that there are three cases in which the agent is to be treated as the agent of the insurer:

  1. when the agent is the appointed representative of the insurer;
  2. when the agent collects information from the insurer using the insurers expressed authority to do so; and
  3. when the agent enters into the contract as the insurer's agent.

In all other cases the usual presumption applies to the effect that the agent is acting on behalf of the insured party. The Consumer Insurance Bill also provides three examples of factors tending to confirm that the agent acts for the consumer, namely that it undertakes to give impartial advice to the consumer, to conduct a fair analysis of the market, or to pay the agent a fee. Facts showing that the agent acts for the insurer are that it places insurance with only a small proportion of the insurers that could insure, the insurer provides insurance through only a limited number of agents, the insurer permits the agent to use the insurer's name, the insurance is marketed under the name of the agent, or the insurer asks the agent to solicit the insurer's custom. The Consumer Insurance Bill expressly preserves the general rule that the principal is responsible for the acts or omissions of its agent but fails to boldly go where it was once promised to go, namely installing the broker as the agent of the insurer for the purpose of the disclosure of material facts.

The Consumer Insurance Bill does not reform the law relating to warranties, although it does remove the possibility for insurers to rely on 'basis' clauses, which convert every answer in a proposal form into a warranty so that an insurer's liability is automatically terminated at the date of breach of warranty whether or not it is relevant to the loss.

The Consumer Insurance Bill also looks at the position of the insureds under group insurance, in which any insured could suffer from the consequences of acts or omissions of another party where it is not in fact at fault.

The Law Commissions are planning a programme of future work for 2010, which includes issues papers on damages for late payment, the insured's post-contractual duty of good faith, and a policy statement on non-disclosure, misrepresentation and warranties in business insurance. How far the changes proposed in the Consumer Insurance Bill will be effected similarly for businesses remains to be seen.


Three issues still in debate include the law on insurable interest, damages for late payment of claims and a redraft of the general principles of insurance law throughout Europe. Insurable interest has been characterised by the Law Commissions as complex and difficult to understand, but has socially desirable effects and is not just a legal technicality. Before the Gambling Act 2005 (the 2005 Act), anyone taking out property insurance needed to have a legal or equitable interest in the property or a right to it under a contract, without which the insurance contract was unenforceable. In England this requirement for insurable interest appears to have been removed by the 2005 Act, though more by accident than design. Under English law indemnity insurance contracts without insurable interest are now enforceable. But anomalies exist. Parents still cannot insure the lives of their children. Fiancés cannot insure fiancées, and vice versa. Group insurance and the relevant interest required remains unclear.

There is argument as to whether the 2005 Act has removed the requirement for insurable interest in a marine insurance contract, but either way it is still a criminal offence to take out a contract of marine insurance without interest. The quantum allowed for keyman insurance is not clear. In general, non-life non-indemnity insurance still requires an insurable interest, although there is little need for it. Australia has abolished this need, but its absence enables anyone to insure the life of another, taking us back to the days when the populace insured the lives of public figures, such as George II and Sir Robert Walpole (and newspapers published odds on their deaths), a feature that might cause discomfort or unease to some.

A claim under an insurance contract is technically a claim for damages for breach of the insurer's indemnity and there is no right under English law to claim damages for late payment of damages. The courts have a discretion to award interest but these often do not reflect the insured's true loss. The Law Commissions propose to review the area this year.

Finally, the Project Group on a Restatement of European Insurance Contract Law has been working for a decade on the relevant principles, which were launched in September 2009 and can be applied by the parties to an insurance contract in place of a national law. The work is not finished and will require some form of legislation to become binding, but it is likely that such legislation will be introduced to allow them to operate efficiently.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.