UK: Law Commissions’ Proposals - Update

The English and Scottish Law Commissions’ plans to review insurance contract law were announced in January 2006. Recommendations will be published in 2007. Prior to that, a series of issues papers are being published to promote debate at open seminars organised by the Commissions. Papers on non-disclosure/misrepresentation (September 2006) and warranties (November 2006) have now been published.


Existing law

All insurance contracts are based on the duty of utmost good faith. The applicability of the principle as regards disclosure of material circumstances and the making of material misrepresentations is set out in the Marine Insurance Act 1906.

A circumstance is deemed to be "material" if it is one that would affect the judgment of the (re)insurer in assessing the risk even if, ultimately, it would not have a decisive effect on the (re)insurer’s acceptance of the risk or on the amount of premium charged.

The remedy for breach of the duty is avoidance of the contract, irrespective of whether the breach was made innocently, negligently or fraudulently. However, before a (re)insurer can avoid, it must be shown that the non-disclosure/ misrepresentation actually induced the underwriter to accept the contract on the relevant terms.

Proposed reform - consumer contracts

The most significant proposal is that the test of materiality be re-defined. In addition to proving actual inducement, the insurer should be required to demonstrate that:

  1. the insured appreciated that the fact in question would be relevant to the insurer (in the sense that it would have an effect on the insurer’s mind in assessing the risk); or, if not,
  2. a reasonable insured in the circumstances would have appreciated that the fact would be relevant to the insurer.

It is also proposed that the applicable remedy should depend on the proposer’s state of mind. Where he has acted fraudulently, the insurer should be entitled to avoid; where negligently, both parties should be put into the position they would have been in had the insurer known the true facts; where innocently, he should not be penalised.

Proposed reform - business contracts

The Commissions suggest that the duty of disclosure should continue to apply to business insurance contracts but that the "reasonable insured" test, set out above, should apply.

They also propose that the same remedies as are proposed in the consumer context should apply for fraudulent and innocent non-disclosure/misrepresentation. In the case of negligence, they query whether the insured should be required to demonstrate that it did not know what a person in its position would be expected to know, or that it would not know why an inaccurate response to a clear question was material.

The Commissions’ proposals raise numerous questions: who is the reasonable insured? How can this be determined when insureds vary so dramatically in terms of size, resources and familiarity with the product in question? How would the test work in the context of reinsurance?

However, in their warranties issues paper, they have revised the approach to business contracts, recommending that any new rules on misrepresentation/non-disclosure should be compulsory for business as well as consumer contracts.

The rationale for this change was that if (re)insurers could treat statements of fact as misrepresentations rather than warranties and stipulate in the policy the remedies available for misrepresentation, this would enable them to side-step the Commissions’ proposed new rules on warranties. Whilst this makes sense from a legal perspective, it increases the potential significance of the Commissions’ proposals on misrepresentation/non-disclosure for the market.


Existing law

There are two broad categories of warranty in (re)insurance contracts - warranties about past or present facts at the time when the contract is entered into and warranties about the insured’s future conduct during the contract period. It is a question of interpretation whether or not any particular term is a warranty.

It is well established that a breach of warranty, however minor, automatically discharges the (re)insurer from any further liability under the policy as from the time of the breach - regardless of whether the (re)insured acted fraudulently, negligently or innocently, and regardless of whether or not the breach was subsequently remedied.

The Law Commissions believe that because of the strict consequences which flow from a breach of warranty, the current law has potential to cause considerable unfairness to policyholders, particularly in the consumer market, where policyholders are unlikely to understand the significance of warranties. Few policyholders would expect (re)insurers to be entitled to reject a claim because of a breach of warranty which has no causal connection with the claim.

Their tentative proposals distinguish between warranties as to past or existing facts, and warranties as to future conduct.

Proposed reform - warranties as to past or existing facts

The Commissions recommend that, for consumer contracts, all statements of existing fact should be treated as representations rather than warranties and should be subject to the proposed new rules on misrepresentation. In relation to business contracts, they propose either that the position should be the same as for consumer contracts, or that (re)insurers should only be entitled to rely on a breach of warranty as a defence to a claim if: (a) the warranty has been set out clearly in a written statement provided to the (re)insured; and (b) the claim is causally connected with the breach.

Proposed reform - warranties of future conduct

The Commissions propose that (re)insurers should only be entitled to refuse a claim for breach of warranty if: (a) the warranty is set out in writing and included or referred to in the policy and, for consumer contracts, if the insurer has taken sufficient steps to bring it to the policyholder’s attention; and (b) the breach caused or contributed to the loss. The Commissions ask whether (re)insurers should be entitled to contract out of the causal connection rule for business contracts, and whether the same rules should apply not only to warranties, but to any term which purports to exclude or limit a (re)insurer’s liability for matters which increase the risk of loss (for example clauses limiting the scope of cover, or excluding certain activities from cover).

The Commissions also recommend that for both consumer and business contracts, a breach of warranty should no longer automatically discharge a (re)insurer from liability under the policy. Instead, they suggest that (re)insurers should be entitled to terminate cover for the future against pro rata refund of premium, but should remain on risk unless and until they have given notice of termination to the (re)insured.

‘Basis of the contract’ clauses

In a ‘basis of the contract’ clause, the applicant warrants the accuracy of the answers given in the proposal form and usually agrees that those answers form the basis of the contract. Their effect is to elevate statements in proposal forms into contractual warranties. There has been widespread criticism of such clauses because of the potential severity of the consequence of giving an inaccurate answer in a proposal form. In their latest proposals, the Commissions have renewed the call for these clauses to be abolished.

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.