ABSTRACT
The Law Commission has long desired to reform the duty of utmost good faith borne by the parties to the contract of insurance. The attempts at law reform began in the 1950s and were followed by a review of the law in the 1980s. However, it was after the courts began in the late 1990s to express hostile views towards the draconian remedy of avoidance available to an insurer who had received less than a fair presentation of the risk that the Law Commission began its most determined effort to change the law. Those efforts were repaid by the passage of the Insurance Act 2015 (“the 2015 Act”) in February 2015. As far as the duty of utmost good faith is concerned, the 2015 Act applies to business (or non-consumer) insurance, 1 and entered into force on 12th August 2016, applying to all contracts of insurance concluded on or after that date and to all variations to insurance contracts, where the variation was agreed on or after that date, even if the insurance contract was agreed earlier. 2
The 2015 Act was passed as a non-controversial bill following consideration by a House of Lords committee and a cursory glance by the House of Commons. The 2015 Act was passed to give effect to many of the recommendations made by the Law Commission in its report of July 2014. 3 Both the Law Commission and Parliament explained 4 that the motivation for the change in the law as it applied to the assured’s duty of disclosure (under the broader duty of utmost good faith) was to make the law less insurer-friendly, meaning that the remedies for a breach of the duty should be proportionate to the seriousness of the breach of duty. 5 This was the driver behind the reform of the law. It was also the focus of
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the courts’ criticism: the remedy of avoidance, which was all-or-nothing, was seen to be wholly disproportionate for some – not all – failures on the part of the assured to provide full and accurate disclosure of the risk prior to the conclusion of the insurance contract. The criticism was both understandable and curious. It was understandable in the context of simple non-disclosures, because such nondisclosures could result from forgetfulness as much as carelessness. It was curious in the context of misrepresentations, because the law of misrepresentation which applies to all contracts is that the representee can avoid or rescind the relevant contract if it was induced by the making of a material misrepresentation. The representee’s remedies were, and are, subject to the Misrepresentation Act 1967, which has been held to apply to misrepresentations made by the parties to an insurance contract as much as any other contract, but which has also been held to be inapplicable to non-disclosures. 6
In any case, the Insurance Act 2015 has been passed for the nominal reason that it will make the position of the assured more advantageous and the position of the insurer less advantageous. Notwithstanding the criticisms of the remedy of avoidance, the 2015 Act fails to achieve Parliament’s objective with respect to the duty of utmost good faith. While it secures a fundamental change to some aspects of the duty of fair presentation, it leaves the law largely as it was before the entry into force of the 2015 Act. One fundamental change, principally to the knowledge of the assured and the insurer in respect of the assured’s duty of disclosure, makes the assured’s duty more, not less, burdensome. Moreover, although the 2015 Act modifi es the remedies available to the insurer, the modifi cations may still operate disproportionately in favour of the insurer.
