Insurance Bill [HL]

Lord Davidson of Glen Clova Excerpts

Tuesday 29th July 2014 Grand Committee

[Lord Davidson of Glen Clova (Lab)]

My Lords, the Minister is to be commended for bringing this Bill before the House and agreeing the procedure for Law Commission Bills. A Bill modernising important elements of the UK’s insurance law is perhaps not likely to achieve public acclaim, but it genuinely contributes to strengthening the UK’s global position in insurance markets. One might also observe that, when the constitutional position of Scotland is under challenge, the Bill is a useful reminder of how Westminster legislation can have direct value to an industry that is a significant employer throughout the UK and a significant contributor to the UK’s overseas earnings. The noble Lord, Lord Sheikh, spoke eloquently identifying the importance of the industry to the UK.

The noble Lord, Lord Carrington of Fulham, described this as a modest little Bill. It is certainly a little Bill—and doubtless it has a becoming modesty—but it is a very useful Bill. He spoke to the question of its clarity. Unlike many Bills that seek to produce clarity, this Bill actually does. Again, that is to be commended.

Turning to the proposed duty of fair representation, I agree that a shift from a remedy confined to avoiding the contract, in the event of a breach of the duty of disclosure, is welcome. The experience of losing insurance cover as a result of a failure in disclosure, which may be wholly unconnected with the loss claimed, has often seemed unnecessarily harsh—or, to put it another way, to have worked disproportionately in favour of insurers. The widespread welcome for these reforms by both insurers and insured demonstrates perhaps that such a change is overdue. The Law Commission correctly identified that the “all or nothing” nature of the consequences of a breach of the disclosure duty actively promotes adversarial disputes, whereas the new proposal should encourage more rational resolution of claims.

One notes that contracting out of these provisions remains possible. Of course, one recognises that as being consonant with freedom of contract. The Law Commission identifies the possible use of “boilerplate clauses” to contract out of the consequences of this reform. The Bill’s use of transparency requirements, however, at Clause 16, should either discourage or make expressly clear where any such contracting out obtains, and that is a useful addition. It would be interesting to know whether the Government are proposing to monitor and test the efficacy of Clause 16 to make sure that it works and to avoid relentless contracting out simply by way of forms. Plainly, the widespread use of contracting out, were it to occur, would undermine much of the benefit of this reform.

The restriction of conversion of representations into warranties in non-consumer contracts and the abolition of avoiding contracts for breach of utmost good faith per se are also welcome changes. The application of the old law regarding “basis of contract” warranties—what in Scotland we still call “uberrimae fidei”—has sometimes left the insured with the sense that they have been cheated out of what they took to be their entitlement. Would it be prudent for some monitoring of contracting out regarding these provisions also to be undertaken?

Turning to fraudulent claims, I think that the greater clarity that the clauses concerning fraudulent claims provide is a useful addition to the armoury against the pernicious but not especially visible area of crime that is insurance fraud. Again, the noble Lord, Lord Sheikh, identified eloquently how this problem requires to be tackled. Fraud by a member of a group insurance scheme has raised a number of jurisprudential difficulties and paradoxes which the Bill seeks to remove—a plainly welcome development.

The statutorily stated exclusion of liability to pay fraudulent claims should have the positive effect of discouraging the notion that deliberately exaggerating an insurance claim is somehow fair game. Expressly identifying the point at which the insurer may treat the contract as terminated should further improve clarity. The past uncertainty of legal advice in this area—I declare an interest as being a member of the Bar, and doubtless some of my advice may not always have been pellucid—has not served either insured or insurers particularly well. On the other hand, the decision not to define “fraud” itself in the Bill is wise reticence where facts and circumstances are so variable and where new means of committing fraud tend to emerge often unforeseen, especially given the various technological developments that we are heir to.

In relation to the amendment to the 2010 Act, I have nothing further to add.

Before concluding, I observe that it is perhaps unfortunate that the Bill could not have found a way to cover the issue of late payment by insurers—I depart from the position adopted by the noble Lord, Lord Sheikh, in this regard. This is not simply a dispute on the grounds of ideology. A remedy for the insured whose businesses have been severely disadvantaged by late payment of a claim is available in Scotland, and that has been the case for many years. It is unfortunate that the remedy cannot yet be extended to the rest of the UK, and the noble Lord, Lord Sheikh, might, in his leisure time, like to examine some of the Scots law in this fascinating area.

However, from this side we welcome the Bill and are pleased to see the latest efforts of the Law Commission and the Scottish Law Commission regarding insurance being rendered into statute relatively speedily.