On January 14, 2014, the Law Commission and Scottish Law Commission published an initial draft of their Insurance Contract Law Draft Bill for limited consultation.
Following the drastic overhaul of pre-contractual duties of disclosure in consumer insurance contracts with the Consumer Insurance (Disclosure and Representations) Act 2012, the Law Commission and Scottish Law Commission have now turned their attention to ‘non-consumer’ insurance contracts (in other words: B2B insurance).
This first draft contains provisions on ‘the duty of fair presentation’, insurers’ remedies for fraudulent claims, damages for late payment by the insurer. Arguably, the most dramatic move is to abolish the remedy of avoidance for breach of the duty of utmost good faith. In return, however, a subtle system on ‘fair presentation of the risk’ is introduced. According to the Draft, the proposer (i.e., the business applying for insurance) is under a duty to fairly present the risk to the insurance company. This entails both a duty to disclose certain material information on the risk and a duty not to misrepresent the risk. So, much like under the ‘utmost good faith doctrine’ in the Marine Insurance Act 1906 (MIA), the duty of disclosure and duty not to make misrepresentations are blended into one. With the introduction of a ‘duty of fair presentation’, the sections 18, 19 and 20 of the MIA and related common law doctrines will be omitted/abolished.
How does the ‘duty of fair presentation’ work?
It takes some careful reading of the Draft to appreciate the structure of the duty. So, instead of giving a long-winding analysis of the Draft, I decided to visualise the duty in a number of slides. I hope they somehow simplify the accessibility of the Draft itself. Please feel free to reuse with courtesy reference.
Click here for the presentation: fair presentation
The duty of ‘fair presentation’: combining doctrines of misrepresentation and mistake?
The concept of ‘fair presentation’ is not only practically relevant for insurance contracts but may also prove to be doctrinally innovative. So far, the common law has not developed a general theory of a pre-contractual duty to disclose correct material information and to avoid mistake by withholding information or giving incorrect/misleading information. In fact, outside the utmost good faith doctrine there is no general pre-contractual duty to disclose material information. instead, the common law tends to treat issues of misrepresentation and mistake as separate and distinct. Perhaps the introduction of a duty to ‘fairly present the risk’ in insurance law can help to illuminate general contract law discussions in this respect.