New law on insurance disclosure

The Law Commission is reviewing an aspect of insurance contract law that has resulted in huge numbers of claims being rejected over the years.

The law covering insurance claims dates back 100 years and the Commission believes it needs to be updated to reduce the number of claims refused because consumers have made unintentional errors in completing proposal forms. The consumer has a duty of disclosure when completing an insurance proposal form.

The Law Commission is dissatisfied because policyholders are currently expected to answer the questions asked by their insurance company and in addition, disclose any other facts that may be relevant to the insurer. Policyholders may be denied claims even when they have acted honestly and reasonably, as a question included in a proposal form may be unclear or outside their knowledge. In addition, insurers can refute claims even if the errors or omissions would have had no effect on the policy or the premium.

Law Commissioner David Hertzell argues that consumers don’t necessarily know what factors the insurer will take into account when accepting a risk, and can therefore easily slip up on disclosure.

The Law Commission is presenting a draft bill of reform for England, Wales and Scotland to Parliament.

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