Policyholders will be able to challenge attempts by insurers to refuse to pay losses just because the policyholder had breached an irrelevant policy term under plans put forward by the Law Commissions.It is hoped that the new clause will be included in the Insurance Bill which is making its way through Parliament and is expected to become law in March 2015. See Brunel News, October 2014.

At present an insurer is allowed to refuse cover if a policyholder breaches a warranty or other condition precedent in the contract, even where that term is irrelevant to the loss suffered. The Law Commission for England and Wales and The Law Commission for Scotland believe that this is unfair and proposed that the law was changed in recommendations made in July 2014.

The government omitted the proposed change from the Insurance Bill as it believed the Commissions’ original proposals would have created uncertainty. The Commissions have now drafted a new ‘Clause 11’ of the Bill to address this concern. The House of Lords Special Public Bill Committee set up to consider the new legislation is being asked to consider the new clause. It is hoped it will be agreed in time for inclusion in the final Bill.

One of the major concerns raised was the lack of certainty over how the original version of Clause 11 would be interpreted and applied by the courts,” said Nick Bradley of law firm, Pinsent Masons. “This concern has been explicitly addressed with additional wording in the new version of the clause, and the Commissions have reiterated that the provision’s effect is that insurers should pay a claim when the breach of a specific risk mitigation term is totally irrelevant to the loss that has taken place.

James Burgoyne, Director – Claims & Technical, Brunel Professional Risks said, “This is a welcome contribution for the Law Commissions. We always work hard to get claims settled on behalf of our clients. If the new Clause 11 is included in the Bill, it will give us another weapon to fight back with if a claim is unreasonably declined.

Law Commission has published information on Insurance Contract Law, together with the new Clause 11 and Stakeholder Note on its website. Commentary on the proposed changes has been published by Out-Law.com.