Katy-Marie Wilson and Tracey Anderson
report on major changes to insurance contract law
Plans to review insurance contract law were announced in January 2006 by the English and Scottish Law Commissions (the commissions) and recommendations will be published in 2007.
All insurance contracts are based on the duty of utmost good faith. The applicability of the principle as regards disclosure of material circumstances and the making of material misrepresentations is set out in the Marine Insurance Act 1906. A circumstance is deemed to be ‘material’ if it is one that would affect the judgment of the (re)insurer in assessing the risk even if, ultimately, it would not have a decisive effect on the (re)insurer’s acceptance of the risk or on the amount of premium charged.
The remedy for breach of the duty is avoidance of the contract, irrespective of whether the breach was made innocently, negligently or fraudulently. However, before a (re)insurer can avoid, it must be shown that the non-disclosure/ misrepresentation actually induced the underwriter to accept the contract on the relevant terms.
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