Lloyd's Maritime and Commercial Law Quarterly
THE LAW COMMISSION’S PROPOSALS FOR THE REFORM OF AN INSURER’S REMEDIES FOR FRAUDULENT CLAIMS MADE UNDER BUSINESS INSURANCE CONTRACTS
Simon Rainey*
This paper considers the proposals of the Law Commission, as part of its Insurance Contract Law Reform Project, to reform the Marine Insurance Act 1906 relating to an insurer’s remedies for fraud and, in particular, s.17 relating to the application of the duty of utmost good faith in relation to such remedies. The current tension in the cases between the endorsement of the operation of s.17 in the post-contractual context and the impact of the draconian remedy of avoidance of the contract under s.17 forms the backdrop to the proposals is considered and its effect on the clarity and certainty of the existing law is summarised. The content and desirability of the proposals of the Law Commission is analysed in the context of remedies in relation to the fraudulent claim itself, the contract of insurance and valid claims preceding and subsequent to the fraud. It is concluded that, viewed overall, the proposals constitute a welcome clarification of the law.
I. THE BACKGROUND TO THE LAW COMMISSION’S PROPOSALS1
Fraud on the part of an insured in the making of a claim under a policy of insurance is a problem which has long bedevilled the insurance industry and has reached epidemic proportions, particularly in the consumer field, leading to the creation in 2012 of the Insurance Fraud Enforcement Department and of the Association of British Insurers’ own fraud database in its Insurance Fraud Register. From the fully fledged scheme to engineer
* QC, Quadrant Chambers, London; Honorary Professor of Business, Economics and Law at the University of Swansea.
This paper was presented as part of a Symposium held at the Association of British Insurers, London, by the Institute of International Shipping & Trade Law, University of Swansea, on 25 April 2013.
The literature on the topic is extensive and space permits only a short summary by way of background to the Law Commission proposals on this subject. See particularly: Gilman, Merkin, Blanchard et al. (eds), Arnould’s Law of Marine Insurance and Average, 17th edn (hereafter “Arnould”), ch.18(3); H Bennett, The Law of Marine Insurance, 2nd edn (Oxford University Press, 2006), ch.16.4; MA Clarke, The Law of Insurance Contracts (loose leaf) (Informa) (hereafter “Clarke, LIC”), ch.27, esp. [27.2C]; MacDonald Eggers, Picken and Foss, Good Faith & Insurance Contracts, 3rd edn (Informa, 2011) (hereafter “MacDonald Eggers”), ch.11. Of the many articles, particular note may be made perhaps of the following: Thomas, “Fraudulent insurance claims: definition, consequences and limitations” [2006] LMCLQ 485; J Davey, “Unpicking the fraudulent claims jurisdiction in insurance contract law: sympathy for the devil?” [2006] LMCLQ 223; MacDonald Eggers, “Utmost Good Faith and the Presentation and Handling of Claims”, in B Soyer (ed.), Reforming Marine and Commercial Insurance Law (Informa, London, 2008), ch.9; Sir R Aikens, “The post-contract duty of good faith in insurance contracts: is there a problem that needs a solution?” (2010) 119 JBILA 3.
1. As set out in the Law Commissions, Insurance Contract Law: Post Contract Duties and other Issues (LCCP No 201: ScLCDP No 152: 2011) (hereafter “LCCP 201”), Parts 6–8.
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