The changes are predicted to be made by the government following a scoping study recently issued by the Law Commission.
Ian Cranefield, insurance contract dispute specialist within the private client team at Nottingham law firm, Berryman, said: “Changes are ahead and Independent Financial Advisers would be well-advised to keep a close eye on the insurance industry and the Law Commission’s study. The current landscape is hugely uncertain and depends entirely on the nature of a claim, the policyholder, the value of the claim and the insurer involved.
“Litigation in many cases remains the single most effective tool to persuade a reluctant insurer of the merits and economics of a client’s claim,” Ian added. “The Law Commission may make recommendations to the government later this year which may make it fairer and easier for consumers to seek financial compensation when they find their insurance claims refused.”
Policyholders have, for some time, had the option of turning to the Financial Ombudsman Service (FOS) as an alternative to a legal remedy. “The FOS exists to limit potential litigation in their quest for ‘fairness’,” said Ian. “Regrettably, their application of discretion can often lead to capricious and unpredictable results. It could be said that the Ombudsman’s reluctance to apply strict legal principle epitomises the current law of insurance contract. Certainly, the rules which permit an insurer to walk away from all contractual responsibilities in response to an inadvertent slip during the completion of a proposal form, have been the subject of much criticism from, amongst others, the Law Commission and consumer bodies. It is against this background that the Commission is currently undertaking its scoping study.”
Currently, the rules of breach of warranty and non-disclosure can be powerful tools in the armoury of an insurer, should it choose to use them when facing a substantial claim for fire damage, or claims under income protection, mortgage protection or critical illness policies.
The Association of British Insurers has urged its members to have regard to their Codes of Practice, so as not to rely too strictly on their legal rights. However, when faced with a high value claim, this Code of Practice and the FOS complaints body are not always enough protection for an IFA’s clients.
“In the words of the Law Commission, ‘the existence of an ombudsman scheme should not be regarded as a substitute for law reform’,” said Ian. “So the Commission is likely to closely consider the law relating to breach of warranty and non-disclosure - vital issues in the world of protection insurance – and make recommendations to the government that these and a host of other areas are changed as part of a sweeping reform of the law.”
