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Insurance Bill [HL] HOUSE OF LORDS Special Public Bill Committee Insurance Bill [HL] Ordered to be printed 15 December 2014 and published 24 December 2014 Published by the Authority of the House of Lords London : The Stationery Office Limited £17.50 HL Paper 81 7KH6SHFLDO3XEOLF%LOO&RPPLWWHH The Insurance Bill [HL] was committed to a Special Public Bill Committee on 30 July 2014. The members of the Committee were appointed on 19 November 2014 (although Lord Sherbourne of Didsbury and Lord Tomlinson were appointed later). This Bill arises from the joint report of the Law Commission and the Scottish Law Commission entitled “Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment” (Law Com No 353 / Scot Law Com No 238). 0HPEHUVKLS Lord Ashton of Hyde Lord Carrington of Fulham Lord Davidson of Glen Clova Baroness Goudie Lord Lea of Crondall Lord McNally Lord Newby Baroness Noakes Lord Sherbourne of Didsbury Lord Tomlinson Lord Woolf (&KDLUPDQ ) 5HJLVWHUHG,QWHUHVWV Committee Members’ registered interests may be examined in the online Register of Lords’ Interests at www.publications.parliament.uk/pa/ld/ldreg.htm. Interests related to this Report can be found in the Appendix. 3XEOLFDWLRQV The report and proceedings of the Committee are published by The Stationery Office by Order of the House of Lords. All publications of the Committee are on the internet at www.parliament.uk &RQWDFWV All correspondence should be addressed to the Clerk of the Special Public Bill Committee, Legislation Office, House of Lords, London, SW1A 0PW. The telephone number for general enquiries is 020 7219 3153. CONTENTS Page Part I—Oral and Written Evidence Oral evidence from Lord Newby, Mr David Hertzell, Law Commission, 1 and Professor Hector MacQueen, Scottish Law Commission, 2 December 2014 Written Evidence from Lord Newby 12 Written Evidence from Law Commission, David Hertzell 12 Written Evidence from Professor Hector MacQueen, Scottish Law 17 Commission Oral evidence from Mr Kees van der Klugt, Lloyd’s Market Association 19 and Mrs Philippa Handyside, Association of British Insurers, 3 December 2014 Written Evidence from Lloyd’s Market Association and International 29 Underwriting Association of London Written Evidence from Association of British Insurers 45 Oral Evidence from Lord Justice Longmore, 3 December 2014 51 Written Evidence from Lord Justice Longmore 54 Oral evidence from Lord Mance, 9 December 2014 55 Written Evidence from Lord Mance 60 Oral Evidence from John Hurrell, Chief Executive, and Paul Hopkin, 61 Technical Director, AIRMIC (Association of Insurance and Risk Managers in Industry and Commerce), 9 December 2014 Written Evidence from AIRMIC 64 Graeme Trudgill, Executive Director, and Graham Terrell, Deputy 66 Chairman of the Liability & Accident Committee, British Insurance Brokers’ Association Written Evidence from British Insurance Brokers’ Association 68 Oral Evidence Michael Mendelowitz, Chairman, British Insurance Law 70 Association, 9 December 2014 Written Evidence from British Insurance Law Association 72 Written Evidence Aon Risk Solutions 79 Aon UK Limited 79 Aviva 80 BLM 82 Catlin Underwriting Agencies Ltd and Catlin Insurance Company 84 (UK) Ltd The City of London Law Society 87 Commercial Bar, Members 88 John Curran 92 Federation of Small Businesses 92 Financial Ombudsman Service 93 Financial Services Consumer Panel 93 Insurance Law Research Group, University of Southampton 94 London & International Insurance Brokers’ Association 97 Laura Macgregor, Professor of Commercial Contract Law at the Law 98 School, University of Edinburgh Mactavish 101 Marsh Limited 106 Chris McGloin 106 RGA International Reinsurance Company Limited 107 RSA Insurance Group plc 108 Willis Limited 110 Part II—Consideration of the Bill Proceedings on 15 December 2014 112 Appendix: List of Members and Declarations of Interest 127 Oral Evidence TAKEN BEFORE THE SPECIAL PUBLIC BILL COMMITTEE TUESDAY 2 DECEMBER 2014 Present Lord Woolf (Chairman) Lord Lea of Crondall Lord Ashton of Hyde Lord McNally Lord Carrington of Fulham Baroness Noakes Baroness Goudie Examination of Witnesses: DAVID HERTZELL, Law Commission, LORD NEWBY, and PROFESSOR HECTOR MACQUEEN, Scottish Law Commission Q1 The Chairman: Good morning and subject of extensive consultation by the Law welcome, particularly to our witnesses. We are Commission, and the Government also consulted grateful to them for coming and for assisting us. The on the text. The reforms are supported by a wide first witness that we shall hear from is Lord Newby, cross-section of the insurance market, including who is also of course a Member of the Committee. insurers, brokers, insurance buyers and lawyers. It That is an inevitable part of this procedure. First, considers two different topics: the law of insurance the members of the Committee will declare any contracts, which forms the core of the Bill, and interests that it is right to disclose. Perhaps we can some provisions allowing the Third Parties (Rights start with Baroness Noakes. against Insurers) Act 2010 to be brought into force. Baroness Noakes: Thank you Chairman. I would like to declare my interests as declared in the The current law in this area is set out in the register of interests, making particular reference Marine Insurance Act 1906. Given that the Act to shareholdings in Prudential and in Legal & is over 100 years-old, it is hardly surprising that General. Also, in consequence of my past and it is rather outdated. Its main fault, from the present directorships of listed companies, I am a modern perspective, is that it gives insurers many beneficiary of D&O insurance policies from other opportunities to refuse liability for claims, even companies. when that seems completely out of proportion to Lord Ashton of Hyde: I draw attention to my any wrong done by the policyholder. This leads to entry in the register in respect of my ownership many disputes and can mean that insurance fails to of Marsh shares. I will also benefit from a pension respond as expected, or at all. This, of course, can from Marsh, in nine years’ time I hope. Technically, significantly hinder UK business. The principles I do not think this has to be disclosed but in a underlying the existing law reflect a bygone era former life, just for information, I was the chief when underwriters were individuals who knew very executive of a Lloyd’s agency and reinsurance little about the marine activities undertaken by their company, a member of the Council of Lloyd’s and prospective policyholders and communications a non-executive director of a Lloyd’s agency. were poor. Other jurisdictions that in the past took The Chairman: I have no direct interests that I their lead from the UK and the 1906 Act have should declare, as far as I am aware. I turn to those long recognised that it no longer reflects modern on my left. realities. Countries such as the US, Australia, Hong Lord McNally: I have no interests. Kong and Japan have already introduced reforms. Baroness Goudie: No interests. The Chairman: Good. We can go straight on to UK law is, as a result, out of step with modern questions. Lord Newby, would you like to make an commercial practices in the bulk of the insurance opening statement? market worldwide. The Bill seeks to replace the Lord Newby: I would like to make a short opening most outdated of the existing rules with a more statement. Members of the Committee will be appropriate default regime—in an evolutionary pleased to know that I do not intend to repeat rather than revolutionary way—and to reflect the the speech that I made at Second Reading going best practice of modern insurers in the market. through all the provisions in the Bill, but I thought For example, in respect of the existing duty Members might find it useful if I outlined the high- on prospective policyholders to disclose risk level reforms that the Bill contains. It is a short, information to the insurer before the contract is principles-based Bill. It is modest but important, agreed, the Bill updates and replaces the current and clarifies and modernises the law governing a law by obliging policyholders to make a fair sector that is key to the UK’s financial strength. presentation of their risk. It retains the duty to The policy underlining the Bill has been the search for and disclose information about the risk, 2 ORAL EVI D E N CE TAKE N BEFORE T H E S P ECIAL P UBLIC BILL CO mm ITTEE 2 December 2014 David Hertzell, Lord Newby and Professor Hector MacQueen but provides businesses with further clarity as to David Hertzell: Thank you very much, Lord what amounts to a fair presentation. That includes Chairman. I plan in this opening statement to give new rules about whose knowledge is relevant some background as to why this has been looked at in a big company, reflecting the complexities of by the Law Commission, briefly to highlight what today’s corporates. There is also a new obligation the Law Commission is in case any members of on prospective policyholders to gather necessary the Committee are not familiar with it and to draw information about the risk from all parts of the attention to the main parts of the Bill. Please feel business, and from outside agents such as brokers, free to ask questions at that point if you wish to do and to ensure that this information is presented in so. a clear manner. The insurer has a new duty as well in that it now has to ask for more information if As Lord Newby said, the draft Bill is concerned the information it does receive suggests that further mainly with reforms to the Marine Insurance Act investigation is needed. 1906—a piece of commercial legislation drafted at the end of the 19th century and enacted at the The new rules envisage a two-way dialogue between beginning of the 20th century.
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