BIBA response to The Law Commission Consultation Paper No.152 and The Scottish Law Commission Discussion Paper No 152

16th October 2012

The British Insurance Brokers' Association (BIBA) is the UK's leading general insurance organisation representing the interests of insurance brokers, intermediaries and their customers.

BIBA membership includes just over 2,000 regulated firms having merged with the Institute of Insurance Brokers (IIB) in November 2011.

General insurance brokers contribute 1% of GDP to the UK economy and BIBA brokers employ more than 100,000 staff.

BIBA helps more than 400,000 people a year to access insurance protection through it’s Find a Broker service, both online and via the telephone.

Brokers provide professional advice to businesses and individuals, playing a key role in the identification, measurement, management, control and transfer of risk. They negotiate appropriate insurance protection tailored to individual needs.

BIBA is the voice of the industry advising members, the regulators, consumer bodies and other stakeholders on key insurance issues.   BIBA provides unique schemes and facilities, technical advice, guidance on regulation and business support and is helping to raise, and maintain, industry standards. 

Damages for Late Payment

BIBA agrees that legislative reform is required and would like to see the insured’s entitlement to damages embodied in the law.

We also believe that the provision for interest to be paid to the insured when the
insurer fails to meet its obligations should be included.




Insurable Interest

BIBA believes that it should be left to insurers to decide what they wish to insure
and for the contract to be worded accordingly.

Policies and Premiums in Marine Insurance

BIBA agrees that the Marine Insurance Act 1906 should be repealed in accordance
with our response to questions 22.41 – 22.54

Thank you for taking the time to consider our response.

We look forward to continuing to work with the Law Commission on areas of consumer
reform and we would be delighted to meet up to discuss our response in more detail
if required.

Yours sincerely  


Steve Foulsham

Head of Technical Services

Tel:      020 7397 0234

Fax:     020 7626 9676

Email:  [email protected]






















Part 22

List of Proposals and questions.


22.1      We ask for comments and responses to the following questions:




             A statutory duty to pay valid claims


22.2.     Do consultees agree that legislative reform should provide that:


             (1)  Insurers should be under a contractual obligation to pay valid claims

                   within a reasonable time; and


                   Yes, BIBA agrees


             (2)   an insurer who fails to meet this obligation should be liable to pay

                    damages for any foreseeable losses which result? (5.9)


                    BIBA would like to see the insured’s entitlement to “damages”

                    embodied in the law following its reform.  The provision for

                    interest to be paid to the insured where an insurer fails to

                    meet its obligation should be included. Right to interest

                    already exists under Sprung –v- Royal.


                    In marine insurance, there is provision for interest to be paid on

                    claims settlements under policies subject to the Norwegian

                    Marine Insurance Plan 1996, which is commonly used in the

                    London market and the global marine insurance market. Under

                    the Plan, the Assured can claim interest 2 months from the date

                    on which notice of the casualty was sent to the insurer.  If the

                    sum insured is in a currency other than Norwegian Kroner,

                    the rate of interest is determined by LIBOR (London Interbank

                    Offered Rate) plus 2%.  A similar provision might be appropriate

                    under UK law.                


             The definition of a reasonable time:


22.3      Do consultees agree that:


             (1)    provided the insurer has acted reasonably in asking the insured for

                     information to enable it to investigate the claim, the time to investigate

                     should only begin once the insured has provided the insurer with all the

                     material information requested.            


                     Investigation should  not wait until all information is to hand.

                     Investigation can start earlier.


              (2)   the insurer should have sufficient time to carry out a full investigation

                     including time to seek information from third parties where necessary?




              (3)   once it has investigated, the insurer should assess the claim and arrive

                     at and communicate its decision promptly?


                     Agree and provide full reasons for declinature or refusals.




              (4)   overall, the insurer should have a reasonable time to investigate and

                     assess the claim, taking into account market practice, the type of the

                     insurance, and the size, location and complexity of the claim? 





              Business Insurance:   an excludable duty  


22.4       Do consultees agree that in business insurance:


              (1)    insurers should be able to limit or exclude their liability to pay damages

                      for late payment through a term of the contract; and


                      Disagree, as this is not fair to the customer.  In practice very few   

                      business insureds have the power to negotiate a change in insurers’

                      normal conditions.


               (2)   the term should only apply if the insurer has acted in good faith? (5.19)


                      Irrelevant if insurers can’t exclude their liability, otherwise

                      a lower threshold should apply. Would the legal precident of

                      Sprung –v- Royal Insurance 1999 achieve the test of good

                      faith?  Leave it to the Court to decide if fair and reasonable

                      in all the circumstances .



                Consumer insurance: a non-excludable duty


22. 5         Do consultees agree that in consumer insurance, insurers should not be

                 able to limit or exclude their liability to pay damages for late payment? (5.25)


                 BIBA Agrees.


                 A “shield” of good faith in business insurance


22.6          Do consultees agree that an insurer should not be entitled to rely on an

                 exclusion clause to limit liability for a delayed payment or a rejected claim

                 where it has not acted in good faith? (5.32)






22.7          Do consultees agree that where an insurer seeks to rely on an exclusion



                 (1)    the insurer should explain to the insured why the payment was delayed

                         or rejected; and


                         Yes.  This should also include where a payment is reduced.


                 (2)    the court should evaluate whether the insurer was acting in good faith,

                         given the circumstances and the information available to it at the time?



                          Should be “reasonable threshold” rather perhaps than good






                  The test for good faith


22.8            Do consultees agree that legislation should not include further guidance on

                   good faith in claims handling? (5.37)


                   Yes. BIBA agree.                       



                    Limitation of actions.


22.9             Do consultees agree that the limitation period in England and Wales to sue

                    an insurer for a claim should commence only after an insurer has had a

                    reasonable time to investigate and assess the claim? (5.47)


                    Disagree.  The limitation period should only run from when insurer

                    has repudiated claim, see response to 22.10 below.


22.10           Alternatively, should the limitation period in England and Wales commence:


                    (1)    at the time of loss; or




                    (2)    at the time the insurer’s decision about the claim was communicated to

                             the insured?  If so, please comment on when in the claim’s process

                             you think this should be. (5.48)


                             Yes.  See 22.9 above.



                     Damages for distress and inconvenience in consumer insurance


22.11            Do consultees agree that damages for distress and inconvenience or

                     discomfort should be available for consumer insurance policies? (5.55)


                     BIBA has no comment


22.12            Should this be achieved through statutory reform? (5.6)


                     BIBA has no comment.                      






                     Insurers’ remedies for fraud


22.13            Do consultees agree that a policyholder who commits a fraud should:


                     (1)    forfeit the whole claim to which the fraud relates




                     (2)    also forfeit any claim where the loss arises after the date of the





                     (3)     be entitled to be paid for any previous valid claim which arose

                              before the fraud took place?   (8.17)




22.14            Do consultees agree that the definition of “the whole claim” should be

                     left to the courts? (8.18)




22.15            Do consultants agree that the costs of investigating proven fraud should

                     be recoverable if the insurer can show that the costs were:


                     (1)      actually incurred?



                     (2)      reasonable and proportionate in the circumstances?  



                     (3)      not offset by any saving from legitimate, forfeited claims?




                     Express terms


                     Business insurance


22.16            Do consultees agree that in business insurance:


                     (1)     the remedies for fraud should be subject to an express term

                              of the contract?




                     (2)     A clause which changes the statutory remedies, should be

                               written in clear, unambiguous terms and specifically brought

                               to the attention of the other party? (8.27)


                              BIBA disagrees that this should be specifically brought

                              to the attention of other party. Too much burden on broker

                              or insurer. It should simply be made available to the policyholder

                              in the policy wording.

                              It should be apparent to anyone what the consequences of fraud





                      Consumer insurance


22.17             Do consultees agree that in consumer insurance, any term which

                      purports to give the insurer greater rights in relation to fraudulent

                      claims than those set out in statute would be of no effect? (8.30)


                      BIBA agrees otherwise it would be unfair on consumers or could

                      require insurers/brokers to specifically draw the variation to the

                      insured’s attention.




                      Insurers’ remedies for fraud: co-insurance and group insurance


22.18             Do consultees have evidence that the law of fraudulent claims by joint

                      insureds causes problems in practice?  If so, we would be grateful if

                      consultees could provide us with such evidence or examples, and also

                      provide us with information on how these issues were dealt with (either

                      by the firm concerned or by any other body). (9.21)


                      We would favour that joint insureds treated as co-insured for the

                      Courts to interpret. One case where the husband destroyed the

                      property and killed himself.  This would leave the widow under a

                      joint policy with no insurance payment but responsible for the

                      whole of the joint mortgage.  The husband also killed his wife so

                      no liability is on the wife’s estate.  Ongoing case.   


22.19             Do consultees agree that there is no need to legislate on the effect of

                      fraud by one joint insured on the other joint insured’s claim? (9.22)


                      See 22.18 above


22.20             Do consultees agree that a fraudulent act by one or more group

                      members should be treated as if the group member concerned was

                      a party to the contract?  (9.30)


                      See 22.18 above.










                      INSURABLE INTEREST 


                      Indemnity Insurance


                      A statutory base for insurable interest.


22.21             Do consultees agree that there should be a statutory requirement that

                      an insured has an insurable interest in the subject matter of the

                      insurance? (12.42)


                      BIBA disagrees.  Why should we insist on a statutory requirement

                      for insurable interest?  It will then require a definition and would

                      be difficult to change as commerce and procedures develop. Leave

                      it to insurers to decide what they wish to insure and for them to

                     word the contract accordingly.




                      Timing and consequences: 


22.22             Do consultees agree that:


                      (1)  to make a claim, the insured must show insurable interest at the

                             time of loss?


                              More appropriate for insurers.


                     (2)     an insurance contract is void for lack of insurable interest

                               unless there is a real probability that a party would acquire

                               some form of insurable interest at some stage during the life

                               of the contract?


                               More appropriate for insurers.



                    Repealing the Marine Insurance (Gambling Policies) Act 1909


22.23           Do consultees agree that the Marine Insurance (Gambling Policies)

                    Act  1909 should be repealed?  (12.53)


                    BIBA has no comment to make.


                    Repealing the Marine Insurance Act 1788



22.24           Do consultees agree that the Marine Insurance Act 1788 should be

                    repealed? (12.56)


                    BIBA has no comment to make


                    Retaining the provisions on insurable interest in the Marine

                    Insurance Act 1906.



22.25           Do consultees agree that, for marine insurance, sections 4 to 15

                    of the Marine Insurance Act 1906 should be left as they are?(12.59)


                    BIBA has no comment to make.



                    Defining insurable interest for indemnity insurance


22.26           Should the statute state that an insured has an insurable interest

                    if the insured has:


                    (1)   a right in the property which is the subject matter of the

                            insurance or a right arising out of a contract in respect of it:




                    (2)   a real probability either of an economic benefit from the

                            preservation of the insured, subject matter, or of an economic

                            loss on its destruction, which would arise in the ordinary course

                            of things; or


                     (3)   possession of the insured subject matter? (12.66)


                      BIBA suggests this is left for the parties to the contract to agree,


22.27             Should other forms of insurable interest be included in the list? (12.67)


                      BIBA suggest this is left to the parties to the contract to agree.



22.28            Should the list be non-exhaustive? (12.68)


                     Yes, in the interests of accidentally omitting something



22.29             Alternatively, should the definition of insurable interest be left

                      entirely to the courts? (12.69)


                      See 22.28 above.



                      Life insurance


                      Insurable interest based on economic loss


22.30             Do consultees agree that an insurable interest may be found

                      where there is a real probability that the proposer will retain an

                      economic benefit on the preservation of the lift insured or incur

                      an economic loss on the death?  (13.74)


                       Not appropriate for BIBA






22.31              Should the law require that the value of the policy is a reasonable

                       valuation, made at the time of the contract, of the possible loss (13.75)


                        Not appropriate for BIBA.   



                        Insurance without evidence of economic loss


                        CHILDREN UNDER 18


22.32               Do consultees agree:


                        (1)      that parents should be entitled to take out insurance on the

                                  life of a child under 18?


                        (2)      that the right would extend to the legal parents of a child and

                                  All those who treated a child as a child of the family? (13.84)


                        Not appropriate for BIBA.




22.33               Do consultees consider that there should be a cap on the amount for

                        which children’s lives may be insured? (13.85)


                        Not appropriate for BIBA


22.34               If the amount is capped we welcome views on what the amount should

                        be and on how it should be set.  (13.86)


                        Not appropriate for BIBA   






22.35                Do consultees agree that a person should have an insurable interest

                         in the life of another, irrespective of whether they can show economic

                         loss, where they have lived in the same household as spouses

                         (husband, wife or civil partner) during the whole of the period of five

                         years ending immediately before the contract of life insurance is

                         taken out? (13.103)


                         Not appropriate for BIBA





22.36               Should the statute clarify that trustees of pension and other group

                        schemes have an unlimited insurable interest in the lives of the

                        members of the scheme? (13.106)


                        Not appropriate for BIBA



22.37               Should an employer also have an unlimited interest in the lives of

                        its employees when entering into a group scheme whose purpose

                        is to provide benefits for its employees or their families? (13.107) 


                        Not appropriate for BIBA



                        Repealing section 2 of the Life Assurance Act 1774


22.38               Do consultees agree that section 2 of the Life Assurance Act 1774

                        should be repealed?  (13.110) 


                        Not appropriate for BIBA







                        A new statutory requirement for insurable interest


22.39               Do consultees agree that:


                        (1)   a new statutory requirement for insurable interest should replace

                               that set out in the Life Assurance Act 1774? 


                        (2)   if insurable interest is not present, the contract would be void but

                               not illegal?


                        (3)   for composite policies, where insurable interest was present for

                               some part of the insurance but not others, the policy should be

                               treated as separable? 


                        (4)   for contingency insurance, insurable interest must be present at

                                the time of the contract? (13.115)


                         Not appropriate for BIBA.


22.40                Should the statute provide a non-exhaustive definition of insurable

                         interest in contingency insurance? (13.116)


                        Not appropriate for BIBA





                       The need for a marine policy:  proposals for reform


22.41               Do consultees agree that:


                        (1)     a marine insurance contract may be enforced even if it is

                                 not embodied in a formal policy document ?




                         (2)    the statute should not require a marine insurance contract

                                 to be in any particular form?  (17.3)