The law may say one thing and voluntary codes another, often diametrically opposed
The UK’s law on insurance contracts was designed for ships and shipping, and has not changed materially in over a century. Many aspects have been
criticised as being too harsh on policyholders, incoherent and outdated. Now an AIRMIC affiliate member, Law Commissioner David Hertzell, is helping to shape more equitable, clear and modern insurance legislation.
Hertzell was a partner and managing partner of the London law firm Davies Arnold Cooper (DAC) where he
specialised in professional indemnity, reinsurance, captive insurance and regulatory issues. He was also responsible for DAC’s insurances and its Guernsey captive, which brought him into contact with AIRMIC. He joined the association and became chairman of its captive and risk financing focus group.
Having decided that he would like the challenge of a new role, Hertzell was appointed to the Law Commission, which is an independent body that advises the Government on law reform. He inherited its review of insurance contract law, begun the previous year. He describes it as a rare opportunity. There is almost universal support for reform of the law.
Hertzell explains, ‘The Marine Insurance Act 1906 was designed for ships and shipping, but it has become the law for insurance generally, which creates difficulties. In 1906, there was not that much non-marine insurance compared to today. Economic
development has overtaken the law.’
In the absence of more suitable
legislation, the insurance industry has developed voluntary codes of practice but Hertzell says: ‘The industry has recognised that the law may say one thing, and the voluntary codes another, often diametrically opposed.’
In its work so far, the Commission has concentrated on pre-contract legal issues, and it has pushed ahead with the consumer aspects because there is such a large amount of consensus on the need for, and nature of, the changes. The Commission hopes to produce a final report and draft bill by this time next year. Shortly, however, the Commission will publish its report on pre-contract issues relating to business customers, and a further issues paper on post-contractual issues, such as damages for late payment and post-contract duties of good faith.
Hertzell gave up his active AIRMIC membership on becoming a Law Commissioner, though he remains an affiliate and retains a great regard for the expertise of its members, from whom he learned when he was running the DAC captive. He is keen to have their comments on the law reform proposals as they evolve, with the aim of delivering the final recommendations in 2010 or 2011. Then it will be up to the Government to decide whether they are turned into legislation.
The responses from AIRMIC members, Hertzell says, have been very helpful. He acknowledges that legal reform is a slow process, but urges risk managers to participate, even if the Commission does not come to the exact conclusions they would like. ‘It is not a democracy,’ he says, ‘but we are influenced by a lot of people saying the same thing.’
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