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Law Commission proposes five-year non-contestability period

The Law Commission has proposed introducing a five-year non-contestability period in its Insurance Law consultation paper, launched today.

The summary paper states: “We think serious thought should be given to imposing a five-year cut-off period in respect of life insurance. Insurers would still be able to avoid for deliberate or reckless mistakes but not for purely negligent ones. The costs would need to be considered carefully but we have been told that they are unlikely to be excessive.”

The Commission aims to update Insurance Law to bring it inline with many of the Financial Ombudsman Service guidelines already being followed by the industry.

It proposes abolishing the consumer’s duty to volunteer information although they would still be required to answer questions honestly and reasonably.

The Commission proposes that, if the consumer made a deliberate or reckless misrepresentation the insurer can avoid the policy, but if the policyholder’s act was negligent there would be a compensatory remedy such as the insurer paying a proportion of the claim.

The Commission also proposes abolishing ‘basis of contract’ clauses. It feels a consumer’s statement of past or current fact made before entering an insurance contract should be treated as a representation not a warranty.

For business insurance the Commission proposes a default regime where the duty to disclose is retained but narrowed in scope so that the policies of those acting honestly and reasonably are not rejected, but the policies of those who have acted deliberately or recklessly may be.

But the Commission proposes that parties should be free to agree different rules, essentially allowing them to opt-out of the default regime.


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