Preface
On 12 February 2015, in the UK, The Insurance Bill has officially enacted as The Insurance Act 2015, which shall apply to all insurance contracts entered into after 12 August 2016, unless otherwise stipulated or agreed.
Although it is labeled as insurance act, it is however worth noting that, on the one hand, it is primarily to empower the Report 2014, namely Insurance Contracts Law: Business Disclosures, Warranties, Insurers' Remedies for Fraudulent Claims, and Late Payment, surrendered by Law Commission of England and Wales, as well as The Law Commissions of Scotland (collectively, “The Law Commissions”), despite in part, with legislative effect; on the other hand, the implementation of The Insurance Law depends substantially on The Marine Insurance Act 1906, since the former is merely to provide change to the latter on Sections 33~34 and 17~20; moreover, the latter de facto stands as principle and authority equally applicable to non-marine insurance (Birds, 2016).
Notwithstanding, the Marine Insurance Act 1906 can hardly be called as “Code”, as its draftsman Sir Mackenizie Dalzell Chalmers illuminated in the preamble of the First Edition of Digest (1901), that “the purpose of the Act is to restate current law as accurately as possible without the slightest attempt to amend it”; therefore, the Act is also characterized as “a partial compilation of the common law” (Lord Mustill).
Looking back on the history of British insurance law, it is discernible that, embedding in the tradition of the common law, the development of British insurance law is in spontaneous process (Hayek) rather than by utopian project (Popper) and therefore fully manifests its resilience and dynamics.
Prior to 1906
In 13th century, marine insurance began to disembark in England along with Hansa Merchants. By then, Lombard Merchants had already played vigorous role in trade and even acquired a fief in the City of London from Henry IV. Lombard Street had, as being spurred and propelled by the merchants engaged in insurance business, ultimately become the Mecca of marine insurance. Despite the Lombards departed from England during the period of Queen Elizabeth I, marine insurance had flourished and bloomed in the city of London already. The earliest English policy in existence was issued in 1555, and the terms referred to the Antwerp Conditions. As time goes by, England gradually dominated marine insurance, and the Antwerp Policy of 1622 had to revert to Lombard Street practice.
In the subsequent two centuries, the scattered legal reports scarcely mentioned the cases of marine insurance, probably for the reason that the insurance disputes might be settled among merchants through arbitration rather than in law court. The first reported case by Coke occurred in 1589. Despite that Queen Elizabeth I established the Court of Policies of Assurance in the 43rd year of her reign (1601), the new court was far from success with no more than 60 cases be heard by 1720.
The countries in European continent had been keen to formulate various doctrines for marine insurance since the 15thcentury, culminating in the Ordonnance de La Marine which endorsed by Louis XIV of France in 1681. Most of the ordinances were absorbed as part of The Code de Commerce1807 in Napoleon times.
In contrast, the insurance industry in London has continually and vigorously developed in the footsteps of brokers who constantly shuttled through various cafes. The most prominent Lloyd's Cafe first appeared in February 1688. While having changed in locations several times, it persisted in providing a venue for insurance business and ultimately erected the Lloyd's market as lighthouse in insurance business. The insurance practices in the 1690s were comparatively standardized, which functioned in providing stability and impartiality to insurance dispute resolution. Gradually London had acquired preeminent position of (international) marine insurance center and introduced the Lloyd's SG Policy since 1779, which converted to Schedules of the Marine Insurance Act 1906 and bears considerable influence till now.
It is perceptible that, in compatible with the development of marine insurance, the law marine insurance has progressively become convoluted and delicated. However, prior to 1906, the UK had promulgated two Marine Insurance Actsrespectively of 1745 and of 1788, even though the aim of these two statutes was to impede the use of insurance for gambling and therefore could not be treated completed legislation.
In the process of evolution, Lord Mansfield played an unparalleled role. Since being nominated as the Chief Justice of the High Court in 1756, he had been injecting into marine insurance law with knowledge and enthusiasm, making it more matured and steadier. Particularly, Lord Mansfield established plenty of fundamental principles for insurance, for example the principle of utmost good faith [uberrimae fides] (Carter v. Hoehm (1766)) and the definition of warranty (Pawson v. Watson (1778)), which lay the steadfast cornerstone of modern insurance law.
From 1906 to 2016
The continuous industrial and professional contributions were in the spirit of mutual integration of the success of insurance till the end of the 18th century. In 1894, Lord Herschell, Chancellor of the Privy Council, presented a bill to the House of Lords on compilation of the common law of marine insurance but being rejected. Since then, the bill had been scrutinized by several preeminent commercial, legal and insurance groups. On 21 December 1906, over ten years of deliberation, the bill had been converted to the enactment, namely the Marine Insurance Act 1906, and came into force as of 1 January 1907.
Since then on, the law has undergone trials and challenges but has stood the test more than one century. Particularly, except for certain substantial corrections or legislative amendments in relation to individual insurance as consumers, for example the Road Traffic Act 1988, Consumer Insurance (Disclosure and Representation) Act 2012, the rest of the law has always been regarded as benchmark.
In view of the steadfast position of the London insurance market and the corresponding sophisticated common law system, the international community appealed to the UK to refine the legal system or even the market mechanism of insurance. To this end, in 1982, the United Nations Conference on Trade and Development Secretariat first submitted the Legal and Documentary Aspect of the Marine Insurance Contract, the United Nations Conference on Trade and Development published the UNCTAD Model Clauses on Marine Hull and Cargo Insurance in 1989, then in 2000, the International Maritime Organization (CMI)) published The CMI Review Initiative - Marine Insurance. The mentioned documentations aver that, without exception, the commercial practice and legal context in London are unduly favorable to insurers and primarily concentrated on disclosure, representation and warranty. In fact, none of these reports can be detached from the commercial practice and legal framework of the UK insurance market.
In response, the Law Commissions initiated to scrutinize primary subjects in insurance law from the late 1870s and published the Insurance Law: Non-disclosure and Breach of Warranties in 1980. The report demonstrates the harshness of the existing presentation and warranty rules imposed on the insured; however, the countermeasures were no more than to implore self-regulation by the insurance industry.
Meanwhile, as the core stage for the establishment of common law, the UK courts have persevered in loosening the rules of disclosure and warranty in the Marine Insurance Act 1906. In the case Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501, the House of Lords set up double criterion for “crucial circumstances” to reduce the scenario of misrepresentation. Meanwhile in the case HIH Casualty and General Insurance Co v New Hampshire Insurance Ltd [2001] Lloyd's Rep IR 596, the Court of Appeal limited the application of breach of warranty in terms of timing and scope.
Nevertheless, the most profound impact on the London insurance industry appeared to be that, Australia, a long-lasting follower of English law, changed course and enacted the Insurance Contract Law in 1984, which substantially revised the regime governing the issues of disclosure, presentation and warranty. At the beginning of 2000, the insurance and legal professions in London urged Professor Robert Merkin to undertake a comprehensive revision of the Insurance Law reform in Australia. Professor Merkin's surrendered a report of hundred pages and adopted a cautionary title as the Reforming Insurance Law: Is There a Case for Reverse Transportation, which implied that the London market might have to humbly seek advice from its followers as who have become a rising star.
Britain's pragmatic philosophy and spirit of compromise played a decisive role at the critical moment. On the one hand, the Law Commissions has conducted extensive and profound discussions on insurance law and other subjects over the past three decades, which involve insurable interests, the principle of good faith (disclosure and presentation), warranties and conditions, insurance fraud, and insurance delays. On the other hand, the proposed amendments in 2015 only resorted to the principle of good faith, warranties and conditions, and insurance fraud, which ended up the main structure of the Insurance Act 2015. Behind the embracement of the Act by the London market, it is detectable that its intrinsic motivation is to support its world-leading insurance industry (Professor Hector MacQueen, Law Commissioner).
After 2016
Compromise is double-faced of wise and of cunning. With the advancement of insurance technology, like in the respect of risk assessment, it can be boldly asserted that the London insurance market would no longer depend on active or proactive behavior such as disclosure, presentation and warranty by policyholders. On contrary, it is possible for insurers to facilitate defenses to or evasion of claims by introducing new fraudulent claim regulations. Moreover, at the decisive moment towards the law, the provision of delay payment has been removed. After all, the primary responsibility of the London market is to indemnify in due course. The dominance by the London market over the global insurance industry would remain unshakable unless such rigid restriction could be imposed on the London market. As a dote of placebo the British government directed the Law Commission to conduct an in-depth analysis and search for resolution regarding delay payment.
Perhaps, the next amendment to the insurance law could take place another one hundred years later. It reflects that, in the UK, commercial law is the recognition of commercial practice and custom, rather than the design and create of business order.