1906 get-out law to be cut

The 1906 law that allows insurers to reject claims if the policyholder did not supply relevant information even if not asked to do so, could be overturned, the Observer reports.

The Observer says: “Claims made on motor, travel, household and health policies are routinely turned down by some insurance companies under an anomaly in the law, which dates back to 1906 and puts a "duty of disclosure" on the policyholder.”

"At the moment, the obligation is on you, the consumer, to disclose all the facts that might have an effect – decisive or not – on the mind of a prudent underwriter in assessing the risk," says Peter Tyldesley, a lecturer at the University of Manchester and insurance law specialist. "This is setting consumers up to fail."

Innocent mistakes

The Law Commission will present a draft bill to parliament on 15 December that will propose the law is changed to abolish the duty of disclosure – volunteering information without being asked – to providing only the information asked for by insurers.

It will also propose changes to the way insurance companies deal with policyholders when make an innocent mistake.

"The issues of non-disclosure and misrepresentation have been running for many years," says Tamara Goriely of the Law Commission. "We think the law needs to be changed so that it is clear, accessible and easy to understand."

Ombudsman takes broader view

The Financial Ombudsman Services deals with 1,000 non-disclosure cases a year and often then rules in a policyholder's favour. "We've always had a broader view of disclosure than the courts," says an FOS spokesman. "If the insurer hasn't been specific enough in its questions, for example, we might rule in the consumer's favour."

A spokesman for the Association of British Insurers (ABI), said: "We don't believe there is any need for intervention as far as non-disclosure is concerned. Where there are areas of concern, we believe these have been addressed. We have introduced a code of practice for critical illness insurance and the number of complaints has reduced significantly."