REFORMING INSURANCE LAW: - Law Commission

35 on insurers to notify the assured “clearly” of any deviation from standard cover. This is to be
replaced by a new formulation in s 35(2A) of communication in a “clear, concise and effective”
manner. The same formulation is adopted in respect of notifications under s 37 (new s 37(2)) in
respect of non-prescribed policies. The suggestion in Treasury Review II that amending ss 35 to
37 to allow compliance with product disclosure requirements under the Corporations Regulations
to suffice has not, however, been adopted: changes to the Corporations Regulations which take
effect from 20 June 2007 are to require non-life insurers to disclose non-standard or unusual
policy terms in their product disclosure statements, so that changes to the 1984 Act are not
necessary. 496
Late payment of premiums
8.30 Sections 39 and 62 of the 1984 Act grant relief to an assured who is behind with
instalments of his premium. 497 Under s 39, where a policy contains a provision which removes
the liability of the insurers to meet a claim for non-payment of a premium, the insurers may
invoke the term only if it had been drawn to the assured’s attention at the outset and the
instalment is 14 days’ late. If the policy goes further and confers upon the insurers the right to
cancel the policy for non-payment of the premium, that right can, in accordance with s 62, be
exercised only if the term had been drawn to the assured’s attention at the outset and that at least
one instalment of the premium has remained unpaid for at least one month. In the last 20 years it
has become standard practice for instalments to be generated automatically by direct debit or
standing order arrangements, so that if anything goes wrong there is likely to have been some
error either at the assured’s bank or in the insurer’s own accounting department. As a result,
these measures are probably no longer necessary, 498 although it would be a useful reform to
reverse any rule of law which treats the bank 499 as the agent of the assured for the purpose of
paying instalments.
Claims made and notified liability policies
8.31 Section 40 of the 1984 Act addresses a problem which has not arisen in England. In recent
years it has become the practice to issue liability policies covering professional negligence risks
on a “claims made” basis: these types of policy have become increasingly popular, and in the UK
in the last decade they have even been used in employers’ liability covers, albeit with doubtful
legality given the possibility of a conflict with the requirements of the Employers Liability
(Compulsory Insurance) Act 1969. The essence of a claims made policy as the concept is
understood in the UK is that the insurers are liable for any claims first made against the assured
by a third party during the currency of the policy, subject to the obligation of the assured to
notify the insurers of any claim either within a given period or as soon as is reasonably
practicable: it is not essential for the assured’s notification to have taken place inside the policy
496
The question whether the same obligation should be extended to life insurers is out for consultation.
497
ALRC 20, paras 253-254.
498
The one context in which they might be useful is marine, where the broker rather than the assured pays the
premium. However, the 1984 Act does not apply to marine insurance.
499
Or, in marine, the broker.
94