The UK Insurance Act 2015: a restatement of marine insurance law.

• Author: Costabel, Attilio M.

1. Preamble II. A Tale of Parallel Lives A. Revolution Through Evolution B. The New (and improved) Law of Insurance 1. "The Duty Of Fair Presentation" : A Change Of Architecture 2. Test of materiality 3. Remedies for the Breach 4. The New Act Part 3: Warranties 5. The New Act Part 5: Good Faith. 6. The New Act Part 7: General provisions. 7. The New Act: Schedule 1 III. Analysis of The New Law A. Good Faith. B. Materiality. C. Misrepresentations D. Inducement E. The New Structure of Fair Presentation. F. The Remedies G. The Warranties H. Contracting Out IV. The Effect of Changes on Marine Insurance V. A Comparative View A. A Fresh Convergence B. A Fresh Divergence C. A Possible Solution of the New Divergence VI. Possible Influence of the New Act on American law-Conclusion 163 I. PREAMBLE

   The doctrine of utmost good faith is a fundamental tenet of the law of marine insurance.

   In both Britain and the United States (majority view) the law of marine insurance imposes a duty of "utmost good faith," or uberrimae fidei. This duty sets a high standard: the parties to contracts of marine insurance must not only avoid fraud and misrepresentation, but they are required to disclose voluntarily "every material circumstance." (2) This principle dates back to the seminal 1766 English case Carter v Boehm, (3) and has gradually been adopted by a majority of the American courts. (4) However, something unusual happened in February of 2015. On February 6, 2015, the First Circuit decided Catlin (Syndicate 2003) At Lloyd's v. San Juan Towing And Marine Services, Inc., (5) making the solemn announcement: "Although this court had not yet held definitively that uberrimae fidei is an established rule of maritime law, we do so now, thus joining the near-unanimous consensus of our sister circuits." (6)

   Not even a week later, on February 12, 2015, the Queen gave Royal Assent to the Insurance Act 2015, containing the opposite announcement: "Any rule of law permitting a party to a contract of insurance to avoid the contract on the ground that the utmost good faith has not been observed by the other party is abolished." (7) This contrast may look ironical at first sight, but a close analysis and a view from a proper perspective shows that it is not. This article supplies a history of the making of the Insurance Act, presents a summary and review of the Insurance Act, and examines the many innovations therein contained together with an updated comparative view of the American and British legal systems of marine insurance.

   After a wholesome fresh review of the famous opinion of the Fifth Circuit in Albany Ins. Co. v. Anh Thi Kieu, (8) this article suggests that Anh Thi Kieu was not, after all, so heretical as other circuits, (9) but rather a kind of "prophet in homeland" for the many affinities between Anh Thi Kieu and the newborn Insurance Act. This article concludes with a review of the possible consequences of the new United Kingdom legislation and of the possible influence on future American case law. The Insurance Act contains, in fact, many other revolutionary provisions, such as on warranties, actions against third parties, variations to insurance contracts, and more.

2. A TALE OF PARALLEL LIVES

   From Encyclopedia Britannica:

   Parallel Lives, influential collection of biographies of famous Greek and Roman soldiers, legislators, orators, and statesmen written by the Greek writer Plutarch near the end of his life. By comparing a famous Roman with a famous Greek, Plutarch intended to provide model patterns of behavior and to encourage mutual respect between Greeks and Romans. (10) Comparing American and English law of Marine Insurance could be a worthy addition to the Plutarch collection. Plutarch not being around, the task has been done by Professor Schoenbaum with his landmark minitreatise Key Divergencies Between English and American Law of Marine Insurance. (11) Chapter Five of the book, dedicated to the "Duty of Utmost Good Faith, " appeared first as an article in the Journal of Maritime Law and Commerce. (12) The theme of the book and of the article is that serious divergences have developed between American and English marine insurance law, and that basic reforms are needed in both English and American law. (13)

   We will return to these and many other valuable propositions at the conclusion of this work. Here we begin by supplying a background that would help us understand how it could happen that an American Admiralty court decided to embrace the doctrine of utmost good faith--of ancient British ancestry, an entrenched rule of Admiralty law, virtually at the same time as the doctrine was being jettisoned in England, its cradle and homeland. The reason is that neither Catlin nor the Insurance Act were made overnight, but were the product of parallel developments of views over values in the American judiciary and in the English legislation.

   In the United States, the courts, struggling to navigate around the unwelcome bounds of Wilburn Boat, (14) in quest of the mirage of uniformity of maritime law, ultimately developed a large consensus for treating utmost good faith as an entrenched Admiralty rule. (15) In England, Wilburn Boat was only an exotic name, and the House of Lords, not obsessed with federalism and uniformity, never had to struggle with the statutory rule of utmost good faith}6 Critics, however, were looming in the background for a long time.

   1. REVOLUTION THROUGH EVOLUTION

      The Joint Report on the Insurance Act 2015, by the British Law Commission and the Scottish Law Commission, (17) supplies a detailed overview of the evolution that led to the insurance Act 2015. Long before the Anh Thi Kieu rebellion in 1991 and the admonitions of professor Schoenbaum in 1998, the English Law Reform Committee issued as early as 1957 a Report recommending reform of Insurance law, (18) followed in 1980 by a report of the Law Commission. (19) This latter, the 1980 Law Com. No. 104, is particularly interesting. In 174 pages, the 1980 Report addresses most of the issues and problems of the insurance industry of the time, including Marine, Aviation, Transport, Life, Intermediaries and Reinsurance and its findings and recommendations are of amazing actuality today.

      Of all its wide contents, the 1980 Report dedicates sixty pages (about 35%) to proposed reform of the law of disclosure, beginning with an analysis of the state of the law on disclosures and concluding:

      ... defects in the present law provide a formidable case for reform. However, on consultation it was contended by some representatives of the insurance industry that reform was neither necessary nor desirable. One ground for this contention was the voluntary observance by insurers of the Statements of Insurance Practice. (20) The 1980 Report went on to say: Our conclusion is that the mischiefs which we have noted in the law relating to the duty of disclosure imposed upon applicants for insurance are not cured by the Statements of Insurance Practice. Part IV of this report is accordingly devoted to the examination of various ways in which the law of disclosure can be reformed. (21) The 1980 Report examined, among many others, issues of connection of disclosure with the loss, (22) discussed the merits and demerits of the principle of "proportionality" (23) and the consequences of breach of the duty of disclosure. (24) The 1980 Report also contains similar analysis of the state of the law on warranties, with similar critical approach. (25) Of particular interest is Part VII, dedicated to the "basis of contract" clauses, an issue that will become an important part of the Insurance Act 2015. (26)

      In spite of the finding that there was "a formidable case for reform" already in the early eighties, it was not until 2002 that the British Insurance Law Association issued a recommendation to the Law Commissions to study a possible reform of insurance law. (27) Both Law Commissions obliged, starting a joint review of insurance contract law in 2006, a project that took almost eight years of consultations with the industry, the market, the legal profession and the judiciary. (28)

      The project addressed a wide spectrum of insurance law including consumer-related issues (out of which, concepts of "proportionality" influenced the non-consumer related rules). A first report (29) was released in 2007, followed by a second in 2011 (30) and by a third in 2012 (CP3). (31) The final Report of the two Commissions on July 2014 (32) (hereinafter "Report") sums up and epitomizes all the developments of the project and is an invaluable source for interpretation and understanding of the Statute.

   2. THE NEW (AND IMPROVED) LAW OF INSURANCE.

      The new Act is composed of seven Parts and two Schedules. Part 1 supplies the main Definitions; part 2 deals with the Duty of Fair Presentation; Part 3 with Warranties; Part 4 with Fraudulent Claims; Part 5 with Good Faith and Contracting Out; Part 6 with Amendment of Third Party Rights; Part 7 with General Provisions; Schedule 1 with Remedies and Schedule 2 with Third Party Rights.

      1. "The Duty of Fair Presentation": A Change of Architecture

         Part 2 is captioned: "The Duty of Fair Presentation" and consists of seven Sections, from 2 to 8.

         1. Section 3--Disclosures and Representations.

            Section 3 opens a floodgate to a sea of change introducing the concept of "fair presentation," (33) a duty that runs through the whole Act under the name of "the duty of fair presentation," (34) consisting of disclosures and of representations that conform to certain standards. (35) Thus, fair presentation is one, which makes "disclosure of every material circumstance that the insured knows or ought to know," (36) or that gives "the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances." (37) Fair presentation is also one that makes the "disclosure in a manner, which would be...