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Commissions publish further insurance paper

19 July 2010

The personal liability of an insurance broker for paying premiums to an insurer is the subject of a further discussion paper published today by the Scottish Law Commission jointly with the Law Commission for England & Wales.

The paper, the eighth in a series dealing with reforming insurance contract law, askes whether there is still a justification for the rule, which applies whether or not the broker has received payment from the policyholder.

It explains that the law on this issue is contained in a "particularly complex provision", section 53 of the Marine Insurance Act 1906, which was based on a custom designed to protect insurers from the risk of
dealing with policyholders they did not know. However the section "runs contrary to the normal rule of agency law" – that an agent is not personally liable on a contract effected on someone else’s behalf. It also appears to apply only to marine insurance.

David Hertzell, the Law Commissioner leading the project for England & Wales, said: “The courts’ efforts to grapple with the complexities of section 53 have generated many inconsistent decisions – so it is difficult to be sure what the section means." He commented that it might be out of step with modern commercial practice.

Professor Hector MacQueen of the Scottish Law Commission added: “It is the policyholder who benefits from having insurance, so why should the policyholder not be liable for the premiums? This paper sets out our preliminary thinking on section 53 and asks whether there is a case for reform and, if so, what the solutions might be.”

Click here to access the paper. The Commissions seek responses by 19 October 2010.


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