The Law Commission has published a summary of the responses received to its consultation on reform of section 53 of the Marine Insurance Act 1906. The majority of responses received were in favour of reform.

The principal effect of section 53(1) is that, at least for marine insurance, the broker is directly responsible to the insurer for payment of premium due, whether or not the broker has received payment from the insured.  As part of its wider consultation on reform of insurance contract law, in July 2010 the Law Commission published an issues paper advocating reform of section 53. To read more on the issues paper see our previous Law Now.

Responses to the consultation

The Law Commission received responses from insurers, brokers and legal professionals. The consensus was that the scope of section 53(1) is unclear and the provision should be repealed.

The majority of consultees agreed with the Law Commission's proposals:

  • that the default position should be that it is the policyholder rather than the broker who is liable for the premium; and
  • that it should be possible for the parties to contract out of the default position.

The Law Commission's issues paper had also asked whether there should be an obligation on insurers or brokers to notify insureds when premium is not paid on time or at all. The concern that the Law Commission was seeking to address was that the insured may pay the premium to the broker but not be aware that the broker has not paid on the premium to the insurer. The majority of responses received by the Law Commission were not in favour of imposing a statutory duty to notify and there was general agreement that notification was a matter to be dealt with by contract.

The road ahead

The Law Commission's consultation on section 53 is part of a wider consultation on reform of insurance contract law that it is undertaking jointly with the Scottish Law Commission. As part of that process the Law Commission published a main consultation paper on misrepresentation, non-disclosure and breach of warranty in 2007 and has issued a number of short issues papers on other issues where it considers there may be a need for reform. The paper on section 53 is one of these issues papers and the Law Commission has announced that it intends to hold a second main consultation later this year in which it will set out focused proposals based on the various issues papers and the responses received.  It seems likely that repeal of section 53 will be included in the Law Commission's proposals.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 11/05/2011.