Insurance Contracts

HC Deb 03 June 1981 vol 5 cc1029-43 10.48 pm

The Under-Secretary of State for Trade (Mr. Reginald Eyre)

I beg to move, That this House takes note of the European Community Documents Nos. 8144/79 and 4124/81 on insurance contract law and of the Department of Trade's explanatory memoranda of August 1979, 31st October 1980, and 12th February 1981; and welcomes the Government's intention to ensure that the provisions of the proposed directive should take account of the scope for reform of United Kingdom law identified in the Law Commission's Report on Insurance Law: Non-disclosure and Breach of Warranty, Cmnd. 8064. The documents we are considering all deal with a proposal for harmonisation of the laws of member States on insurance contracts. The Government welcome the views of right hon. and hon. Members on these draft instruments. Their consideration in a Council working group is at an early stage. We hope at least to complete the first reading during our Presidency in the second half of this year.

We are also in the course of considering the Law Commission's related report on non-disclosure and breach of warranty, and the Scottish Law Commission's recent comments, and we are still in the process of collecting views. It is, therefore, particularly useful and timely for the House to consider this topic.

I shall in general be referring to document 4124/81, as this is the latest version of the directive.

I shall briefly set the context. First, I shall deal with the development of the European insurance market. The EEC Treaty provides for freedom of establishment and freedom to provide services for all Community nationals. Nevertheless, progress in making these freedoms effective for insurance has been slow. Rules making freedom of establishment effective now cover most insurance, but those making freedom to provide services effective do not. For that, we need the so-called non-life services directive. Although that draft directive was put to the Council of Ministers in 1975, it has yet to be adopted. The Government are doing everything possible to speed up the process.

The Commission considered that, if freedom of services was to be exercised without distortion of competition, insurance contract law in the Community should be harmonised. The United Kingdom has never been persuaded by that argument, and developments in the evolution of the two draft directives have weakened it still further. In particular, the draft services directive now mainly applies to large business risks, while the draft contract law directive primarily affects consumer insurance contracts. This weakening of an already tenuous link conditions our attitude to the directive. We do not see it as necessary or even significant for the opening up of the European Community insurance market, or as likely significantly to reduce any important barrier to trade.

It is because the directive was first and foremost seen as a harmonisation measure to eliminate barriers to trade and distortions of competition, and therefore requiring uniformity, that it seeks to preclude member States from legislating further within the area that it covers to improve the lot of the consumer. The Government find it hard to accept that this would be a desirable or justifiable restriction on Parliament's freedom to improve the law.

Nevertheless, a Community directive on this subject could have value. It is in the interests of a healthy European economy that policyholders should be free to shop around for their insurance throughout the Community, and in such circumstances it would clearly be desirable to have some general minimum standard of policyholder protection. There is, therefore, a case for a directive, but it should, in our view, be a minimal one, leaving member States free to improve on its provisions, though not to fall below the minimum standard that it lays down. Be that as it may, we need in any case to consider what standards of protection—and of obligation—we wish to provide for policyholders and insurers.

The report last year of the Law Commission on insurance law—"Non-disclosure and Breach of Warranty"—is, of course, of major importance in this context. The Law Commission concluded that the law in this area is defective and that reform is necessary and desirable. My Department's consultative note on the report said that we found its arguments for this convincing. The Law Commission also criticised a number of the main features of the draft directive, and here, too, in a number of instances we expressed considerable sympathy with its arguments.

The Government have not, as I said, reached any final conclusions, but, in running briefly through the directive, I shall try to give an indication of our reactions so far.

The first and central question is that of the duty to disclose. Under our law, and that of many other member States, the insured has a general duty to disclose to the insurer every circumstance which is material to a proposed contract. Failure to do so can lead to repudiation of the contract by the insurer. In some other countries the penalty can be less stringent, depending on the circumstances, and I shall come back to that.

The definition of the duty which the proposer must fulfil if he is to have a valid claim on his insurer is set out in article 3.1. The earlier draft of this was criticised by the Law Commission and by the European Parliament and, in our view, rightly so. The Commission's redraft is a great improvement. It introduces the concepts of reasonableness, of constructive knowledge and of the prudent insurer. We are at present inclined to favour it in principle, while trying to have it refined further in ways suggested by the Law Commission. But it is already clear that a number of other member States prefer the original. A more general provision, leaving precise terminology to member States, would therefore be preferable and probably easier to agree upon.

The second major question is that of the penalty for failure to disclose material facts. Under our present law insurers can, in such circumstances, avoid the contract ab initio, irrespective of whether the insured has acted innocently, negligently or fraudulently. The draft directive, however, in article 3(3), imposes no penalty for innocent or immaterial failure and distinguishes, broadly speaking, between negligent and fraudulent behaviour. In the case of fraudulent failure, the insurer may avoid any claim. In the case of what amounts to negligent failure, the principle of proportionality would apply.

The Law Commission has criticised the principle of proportionality as unworkable in practice although attractive in principle. The Department's note described these criticisms as formidable, and we shall be deploying them in Brussels. It is true that an important change on that has been made in the Commission's redraft. It remains to be seen how member States react to the Commission's amendments. We are not at present determined to oppose proportionality, but we shall need a great deal of convincing that, in a form acceptable to others, it can work.

The directive raises a number of other questions, many of which seem to us to cover matters which can and should remain within the individual competence of member States. They are merely likely to divert discussions in Brussels from the central questions of the major obligations imposed on insurer and insured.

My Department is pressing ahead with its consultations on the Law Commission's report and the discussions in Brussels on the draft directive. The course of those discussions during the remainder of this year will, I hope, be sufficient to allow a view to be taken on whether there is scope and need for amendment of United Kingdom law in advance of the measures likely to be needed to meet the directive's requirements as and when it is adopted.

I shall be glad to hear the views of right hon. and hon. Members. I shall be especially grateful to receive those views that can be used in the Government's negotiations when we deal with these highly technical matters.

10.57 pm

Mr. Clinton Davis (Hackney, Central)

In general terms, I support the Government's view as put before the House today. My main concern arises as to when the Government propose to introduce legislation along the lines of the formidable criticism of the present law suggested by the Law Commission. It would be appropriate at this stage to offer, at least on behalf of the serried Opposition ranks and even the serried Government ranks, the congratulations of the House to the Law Commission on its work. It is a work of great skill and scholarship, which deserves commendation.

We are at one in our approach to the proposed EEC directive. I share the Minister's criticisms about the harmonisation of insurance law throughout the EEC. He stated the Government's view well, and I would not depart from it, but in one respect it would be important if we could implement the non-life services directive which has created such difficulties for successive Governments in our negotiations with our European colleagues. I suspect that in this regard national interest, especially in the case of the French and German Governments, has somewhat overwhelmed the spirit of community which we hear so much about from time to time. What has happened is that British insurance interests are being squeezed out unceremoniously. I doubt whether we are going to make great progress on this, despite the fairly optimistic views of the Minister. These nationalistic concepts will, I think, continue to override the general requirement for harmonisation.

Moving on to consumer protection, which governed most of the Minister's remarks, the purpose of the directive is not stated to be one of providing consumer protection. As I understand it, the choice that was depicted by the Law Commission for reforming the defects in our insurance law was that between domestic legislation and the EEC directive. I prefer the route of reform of our domestic legislation. A substantial case was made by the Law Commission for reasonably speedy reform.

The directive has been dealt with in pretty scathing terms by the Law Commission, more scathing than the words of the Minister. Perhaps he was being diplomatic and did not want to cause too much offence to our Community colleagues; I do not know. The Law Commission described the directive as unsatisfactory and inadequate. I summarise the principal grounds for the Law Commission's strong critique. It felt that, if anything, the duty of disclosure should be retained, and perhaps widened, by requiring disclosure of any facts which may influence the insurer's judgment.

The Law Commission is very strong about the proportionality principle, which it rejects in no uncertain terms—far stronger than the Minister's words. He expressed criticism of the proportionality principle by saying that he would need some convincing about its implementation. I should have liked him to have gone much further, even as far as the Law Commission, by suggesting that the whole principle ought to be dropped. Indeed, I had thought that that was the original view of the Department of Trade. I was concerned to hear that the Minister was seemingly qualifying that original judgment. I hope that he will comment on that in his speech in winding up the debate. Perhaps I have read too much into what he said. I hope that he will make it clear that the issue of proportionality is not one that the Government will accept.

The reason why there is some superficial attraction for the argument of proportionality is that it appears to mitigate the harshness of the duty of disclosure. We can deal with the duty of disclosure by adopting the fundamental principle suggested by the Law Commission, that the existing law in this respect is far too heavily weighted in favour of insurers to the detriment of the insured. We should start from that precept and work on to reform the law substantially. Anyone reading the Law Commission's report could not doubt the need for that substantial reform.

I have not dealt with all the arguments that have been brought to bear on the directive by the Law Commission. Its complete silence on warranties is clearly a matter of concern. The directive, I understand, does not include life insurance. Perhaps worst of all, it would have the effect—and this was the burden of one of the Minister's arguments—of freezing the reform of our law. That would make it difficult, apart from adopting the minimal standards to which the Minister referred, to inject a real note of reform into the law.

Will the Minister, who seems now to adopt the case for substantial reform along the lines of the Law Commission's report, give us a little clearer idea of when the Government's consultations are expected to be concluded, and when we might expect some definitive propositions for the reform of the law. In some respects, the Government have no hesitation in establishing periods within which consultation has to be concluded. The Minister has just issued a consultation document on the difficult matter of concert parties and related subjects in company law. He has told everybody that they must finish their deliberations and report to him within 14 days. But in this respect no time limit is suggested. The deficiencies in the law are so important and serious that we should be demanding substantial reform designed to provide much more protection for consumers. That should not wait for another year or two or three.

I have heard the Minister's arguments on these questions before. Recently we dealt in the House with the Insurance Companies Bill. I referred fairly obliquely on that occasion to the work of the Law Commission. The Minister seemed to advance the defence of the insurance companies that the voluntary codes of practice that have been issued provide an adequate protection for the consumer. I do not accept that. The Minister may say that the codes have only just been revised, that we now have the insurance industry ombudsman and that we should give all that a chance to work. However, insurance companies, in spite of the code, are still able to rely on their legal rights, and they remain the sole arbiters of what is reasonable.

Let me deal with non-disclosure—first, where there is no proposal form. There is a strong argument in that case for a new law to protect insured persons. An example is where one simply has to put a tick in a box, as with certain holiday insurances that are offered in holiday brochures.

The same happens when we apply for temporary cover for 28 days for motor insurance. We can obtain accident cover at airports merely by putting some money into a slot machine. In all these transactions there is no question of a proposal form. Those who are insured in such circumstances do not know what they have to disclose and in any event they do not know how to go about doing so. They do not address their minds to these matters substantially or at all. Therefore, a situation can arise in which an insurance company says that it will avoid a policy because of non-disclosure. In many instances that is a draconian penalty for an insured person merely because he does not disclose a material fact.

The Law Commission suggests that the law should be reformed where there is a proposal form and complete and accurate information is required. For example, someone might say in good faith that he is not suffering from any illness and later he is found to be suffering from an illness. In those circumstances, the insurers are able, if they so wish, to reject the claim. It may never have dawned upon the person seeking insurance to provide the information. I suggest that the commission's recommendation that questions be answered only to the best of a person's knowledge and belief is the right criterion and that everything else is grossly unfair.

What does a person have to disclose for the purpose of renewal? Every contract that comes up for renewal requires the disclosure principle to be repeated. The commission has perhaps sided with the insurance industry against its original views. However, most people do not understand their duty on renewal. They do not address their minds to these matters. The penalties for failure to disclose can be dire even if that failure is unrelated to the loss.

At present the law requires an insured person to reveal any fact that a prudent insurer would consider to be material. I consider that requirement to be imperfect. It is a requirement that may be difficult for the insured person to carry out. Of course I make the assumption that we are dealing with someone who is honest and not crooked. A person may have suffered a driving conviction and that may become relevant in the mind of the insurer in respect of an entirely different form of insurance policy. Failure to disclose the conviction would enable the insurer to repudiate liability. That is an issue to which we should turn our attention very soon.

Breach of warranty gives rise to some interesting discussion by the Law Commission and some interesting recommendations. At present an insurance company might be in the position of being able to reject a claim where the insured person breaks a promise to which he might hardly have addressed his mind. There may be a requirement, for example, to put special locks on someone's windows. If he neglects to do that and there is a fire in the house, the insurers might seek to repudiate liability. The test suggested by the Law Commission is that the breach should have related to and increased the risk of the loss that occurred. That is a fair test, which in my view the Government should implement as soon as possible.

The basis of contract clauses—and I shall not go into that in detail—is something else that has been discussed at length by the Law Commission. The consumer associations differ from the Law Commission in their conclusions. However, it is an argument that we should hear more about at a more suitable time.

I conclude on an argument to which the Minister did not refer and to which I have lightly alluded—the question of statements of practice. When I had the Minister's responsibility, I constantly heard that insurance companies felt that it was not necessary to undertake major reform because all the fears expressed by consumer associations, Ministers and sometimes officials in the Department of Trade were unrealistic, because they had their statements of practice. This Minister, to his credit, has encouraged the industry to beef up the situation, and we have revised statements of practice.

However, the Law Commission is very critical indeed of the statements of practice, and implicitly about the new statements, too. Let me summarise the criticisms. First, it is argued that the statements of practice constitute evidence that the law is unsatisfactory; otherwise, they would not be necessary. That is a cogent argument. Secondly, insurers are able to rely, notwithstanding what is said in the statement of practice, on their strict legal rights. Thirdly, the statements do not have the effect of changing the law. The insurers retain a discretion to reject claims and repudiate policies. Fourthly, the Law Commission argues that insurers should not be the sole arbiters of whether repudiation is unreasonable in a given situation" Fifthly, the statements cover only policyholders in a private capacity. Sixthly, the statements are not adopted by all insurers in any event. Seventhly, the insured, particularly where intermediaries may be involved, may not know the identity of the insurer.

I have gone into those matters at some length, because, by virtue of what the Government have put forward in their motion, they are saying that they welcome the approach of the Law Commission. This is the first time that we have had an opportunity to consider the representations of the Law Commission, so I make no apology for referring to them rather than to the misbegotten directive. There is only one thing to be said for the directive. It has perhaps helped to focus attention on an important matter of consumer protection.

I hope, therefore, that the Government will not delay in introducing proposals, perhaps in the form of a Green Paper but preferably a White Paper, in the next 12 months—which is a perfectly adequate period—setting out their views on the Law Commission's recommendations having conducted the initial consultations to which the Minister referred. Let us proceed to reform our own law, unimpeded by the directive. I believe that, in the main, the Law Commission's recommendations are the lines that the Government should follow.

11.19 pm

Mr. R. A. McCrindle (Brentwood and Ongar)

I seek the brief indulgence of the House in response to the Minister's invitation. I shall try to assist him on the question of proportionality from my practical experience of the insurance industry.

There is little doubt in anyone's mind that the law governing the disclosure of material facts in relation to an insurance contract is out of date. The fact that a statute is antiquated does not mean that it is necessarily wrong. However, in this case it is such a long time since anyone seriously examined the law governing disclosure that it is high time that, as a result of the Law Commission's activities or the draft directive, action should be taken to consider the basis on which facts are considered material and the failure to reveal material facts is considered a correct basis for avoiding a claim.

The starting point must be that the law is defective in that regard. There is a need for reform. However, we should recognise that, although insurance companies have had the right to reject thousands of claims because of a failure to disclose a material fact in an insurance proposal, they have taken advantage of it in only a few cases. Some people may think that that is an argument for moving slowly, if at all. I do not take that view. When the application of the law has to be resisted, it is time to consider the law and the possibility of a change.

Given that there is a need for change, the Law Commission got its recommendations broadly right. It is particularly correct to resist the idea of "proportionality", which was recommended in the revised draft directive. If carried into practice, the principle would mean that if there was a failure to disclose a material fact it would not be known whether all the claim or only part of the claim was to be repudiated until the event. Far from simplifying the situation—when insurance companies are being asked to simplify their contracts—it would complicate the issue.

I give my hon. Friend the Minister every backing in resisting any movement towards proportionality. It is an unworkable principle. I shall cite one example of how the acceptance of proportionality would increase the difficulties that are occasionally faced. In many policies there is the "average clause". That means that if the premium is paid on a sum insured that is less than the value on which it should be paid, an insurer is entitled to pay only a proportion of the total loss. At first sight that may appear to be a form of proportionality. In this area we are dealing with fact, not opinion. The value that should have been insured and the value that was insured can be ascertained. They are not matters of opinion. If that principle of proportionality were extended to the failure to disclose material facts we should have to assess when a fact is particularly material, not very material or not material. In advance of the event, that would prove an impossible task.

If there is the possibility of a claim being reduced through an average clause, because the sum insured is inadequate, and if one adds to that the possibility of the claim being reduced because of a failure to state a material fact, the combination of those facts will add considerably to the confusion that a policyholder will experience. Therefore, I believe that the whole idea of proportionality should be stoutly resisted.

In encouraging my hon. Friend to resist the idea, I hope that, important as it is to consider the draft directive, he will not allow any consideration of it and of the Law Commission report to obscure the fact that far and away the most important matter on which we should like to see movement within the EEC is the adoption of the directive on the freedom of services. This country takes over the Presidency on 1 July. I hope very much that during the period in which we hold the Presidency one of our achievements will be at long last to attain some movement on the adoption of the directive on the freedom of services. It is a golden opportunity, which I hope that the Government will grasp with both hands.

By all means let us accept that some change in the law on disclosure of material facts is desirable—perhaps even urgent—but let us not complicate it by accepting the recommendation of the revised draft directive to introduce something which is foreign to the law of this land and which would be particularly difficult to work in practice—namely, the principle of proportionality.

11.27 pm

Mr. Teddy Taylor (Southend, East)

I should like to ask my hon. Friend the Minister one brief question, which I hope that he will answer when he winds up the debate.

I must declare an interest, because I am a director of a very successful insurance company, the name of which I would give if I thought that many people would read the Official Report of our proceedings at this late hour.

My question is simple. My hon. Friend the Minister has set out the principle of proportionality. Do the Government intend in future discussions on this matter to approach it on the basis of proportionality as to what the policy holder would have paid if he had declared the risk correctly with the same insurance company? That question is crucial and fundamental and could have important consequences for temperance insurance companies and others that insure only particular categories of people.

It is clear that with a simple declaration of risk—for example, epilepsy, a previous conviction or having a wooden leg—it is easy to work out what the extra premium would have been if the person concerned had disclosed the facts.

However, some insurance companies make it an absolute condition of issuing a policy that the policyholder should have certain basic characteristics. For example, some companies will insure only people who are total abstainers. They are substantial companies, and they include the enormous Swedish-based Ansvar Insurance Company Limited, of which I am a director.

How could proportionality work in such circumstances? It is easy to work out what someone would have paid for, say, car insurance if he were not an abstainer and had gone to a normal insurance company. But it is not possible to work out what premium he would have had to pay if he had been a drinker and had decided to ask for a policy from a temperance insurance company, which is only one of a number of instances of companies that will insure only certain categories of people.

Does my hon. Friend intend in the discussions to approach the issue on the basis of what would have been the premium paid by the insured person if he had declared the risk correctly in the generality of the insurance market, or will he try to sort the matter out in relation to what the policyholder would have paid if he had declared the risk correctly to the company with which he is insured? This is a point of substance.

It is a shame that in this and other matters we are looking for harmonisation in a Euro-context within the EEC. It is becoming increasingly clear that the growth of business in insurance and other matters will not be in Western Europe, which unfortunately appears to be heading for decline in a world context. We should be looking for harmonisation with other countries and other areas where we can look forward to continuing real growth.

It would be infinitely better if we looked for harmonisation in a world context, or perhaps with groups including the United States. It is unfortunate that we are seeking to harmonise simply within the EEC, which will be to the long-term disadvantage of insurance, banking, British industry and many other areas.

I hope, therefore, that the Minister will answer my one question—about declaring the risk to one insurance company, as against declaring it generally to the insurance market.

11.30 pm

Mr. Hugh Dykes (Harrow, East)

I apologise for the fact that I missed the start of the debate, which began earlier than we had expected. It is proper in those circumstances to keep one's remarks brief.

I do not want to deal too much with the detail of the directive. I intervene because I was interested in what my hon. Friend the Member for Southend, East (Mr. Taylor) said about the broader aspects of the harmonisation of insurance provisions and the other enactments which we may presumably expect from the EEC on the general harmonisation of insurance services.

I hope that my hon. Friend will understand that it is only a mild objection to what he said when I say that it is important to get the approval of the House for full harmonisation. This is, par excellence, an area in which the United Kingdom insurance industry will do very well once we achieve full liberalisation throughout the Community. Several other member States—I deliberately will not name them—have considerable restrictions on our industry entering their markets.

I think that those of my hon. Friends who know the industry better than I will agree that, for the premiums that consumers pay in this country for general insurance coverage, including endowment and life policies, the scope of those policies and the return on them are much more substantial, and therefore more economical, than they are in other member States. The United Kingdom has a leading role to play in expanding those services into the other member States. Consumers in other countries would welcome our industry having that opportunity.

Mr. Clinton Davis

Has there not been a carefully orchestrated and concerted opposition to the very point that the hon. Gentleman is making? Over the years, other interests have become only too well aware that our insurance services would do well in the rest of the EEC and have therefore done their best to frustrate the operation of those services there properly or at all.

Mr. Dykes

I agree, but surely the consequence is that we should fight hard at the various levels of Community decision-making and legislation to ensure that our rights—and those of other countries, if their industries are prepared to provide competitive insurance services—are safeguarded and those services provided through harmonisation. This is crucially an area in which Community law is important in all member States. We should press for those things, rather than resent that reality and just concede the point.

Mr. Davis

The hon. Gentleman suggests that Governments have not been trying. Successive Governments, Labour and Conservative, have been trying, year after year, to persuade others to become more liberal in their attitude to these things, and we have significantly failed. There is not a chink of light at the end of the tunnel at the moment.

Mr. Dykes

I do not accept that. It is possible to work towards an agreed Community solution which provides an open, free, market. Be that as it may, it would be inappropriate to prolong the debate, other than to put forward those important thoughts and sentiments which I believe that the whole House would support.

When the other directives come up, I hope that there will be a better attendance in the House to try to ensure that the United Kingdom gets the appropriate solution for its industry, which we would all wish to see. It was in that spirit that I regarded the comments of my hon. Friend the Member for Southend, East as being extremely negative, surprisingly so perhaps, because he knows a lot about that industry. I hope that there will be a change of mind on his part when the next occasion arises.

11.37 pm

Mr. Roger Moate (Faversham)

I thought that this would be a debate among lawyers and, discretion being the better part of valour, that it would be best to keep out of it. However, I found the remarks of my hon. Friend the member for Harrow, East (Mr. Dykes) and the hon. Member for Hackney, Central (Mr. Davis) so irresistible that I should like to make one or two observations.

The debate is a rather strange one. Looking briefly at the draft directives, one can see that it is of a limited nature. I understand that it was intended to apply only to large commercial risks, and even then only to risks of a limited kind, not even to marine and other risks. By relating it to the Law Commission report, the hon. Member for Hackney, Central, in his usual thorough approach to these matters, has brought in a whole range of consumer protection matters which the Law Commission report covers.

If we were simply talking about the original draft directive, it would be agreed that in no way does it touch upon the question of harmonisation of insurance services throughout the Community. It is of an extraordinarily limited nature. Looking at it, one wonders why the Community is bothering to approach the matter in this piecemeal and half-hearted way.

Having got to this broader question of the Law Commission report—to which the debate quite properly relates—and the question of consumer protection, I make my observations as much in the nature of questions to my hon. Friend as the stating of opinions. When I read these proposals to change the law on disclosure and the law on the application of warranties to insurance contracts, I wonder whether we are doing the right thing by contemplating legislating on this subject. It seems—I shall be corrected if I am wrong—that matters of interpretation of the law on insurance contracts arise from precedent and case law and not from legislation. It seems a rather dangerous idea to legislate in respect of such aspects as the interpretation of insurance contracts, leaving aside the many other areas concerning insurance contracts which are just as relevant on this question of consumer protection. I am a little sceptical about the value of doing it in this way. We have been talking of generalities. The hon. Member for Hackney, Central strongly supported the Law Commission recommendations for relaxing the laws on disclosure. In practice I wonder how many cases there have been where insurance companies have been seen to act unreasonably. I suggest that we have heard of very few such cases. That does not mean that there have not been more. I suspect, generally speaking, that if there had been unreasonable cases of repudiation on the grounds on non-disclosure of facts which we might consider to be not material, we would have heard of them.

Mr. Clinton Davis

One of the points that can arise—and one would not hear about it—is where, in the course of negotiations over a claim, a suggestion is made by the insurance company that there has been some breach of the policy. This would perhaps avoid full payment being made and a settlement on rather lower terms being obtained. This is one of the matters we are not likely to hear about. The Law Commission has addressed itself to that argument.

Mr. Moate

I stick to the general proposition that in these circumstances insurance companies act reasonably and are very reluctant to invoke the argument about nondisclosure. I speak only from my own limited experience, but I have dealt with a large number of ordinary claims for ordinary consumers. In my experience, when an insurance company introduces the argument about non-disclosure of material facts, it is fought very hard by any client, policyholder or insurance broker, and I think that it is done only very rarely.

I suggest that the House should really be asking what volume of complaints would justify a change in the law. It is all very well to talk in generalities and to say that there might be an element of injustice in theory, but let us consider the practice. Before we go forward to legislation, we should ask how many hundreds or thousands of complaints there might have been both in respect of insurance policies based upon proposals and, as the hon. Member for Hackney, Central mentioned, all those cases based upon insurance where there is no proposal as the basis of contract. Let us find out the area of complaint and see whether it is really of such substance as to merit legislation which, like so much legislation, could well lead into areas of which we are not particularly cognisant at present.

Moreover, as we now have an insurance ombudsman and new codes of conduct particularly relevant to the area of consumer protection, to which the hon. Gentleman referred, and not the commercial risks to which the directive refers, surely it is sensible to test them in practice and see whether they will resolve that limited number of problems—and I believe that it is limited—which might have occurred in the past.

I therefore approach the whole subject with a degree of scepticism and some regret on this occasion that there are not more lawyers present, because essentially we are discussing very important legal matters. Before the House goes too far on this, we should debate in more depth the question of the application of warranties and the law of non-disclosure.

I turn briefly to the question of proportionality, which struck me as a rather unusual proposal to introduce into law. I hope that my hon. Friend the Minister will resist any temptation to introduce it into law. On the other hand, listening to the discussion, I do not think that the principle is too difficult to apply if one wants or needs to do so. Surely courts of law often apportion blame and costs as between different factors. For example, judges these days are reducing awards of damages because an individual may not have been wearing a seat belt. I should not have thought that it was all that difficult, in the event of a claim, for a judge or a court to decide how much of the loss was relevant to the fact of the non-disclosed information.

Mr. McCrindle

Does my hon. Friend agree that the problem does not arise if a claim actually reaches the court? It arises in the far more numerous claims which are dealt with at insurance company level. If the only way in which satisfaction could be obtained was for the matter to reach a court, would not that be a temptation to have rather more litigation than we at present experience?

Mr. Moate

I think that the danger lies in another respect. I was making the point that if a judge is capable of expressing an opinion—and it is only his opinion—about an allocation of blame or of costs, an insurance assessor or claims manager should be equally capable of expressing an opinion. I therefore do not think that it is too impossible a proposition or principle to apply.

I believe that the real danger is in the following respect. As I have said, I think that insurance companies have been reluctant to repudiate a contract or claim on the ground of non-disclosure. If we had the law of proportionality, however, they might be far more willing to say that a client did not declare a fact, albeit a fairly minor fact, which should have been declared and then apply the law of proportionality and reduce the claim accordingly, and clients and consumers might suffer extensively as a result.

I conclude by referring to the point that was the subject of discussion between my hon. Friend the Member for Harrow, East and my hon. Friend the Member for Southend, East (Mr. Taylor). I am sceptical about any prospect of an insurance Common Market. It is clear that the nationalistic approach of particularly the French and the Germans in this respect is such that they will never allow any major inroads to be made into their markets by the British life and non-life insurance companies. Their strength and success in direct selling and in selling by brokers of insurance is so great that there is no way in which those countries, with their totally different national traditions, will allow us to succeed.

There is no harm in trying, and I am not saying that these endeavours should not be pursued, but anybody who thinks that millions of pounds, or thousands of millions of pounds—the sort of figures that would make a substantial difference—will flow from Europe into the insurance companies in Britain is living in a fool's paradise. I suspect that by now even those who were living in that fool's paradise, and dreamt of a great new British empire in insurance spreading on to the Continent of Europe, realise that it will not happen. The glitter has worn off the dreams of great expansion in the insurance markets of Europe. I share the scepticism of my hon. Friend the Member for Southend, East and the hon. Member for Hackney, Central in that respect.

11.47 pm

Mr. Eyre

The prime purpose of these proceedings has been to give me an opportunity to listen to the views which have been expressed by hon. Members on both sides of the House. I express my appreciation of those views, although I must be careful to stay in order in my brief concluding comments and not to trespass too far on the ground which has been explored by some of my hon. Friends. I should like to thank the hon. Member for Hackney, Central (Mr. Davis) for his words of commendation of the work of the Law Commission. I agree with him entirely as to the great value of that work, and I am grateful to him for his tribute.

I noted carefully the views expressed by my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) about defects in the present law. I acknowledge the correctness of his desriptions of the present practices of insurers, which do not strictly take full advantage of the legal position but which, in meeting liabilities, go well beyond those requirements.

An important point was also made by my hon. Friend the Member for Faversham (Mr. Moate), when he expressed his views and possible reservations concerning the need for any change in the law. He emphasised the fact that the practices of insurers generally have been very much in the public interest and have taken account of the broader interest, irrespective of the precise legal position concerning the claims with which they have had to deal.

With regard to proportionality, the European Commission has substantially amended the part of the directive that deals with that matter. The amendment is substantial. It has dealt with some of the Law Commission's criticism. On full probing, it may appear that most of the criticisms have been met. But the views of other member States on the European Commission's revisions will be forthcoming. So we need to examine the matter further in a critical and thorough manner, but not with closed minds. That is the proper approach.

My hon. Friend the Member for Southend, East (Mr. Taylor) demonstrated his expertise in asking a question on a matter of practical importance. I cannot give him a precise answer tonight because it is not possible to foresee the circumstances in which negotiations relating exactly to his question would be taking place, but I have noted his question carefully and it will be borne in mind during the complex continuing negotiations.

Mr. Teddy Taylor

My hon. Friend has been kind in all his comments and I wish to ask him a simple question that does not relate to matters of detail. Have the Government insisted, and will they continue to do so, that proportionality should be in relation to the premium that would have been applied, if disclosure had been made, by the company concerned, rather than by the generality of the insurance market?

Mr. Eyre

I understand the nature of my hon. Friend's question and appreciate that it raises a point of principle, but I cannot answer it accurately at this stage, in the context of thinking about matters of great complexity associated with proportionality. One will not know at what point in the negotiations the question raised by my hon. Friend would be considered. I will pay great attention to the question and will ensure that it is borne in mind and properly considered. I cannot go further at this stage. I ask my hon. Friend to accept my expression of interest and concern but to allow me to leave the matter there at present.

I also noted carefully the matters raised by my hon. Friend the Member for Harrow, East (Mr. Dykes) and I made it clear in my opening speech that the Government are working hard to achieve progress on the service directive.

The hon. Member for Hackney, Central asked about consultations on the Law Commission report, the importance of which we both acknowledge. We have received about two dozen sets of comments, many of them substantial, the most recent within the past fortnight. I am told that more may yet come to us. We are arranging meetings to discuss the written comments with, so far, the insurance industry—the BIA, Lloyd's and the Life Offices Association—and the consumer interests that have submitted views and reports.

Mr. Clinton Davis

I am waiting to hear what the Minister has to say about the time scale and how he will seek to conclude the consultations. He has given a list of those whom he is consulting. I hope that he will not forget the Confederation of Insurance Trade Unions, which is a useful body. I hope that he will not omit consultation with the trade unions, because they have a direct interest in the matter.

Mr. Eyre

I am grateful to the hon. Gentleman for raising that matter. All the consultative documents were sent to the unions that he has in mind. They have said that their views will be forthcoming, but their views have not yet arrived. I assure the hon. Gentleman that we look forward to receiving those views and that they will be taken into account in the further consultations. Other meetings may follow. We are prepared to talk to any interested parties that wish to participate in this process. I hope that the hon. Gentleman will accept that the Government are doing everything possible to examine this area and to prepare our views. My Department is pressing ahead on the Law Commission's report and the discussion in Brussels on the draft directive.

The course of the discussions during the rest of this year will, I believe, be sufficent to allow a view to be taken on whether there is scope and need for the amendment of United Kingdom law in advance of the measures likely to be needed to meet the directive's requirements as and when it is adopted.

Mr. R. B. Cant (Stoke-on-Trent, Central)

Will the hon. Gentleman stray out of order and respond to the general comments of the hon. Member for Faversham (Mr. Moate) about the growing disillusionment of the insurance market about potential expansion into the EEC? Will he comment on the bid by Allianz, the German insurance firm, for Eagle Star? Does this represent a reverse takeover bid for the British insurance market?

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. I hope that the Minister will not be led astray.

Mr. Eyre

However tempting the request of the hon. Member for Stoke-on Trent, Central (Mr. Cant) may be, I would not dream of venturing out of order. I have tried to emphasise the fact that the services directive is seen to be very important by our insurance industry. That is why the Government are pressing ahead as rapidly as possible with the negotiations.

I should like to express my gratitude to hon. Members on both sides of the House who have taken part in the debate. It is important that we should have discussions at appropriate stages in the negotiations on these complex provisions. I appreciate the effort that hon. Members have made to contribute to the debate. Their views will be taken into account in all the negotiations on these directives.

Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 8144/79 and 4124/81 on insurance contract law and of the Department of Trade's explanatory memoranda of August 1979, 31 October 1980, and 12 February 1981; and welcomes the Government's intention to ensure that the provisions of the proposed directive should take account of the scope for reform of United Kingdom law identified in the Law Commission's Report on Insurance Law: Non-disclosure and Breach of Warranty, Cmnd. 8064.