The 2015 Insurance Act Black Hole – Arbitration Clauses again?

Go Back 13.2.19 INSIGHTS

“Where are the 2015 Insurance Act cases?”, is something I have heard everywhere I have been (even, once, on the beach in Cyprus). The obvious, tactless answer would be to invite the questioner to look inwards for the answer, but there is a potentially serious question lurking behind the anecdotal comments of so many.

Last time, I wrote about the unintended, damaging effects of the widespread use of arbitration clauses on the development of our common law. Starved of litigation involving the right issues, between the right parties, having both the resolve and the financial resources to fight their cases to appellate level (what I term the “jurisprudential litigation lottery”), our law stagnates, academics are frustrated, idle (or resourceful – take your pick) lawyers enter the fray, and fill the gap with lectures and seminars on what may or may not prove to be the correct interpretations of the new law.

New or newly re-described legislative provisions, in particular, require the attention of the appellate judiciary in order to be explained, clarified and suitably developed. This requires cases to be litigated and appealed.

Why then the arid 2015 Act landscape?

There are a number of possibilities:

  1. Parties are settling claims in order to avoid creating judicial precedents. Who, after all, would willingly be the first to put their heads above the parapet on an issue such as the meaning of “reasonable search”?
  2. Claims have been made and are busy brewing away, unresolved, soon to burst into life over the coming weeks and months. I have heard very little, if any, anecdotal evidence in support of this suggestion;
  3. Claims have been made but have been steered, either willingly or by contractual compulsion, into the jurisprudential backwaters of arbitration.

My money is on (c). If I am correct (and only time, and a lot of research by someone – not me – paid to undertake it, will tell), drastic measures may be required.

One solution would be for the 2015 Act to be amended (so soon?) so as to include, as a “disadvantageous term” within the meaning of ss.16 and 17 of the Act, any provision which seeks contractually to impose arbitration upon an insured. Since the parties are free to agree to arbitrate in the absence of any contractual requirement to do so, a contractual requirement that they do so, with the insured foregoing what would otherwise be its right to litigate, puts the insured, in my view, at a “disadvantage”.

S.17 imposes “transparency” requirements in relation to “disadvantageous” terms, imposing upon insurers the obligation to “take sufficient steps to draw the disadvantageous term to the insured’s attention before the contract is entered into.”. How many insureds would agree to such clauses if it were explained to them that arbitration would anyway be an available option to them, provided they and their insurer wished it?

Arbitration clauses do not sit easily within the confines of any of Parts 2 (“Duty of Fair Presentation”), 3 (“Warranties and Other Terms”) or 4 (“Fraudulent Claims”) of the 2015 Act, and since the transparency requirements are only applied in relation to those provisions which do, there would need to be some additional, elegant drafting so as to bring arbitration clauses within the description of those provisions requiring “transparency”.

The other solution, the dreadnought option and my favourite, would be to proscribe the use of mandatory arbitration clauses within insurance contract wordings. Neither party would be disadvantaged. Not only would they be free to include within their insurance contracts consensual arbitration provisions (e.g. “provided both parties agree”) but they would anyway still be free to agree to arbitrate even in the absence of express contractual provision.

Perhaps in this way our precious law would be provided with some release from the arbitration strangle-hold which currently threatens it.

Colin Wynter QC

Colin acts as an advocate in complex insurance disputes before the English courts at all levels and in arbitration in London and other commonwealth jurisdictions – he acts for Wynterhill LLP clients but still accepts instructions from other law firms as an advocate, arbitrator or mediator.

This post is intended to provide guidance of a practical nature but does not contain legal advice or advice as to what action you should or should not take specific to your insurance needs or those of your business, or with regard to any particular situation.