Impact case study database

The UK is the fourth largest insurance market in the world, the largest in Europe and a key exporter of insurance (5.1). In 2018, the value of benefits and claims from the UK insurance industry was €311 billion. The London reinsurance market is one of the world’s largest, and many overseas insurers reinsure in London under English law. Even after Brexit, which requires Lloyd’s to write European business through its Belgian subsidiary, that business is reinsured back into Lloyd’s of London under English law contracts. Most international covers issued in London are subject to English law, and English law is very often chosen as a neutral by law contracting parties not associated with England.

It was vital therefore that the legislative underpinnings of this major industry were fit for the 21^st century. Merkin’s research was pivotal to the introduction of the landmark Insurance Act 2015 (5.2) and its implementation by industry. Merkin is now advising overseas governments on law reform.

Impact 1: Informing the content and enabling the safe passage of the Insurance Bill

The impact of Merkin’s research was facilitated by his appointment to key advisory roles enabling him to achieve evidence-based law reform as a trusted insider. Merkin was the academic consultant to the Law Commission’s insurance law review (2006 to 2015). His research, especially 3.1, 3.2 and 3.3, was a key part of the evidence base (5.5).

The resulting Insurance Bill was earmarked for a special Parliamentary procedure reserved for ‘uncontroversial’ Law Commission bills. The Bill could only make progress if consensus could be retained, meaning an unusually challenging legislative process requiring expert advice. The Law Commissioner notes “In recognition of Professor Merkin's role and his high profile in the debate he was appointed by Lord Woolf, the chair of the Special Public Bill Committee, as the adviser to the Committee to ensure that all the members of the Committee understood the full ramifications of what was being proposed” (5.4).

That role included preparing questions for members to put to expert witnesses, providing contemporaneous notes for Lord Woolf on issues arising during oral evidence, debriefing after each hearing and making recommendations for drafting changes to the Bill.

The Bill was steered successfully through Parliament, coming into force in September 2016. The Law Commissioner notes, “[Merkin’s] was a rare and very pivotal appointment” (5.4), adding “Undoubtedly Professor Merkin had a considerable influence on the development of the Law Commission's final reform proposals and the enactment of the Insurance Act” (5.4).

The significance of the 2015 Insurance Act is hard to overstate. The Treasury’s 2014 impact assessment was that the Bill would resolve legal uncertainty and ambiguity, reduce transaction costs and disputes and encourage a well-functioning insurance market allowing for competition and choice, and improving confidence in the industry (5.6).

Impact 2: Achieving a fairer approach to fraudulent claims

The Law Commission originally proposed to codify the existing common law rule that an insurer could treat an irrelevant false statement as a fraudulent claim. Drawing on (3.1), Merkin persuaded the Law Commission to let the courts find a solution to the problem, aware of the ongoing DC Merwestone litigation. In July 2016, the Supreme Court held that a lie not going to the assured’s entitlement to indemnification should not be regarded as a fraudulent claim at common law. But for Merkin’s intervention to prevent the existing common law rule being codified in the Insurance Bill, the Supreme Court in DC Merwestone would have had its hands tied and, consequently there would have been no positive change for the insured.

Impact 3: Finding a compromise solution to enable the introduction of late payments provisions and subsequent law reform

A late payments clause was dropped from the Insurance Bill as being too controversial for the Special Procedure. With Lord Woolf’s encouragement, Merkin prepared alternative draft clauses providing for compound interest. The clauses were withdrawn on the government’s promise that it would bring forward its own proposals. That promise was honoured quickly with Part 5 of the Enterprise Act 2016 on Late Payment of Insurance Claims.

Again, Merkin had been able to resolve problems identified in his own research (3.2) by working strategically with legislators to achieve law reform. Before 2015, late payment was a very significant problem with 42% of risk managers raising concerns about delayed insurance claims payments (5.6).

Impact 4: Informing further legislation: Advising other jurisdictions on law reform after the 2015 Insurance Act

The Marine Insurance Act 1906 has been the basis of insurance law in dozens of jurisdictions. Merkin has advised multiple jurisdictions, including Australia (5.7) and New Zealand (5.8) on possible law reform following the Insurance Act 2015.

In New Zealand, Merkin has been consultant to the insurance law reform programme since 2019, commenting upon proposals and helping formulate recommendations for reform, including on irrelevant conditions (5.8). The government intends to legislate (5.9) and will seek Professor Merkin’s assistance during the drafting phase (5.8).

Impact 5: Improving compliance by advising industry on implementing the Insurance Act reforms

The 2015 Act introduced major changes for the UK insurance industry. As a “thought leader” (5.3), Merkin has given multiple in-house lectures and advice to insurers, brokers and lawyers on drafting in the light of the Act, particularly in relation to disclosure requirements, late payment and contracting out. He has given update lectures to the Lloyd’s Market Association, the most important organisation representing underwriters in the UK, charged with the task of drafting policy wordings for the London market. General Counsel to the Newline Group, for example, commended Merkin’s “invaluable” expert advice on the “significant undertaking” of having to update their entire library of products to ensure compliance (5.3).