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Update: consultation on brokers' liability for premium

United Kingdom
16/01/2012
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In our previous Law-Now “Insurance law reform: consultation on brokers’ liability for premium” we explained that the Law Commission had published a summary of the responses received to its consultation on reform of section 53(1) of the Marine Insurance Act 1906. Currently, the effect of s53 (1) on marine insurance is that the broker is primarily liable to pay the premium due, even if the insured refuses to pay or becomes insolvent.

The Law Commission has now begun a second consultation on section 53. This sets out focused proposals for reform of this area of law based on the various issues, papers and responses received from the first consultation. Consultees are being invited to submit a response to the proposals for reform being put forward:

  • The policyholder should be liable to pay premium to the insurer and should pay the broker as its agent. Any liability assumed by the broker should be in addition to the policyholder’s liability, not a substitute.
  • The issue of whether the broker is liable to pay the premium to the insurer should be a matter of agreement between broker and insurer.
  • The default position should be that brokers should be responsible for paying premiums unless they contract out of liability. They will be jointly and severally liable for the debt together with the policyholder.
  • The broker will hold premium as agent for the policyholder. However this is subject to a contract between broker and insurer stating otherwise.

The Commission is seeking responses to this paper by 20 March 2012. It then intends to publish final recommendations in 2013 and present them to Parliament.

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