The Law Commission has recommended that UK insurance law be changed, saying that the present arrangements make it too easy for insurers to turn down legitimate claims.
The current law was enacted in 1906 and states that company insurance policies are invalid unless a business volunteers all relevant information when taking out the policy.
The Commission believes this is too wide a requirement which leaves businesses exposed to risks that they have paid to avoid. They believe that the Government should change the law, so that businesses should only need to provide a fair description of the risk they wish to be covered against and the insurers should then be responsible for requesting additional information before offering a quote.
Hector McQueen is the Scottish Law Commissioner.
According to the Scottish Law Commission press release, Mr McQueen said: "The law in this area ... has fallen out of date."
He continued: "Large, complex international corporations struggle to cope with its requirements as much as their smaller counterparts because the present rules are weighted against them all."
The insurance industry is suffering at the moment and there is evidence that claims are being disputed in a bid to protect corporation profits.
On Tuesday, insurance consultancy Mac Tavish produced a report which showed that more than 10% of businesses which own corporate insurance policies have had a claim rejected in the past two years on disclosure grounds.
"There is evidence of claims being questioned for reasons that seasoned market participants find surprising," said the Mac Tavish report.
The Law Commission's proposals have a way to go before becoming law. The panel of judges and senior lawyers which look at legal reform must still acquire backing from the UK Parliament and any law would have to go through the normal ratification process.
The Association of British Insurers believes the proposed reforms could have far-reaching consequences for the insurance market in the UK.
Maggie Craig is the director of financial conduct regulation at the Association of British Insurers.
"Potential legislative reform of business insurance requires careful consideration as it may have significant ramifications for the way that insurers conduct their business," she said.
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