The Insurance Act 2015 – A Practical Guide for Insurers and Insured
The Insurance Act 2015 (“the Act”) contains many significant changes to UK insurance contract law of interest to insurers and insured. These changes will apply to contracts entered into on or after 12 August 2016. Up to now the law has been heavily weighted in favour of insurance companies, rather than policy holders. However the new changes are generally good news for policy holders. This guide has selected a few important new changes and duties relevant to insurers and those insured.
1. ‘Duty of Fair Presentation’
The Act creates a new duty of fair presentation (for business insurance contracts only) which replaces the existing duty of disclosure required upon policyholders. It is generally a much fairer system, as long as policy holders take note that they must disclose to the insurer every “material piece of information” which they “know or ought to know”. Having done so, it is less likely that insurers will find a way not to pay. Previously, if an insured did not disclose all relevant information to insurers, their policy could be terminated. The new Act now requires that insurers pay a percentage of the claim or impose additional terms into the policy, rather than refusing to pay anything.
Policyholders should also be aware that they must not ‘data dump’ insurers with huge quantities of information, making it difficult for insurers to identify the key information. The Act stipulates that policyholders must make disclosures in a “reasonably clear and accessible manner”.
Insurers should be aware that the Act establishes new remedies in the event of a breach of the duty of fair presentation by an insured. If an insured makes a deliberate or reckless breach of their fair presentation obligations, insurers can avoid the insurance and retain any premiums paid.
2. Breaches of Warranty
Under the existing law, breaches of warranty will automatically discharge the insurer from liability for a breach, even after the breach is resolved.
Under the new Act, insurers should be mindful of what is called ‘suspensive conditions’, which allows for breaches of warranty to be fixed. Now an insurer should understand that liability will be suspended only during the period of the breach. Policies will no longer be automatically terminated.
3. Fraudulent Claims
The Act does not change the law in respect of fraudulent claims but simply codifies it. Insurers will be excused from paying out a claim if an insured makes a fraudulent claim. Insurers may also give notice to terminate the insurance from the date of the fraudulent action and retain the premium.
4. Contracting Out
Insurers and insured wishing to enter into a business insurance contract are now able to agree their own contract terms, which can be less favourable than those contained in the Act. However insurers must be aware of two transparency requirements to validly opt-out:
(1) The insurer must make sufficient steps to draw out ‘disadvantageous terms’ to the insured prior to signing the contract; and
(2) Such disadvantageous terms must be ‘clear and unambiguous’.
Contact BBM Solicitors today
BBM Solicitors specialise in advising business owners in both contentious and non-contentious matters (including transactional work). If you are in the process of renewing insurance policies and have queries on the act please contact: Jennifer Simpson (jms [AT] bbmsolicitors [DOT] co [DOT] uk). This briefing note is current as at 29th August 2016 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).