27 May 2016
The Act is a result of the Law Commission reviewing the current regime and concluding new legislation was necessary - most of the current law is based on the Marine Insurance Act 1906.
The Act will affect Insurer, Broker and Insured alike and it applies to business (non consumer) insurance and therefore commercial property i.e. blocks of flats, shops, offices, etc. The Act comes into effect on 12th August 2016 and applies to new business, renewals and mid-term adjustments.
The focus of the legislation is on the disclosure of information before buying insurance, the application of conditions and warranties in policy wordings and remedies for fraudulent claims.
Duty of Disclosure and Fair Presentation
Currently there is an onus on the Insured to disclose all information that is material to the risk (also known as “material facts”) whether the Insurance Company requested it or not. The Act replaces this with a duty of the Policyholder to provide a ‘fair presentation’ which requires them to disclose every material circumstance which they know or ought to know. Additionally there is now an onus on the Insurer to make further enquiries as they deem necessary to demonstrate due diligence.
Currently insurers can void a policy and avoid a claim if it’s deemed the policyholder failed to provide all material information regardless of if the details relate to the subject of the claim. The Act changes this ‘all or nothing’ approach and introduces proportionate remedies insurers can apply - depending on the scale of the breach of the duty. Claims can only be repudiated if the breach is deliberate or reckless and it can be shown that the insurer wouldn’t have entered into the contract if the information had been provided.
If the breach was not deliberate or reckless, under the Act, the settlement of the claim is designed to be in proportion to the breach. For examples if the material fact had been disclosed and it would have resulted in a higher premium or excess, the claim payment would be reduced by the proportion of premium not paid or excess applied.
A number of insurers have said they may waive this option under the Act and could charge/collect the additional premium due or deduct it from the claim settlement. We have asked all of our insurers to confirm their position via a Notice to Policyholders and we will list them on our website (or provide hard copy if required) so that they can be viewed.
Warranties and other Contractual Terms
Currently a breach of warranty automatically means the insurer can deny liability even if it’s subsequently remedied or completely unrelated to the loss. The Act will prohibit any clause or term in an insurance policy which makes pre-contractual statements or representations into warranties on the policy. For example they cannot use non-compliance with a tree management warranty to repudiate a flood or fire claim.
They will become “Suspensive Conditions” which means the insurer can suspend cover i.e. for subsidence until say the Tree Management Condition is complied with.
The Act clarifies the remedies available to Insurers where a fraudulent claim has been made, they can;
Insurers will be reissuing policy wordings from renewal and they will be available either from our website www.stgilesgroup.co.uk or via hard copy if required.
This should improve the protection of policyholder’s rights and facilitate the Insurance Ombudsman in disputes. However, there is still a question over the level of information needed by insurers in the fair presentation.
Dealing with a specialist broker like St Giles will help ensure the insurers receives the salient information required to ensure the correct cover is placed and any subsequent claim accepted.