27 May 2015

The Insurance Act 2015

This Act is result of the Law commission reviewing the current regime and analysing whether it was fit for purpose. As most of the law is based on the Marine Insurance act of 1906 you can understand the motivation. The act will affect the insurer, broker and the insured but it only applies to business (non-consumer) insurance.

The principle focus is on the disclosure of information and non-performance of conditions and warranties.

Duty of Disclosure and Fair Presentation
There is currently an onus on the insured to disclose all information that is material to the risk. This is independent of whether the insurer requested this information. The insurance Act replaces this with a duty of the policy holder to provide a ‘fair presentation’. This requires them to disclose every material circumstance which the insured knows or ought to know. Additionally the insurer will need to make further enquiries as it deems necessary. In effect this transfers some of the onus of providing information on to the insurer as they need to make their own suitable investigations.

The Act goes further to establish a clear route with regard to disclosures/presentations made and claims paid.

Currently insurers are entitled to avoid claims if it is deemed the insured failed to provide all material information when the insurance policy was agreed. This is the case even if the loss doesn’t relate to the information. The law commission felt this level ambiguity furnished insurers an effective ‘get out’ tool in refusing claims. Consequently the Act sets out that, in the event of failure of making a fair presentation, insurers will only be entitled to refuse claims if the failure was either deliberate or reckless and it can be demonstrated that the insurer would not have originally entered into this contract (or provided different terms).

If the breach is neither reckless nor deliberate the resultant outcome is designed to be in proportion to the insurer’s position had they been provided the full information originally. An example outcome could be the claim paid less the higher premium amount the insurer would have originally quoted.

Warranties and Conditions Applied
Conditions applied by insurers will become ‘Suspensive Conditions’ as a result of the Act. This effectively means cover will be reinstated once the warranty/condition is complied with. Additionally insurers will no longer be able to rely on non-compliance of conditions unrelated to the claim made as a defence. For example they cannot argue a requirement for the installation of a fire alarm was not complied with and so, therefore, they will repudiate a flood claim. If, however, the non-compliance did have an impact this will afford the insurer an effective defence.

The Insurance Act will come into effect August 2016 and whilst it goes a long way to protecting the rights of the insured, there is still a question over the level of information needed by insurers. Whether this is a material disclosure or a fair presentation the devil is in the detail.