Author: John Luker
Despite its title, the Insurance Act 2015 comes in to effect in the UK on 12 August 2016. After receiving Royal Assent in 2015, the Act is a revision to the Marine Insurance Act 1906, which much of modern day insurance is based upon. It’s hard to believe that something so intrinsic to how modern day insurance is conducted worldwide has not been changed in 110 years, but some people have always said the world of insurance moves slower than most.
However, joking aside, the Act does contain some key changes that it is important to be aware of as a commercial client of your broker or insurer. As a purchaser of insurance it has always been your responsibility to disclose every material circumstance that you know or ought to know about your risk. Through the creation of a new duty, the duty of Fair Presentation, the Act provides clarity around what information you need to provide to the insurer and whose knowledge needs to be captured when presenting a risk. This information, which must contain all material facts, must also be presented in a clear and accessible format. You will be expected to make a reasonable search of the information available in order to make a fair presentation of the risk and involve the relevant people in your organisation who hold the requisite knowledge.
The commercial reality is that good and reputable brokers have been ensuring this practice for many years already by performing a fact fi nding exercise with you and assisting you in presenting this in a concise and clear manner, but the Act also formalises other key aspects which are dealt with below.
Whilst the old rules still apply to deliberate or reckless misrepresentation of material facts, the Act states that if there is a non-deliberate omission of facts, the insurer must take proportional remedies. This means that the insurer must consider what they would have done if they had known the complete position. If they would still have written the risk but on different terms, then those terms will apply retrospectively (e.g. a higher excess). In addition, if they would have charged a higher premium, then the claim settlement will be reduced proportionately, in much the same way an average condition would work.
A warranty is a term in an insurance contract which must be strictly complied with. Under the current law, if a warranty is breached, the insurer is discharged from all liability from that date, even if there is no connection to a claim and the breach can be rectifi ed. The new Act means that liability is suspended rather than restored. If the breach can be rectifi ed, cover is restored. Not all insurance policies carry warranties but they are important to look out for.
The new Act clarifi es the remedy available to an insurer in the event of a fraudulent claim. The insurer has the option to terminate the contract from the time of the fraudulent act and is not responsible to pay the claim. If the insurer has made any payment in respect of the claim, it is able to recover those payments. However, the insurer would remain liable for any genuine losses prior to the fraudulent claim. These changes are seen as a positive step both for the insurance industry and commercial customers who purchase insurance.
If any of the above points require further clarification, please contact your broker or insurer accordingly.
This article was first published in FIDI Focus August 2016, www.fidi.org