Insurance Act changes commerical relationship
For all those who think insurance contracts only ever benefit the insurers, there is help at hand.
But, at the same time, the Insurance Act 2015 also brings obligations for the insured, particularly with regard to accuracy of information supplied when taking out the contract.
The Act comes into effect in England and Wales on 12 August 2016 and applies to all non-consumer contracts of insurance and re-insurance governed by English law regardless of the country in which the policy is underwritten. Importantly, it also applies to any variations to existing insurance contracts made after 12 August 2016.
In the past, insurers have been able to avoid a policy completely and act as if it never existed if the insured had failed to disclose something relevant or failed to carry out an act that’s relevant to the insurance, such as increasing security measures, that is actually irrelevant to the claim being made.
When taking out a policy, the insured has to disclose every "material circumstance" which the insured knows or ought to know to insurer. Failing that, the insured must provide the insurer with sufficient information in relation to those material circumstances that would put a prudent insurer on notice that it needs to make further enquiries.
There is a new duty on an insured to present information in a manner reasonably clear and accessible to a prudent insurer. "Knowledge" extends to the insured's senior management, which includes the board, but could be wider, including the people responsible for arranging insurance such as risk or insurance managers.
Where there is a deliberate or reckless breach of disclosure rules by the insured, the insurer is still able to write the policy but other types of breach of duty, possibly innocent or negligent could have less onerous consequences. The Act introduces proportionate remedies for the breach as opposed to the inflexible remedy of avoidance.
In future, the onus will be on the insurer to show what it would have done if it had known about the breach. If it could show that it would not have entered into the contract of insurance then it can avoid the policy (but must return premium) while if it can show that it would have entered into the contract, but on different terms, the insurance contract is treated as if it included those different terms.
Where an insurer can show it would have covered the risk, but at a different premium, the proportionate difference in premiums is applied when working out the reduction of the resulting payment if a claim is made.
Full details of the Act can be found here.
Partner - Head of Rural Division
Tim is head of the firm's Rural Division and of the Cambridge office, although he spends a considerable amount of time in London. He has over 20 years experience in advising institutional and pri...