PART 1: WARRANTIES
The Insurance Act 2015 has been hailed by the government as “the biggest reform to insurance contract law in more than a century”.
But what does it mean for you and your business?
Well there are two main areas you should be aware of where you might need to change your
business practices.
This section covers the first, which is with regard warranties on your insurance policy.
Changes to the law on Warranties
When an Insurer places a specific condition of cover on your policy, it is often known as a ‘warranty’.
In insurance (under the existing 1906 law), if the warranty on your policy is not complied with, then the cover will not stand. Even if say, you are claiming for water damage and your warranty requires you to upgrade your burglar alarm.
Fortunately, the Insurance ACT 2015 brings in some much needed changes to warranties.
Under the 2015 reforms, warranties will only allow the insurer to refuse payment if the claim is
directly relevant to the warranty breached.
So using the previous example, if you were making a claim for water damage from flooding and hadn’t fixed your burglar alarm as required by the warranty, then you would most likely still be covered for the water damage.
Also, your cover will now only be void for instances that occurred at a time when you were in
breach.
A word of warning, the act doesn’t fully come into force until the 12th August 2016. So you could still be subject to the 1906 ruling until then.
What does this mean for your business?
This allows businesses to take more informed operational decisions, knowing that if they are
in breach of a warranty for a short period of time, it won’t have an effect on cover for un-
related instances, or claims concerning events that took place whilst the warranty was being
complied with.
PART 2: FAIR PRESENTATION
Well there are two main areas you should know about, and the first is covered in Part 1:
Warranties, above.
The second is, the duty of fair presentation.
Changes to the law on Disclosure
The Marine Insurance Act 1906 has governed insurance contracts in the UK and overseas for more
than a century.
Under that Act, as a condition of cover, the insured has the responsibility of disclosing everything
that the Insurer would want and need to know.
This is known as the ‘duty of disclosure’.
What this meant was that if you forgot to tell the Insurer something that would have led to them
offering different terms had they known about it, then they can void your entire policy, no questions
asked.
The Insurance Act 2015 replaces the ‘duty of disclosure’ with the ‘duty of fair presentation’.
This requires policyholders to inform insurers of “every material circumstance” that the policyholder
knows, or ought to know, in relation to their risk. This is fairly similar to the 1906 position.
However under the 2015 act you are entitled to provide sufficient information to inform an insurer
that you need more time to review potentially material circumstances.
If you do not take this option, then you will be presumed to know the following:
Anything a reasonable search would reveal – (of information held by you as well as any organisation working on your behalf. This includes your Insurance Broker)
Anything you have suspicions about, and would have found out about, had you not deliberately refrained from enquiring about it
Any knowledge that an individual responsible for placing your insurance might have. Again, including your broker. This means that anything a broker knows about a business and its insurances, the client taken to know as well.
You will also be expected to disclose material facts in a clear and accessible manner. We will be able to help you with this as an attractive presentation can reduce your premiums and sometimes even make the difference between being offered cover or not (details on what Insurers are expected to know can be found in this article).
What does this mean for my business?
The major benefit to you of the Insurance Act 2015 is the reduction in the number of circumstances
under which your insurer can terminate the contract.
Whereas before, an insurer was able to say “No” if you failed to fully comply with your duty of
disclosure prior to signing the contract - or in other words, failed to guess exactly what a prudent
underwriter might want to know.
An insurer will no longer be able to void your policy for a theft in the summer just because you
forgot your neighbour sometimes stocks fireworks in November.
Under the 2015 Act, there are now a range of remedies. These vary by the scale of the breach. The
insurer may also need to disclose commercially sensitive information in order to show that one of
the remedies should be taken.
For more details, please ask your broker, or visit this Out-law.com article
4 Practical Changes to avoid owning Worthless Cover
I’ve summarised below 4 practical changes suggested in the out-law.com article that you can make
to ensure you don’t get caught out by the new disclosure laws:
1) Review your information gathering processes to make sure they are efficient and sound. Record the
details of this process
2) Keep records that show reasonable searches have been made
3) Keep internal records of the name and roles of individuals responsible for arranging insurance cover.
All matters within their knowledge will need to be disclosed
4) When making disclosures, bring the senior team together, as you could reasonably be expected to
know anything known by the senior team
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