A few months ago we wrote on this blog about the Insurance Bill 2014, a set of recommendations for reforms to insurance contract law in the UK presented by the Law Commission and Scottish Law Commission.
On 12th February 2015, Parliament passed the Insurance Act 2015. The reforms brought about by the Act are the most significant changes to be introduced to United Kingdom insurance contract law since the Marine Insurance Act of 1906. Implementation of the amendments will follow an 18-month preparation period with the Act coming into force on 12 August 2016.
The Most Significant Changes to Insurance Law in Over a Century
The changes brought in by the Act aim to ensure an improved balance of interests between insurers and insured parties, and will replace outdated insurance contract laws which in many cases are now considered poor practice.
The Insurance Act applies mostly to non-consumer insurance contracts, although some parts of it – in particular those relating to the duty of good faith – apply to both non-consumer and consumer policies.
Duty of Fair Presentation
One of the most noteworthy changes concerns the ‘duty of fair presentation’. The Marine Insurance Act requires insured parties to provide all information that would be material to the risk, whether or not that information is requested by the insurer. With the onus entirely on the insured, and the realms of what actually constitutes ‘material information’ somewhat blurred, this has become one of the most controversial areas of insurance contract law. With a breach of duty comes the opportunity for the insurer to void a policy altogether, with no leeway for an intermediate remedy.
The Insurance Act 2015 changes things in as much as now, policyholders are required to disclose ‘every material circumstance’ which the insured knows or ought to know, or provide the insurer with ‘sufficient information’ to put a prudent insurer on notice that it needs to make further enquiries into such circumstances.
In a nutshell, under the new Act, unless specific enquiries are made by an insurer, policyholders do not need to disclose any circumstances which would diminish the insurer’s risk.
Remedies for Non-Disclosure
The Insurance Act also brings in new remedies for non-disclosure. The Marine Insurance Act allows insurers to avoid a contract in its entirety should it transpire that the insured has failed to disclose all material information. However, this will now change with insurers only able to avoid a policy completely if fraud can be proved, or where the breach of the duty of fair presentation is ‘deliberate or reckless’.
There are also changes concerning warranties, allowing insured parties to remedy them with policies merely being suspended for the duration of the breach rather than liability being completely discharged.
It is important to be aware of the fact that insurers will be able to contract-out of the majority of the new rules. However, any such opt-out will be subject to compliance and there will be strict rules as to the transparency of this decision.
Here at Robert Gerrard, as insurance brokers, we see our role in liaising between policyholders and insurers expanding as the new rules encourage both parties to ask more questions of each other. We’ll also be taking a keen interest in how our insurance providers are embracing the Insurance Act so that we can keep our clients fully informed.