The Insurance Act 2015: One of the most important pieces of legislation in the history of the industry.
We communicated with all of our Clients in advance of the Insurance Act 2015 which came in to force on the 12th August 2016 and have been reminding prospective Clients when discussing their upcoming renewal requirements.
Whilst the act came into law from the 12th August, it is still and will be open to interpretation and tested in the courts for years to come before it becomes fully defined in law.
With the vast majority of BQI clients in the commercial sector, we will continue to ensure that our Insured’s communicate effectively with Insurers and vice versa.
The purpose of the Insurance Act 2015 is to create a fairer situation for all parties involved in commercial insurance contracts. In practice, this means that there are additional obligations for businesses and additional responsibilities for insurers. We’ll cover some of the main points that you should be aware of as a buyer of commercial insurance, and the obligations for insurers.
Additional duties for businesses – fair representation
If your business requires commercial insurance, “before a contract of insurance is entered into, the insured must make to the insurer a fair representation of risk.” For the insured, that means:
- You are obliged to disclose “every material resource which the insured knows or ought to know” or,
- Failing that, “disclosure which gives the insurer sufficient information… to put them on notice that it needs to make further enquiries”
- The insured should disclose “in a manner which would be reasonably clear and accessible to a prudent insurer”, and ensure that
- Every material is “substantially correct… and every material representation as to a matter of expectation or belief is made in good faith”
Insured remedies, as per Schedule 1
If the Insured is in breach of the duty of fair representation and the qualifying breach was “deliberate or reckless”, the insurer may:
- Avoid the contract and refuse all claims, and
- Need not return any premiums paid
Other breaches and remedies – Key points
- If, in the absence of a qualifying breach, the insurer would not have entered in to contract, the insurer may avoid the contract and refuse all claims, but must return premiums paid
- If the insurer would have entered into the contract, but on different terms, the contract is to be treated as if it had been entered into on those different terms if the insurer so requires.
- If the insurer would have entered into the contract, but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim.
The impact on warranties
The Insurance Act also addresses some changes to the impact of warranties in commercial insurances. Firstly, the Act has abolished “any rule of law that a breach of warranty in a contract of insurance results in the discharge of the insurer’s liability.” That means that warranties are only “applicable to the circumstances of the contract.” In effect this means that warranties that are not effectual will no longer void an entire insurance contact.
The Insurance Act also makes changes to the way in which fraudulent claims are dealt with. If the insured makes a fraudulent claim:
- The insurer is not liable to pay the claim,
- The insurer may recover from the insured any sums paid by the insurer to the insured in respect of the claim, and
- in addition, the insurer may by notice to the insured treat the contract as having been terminated with effect from the time of the fraudulent act.
If the insurer does treat the contract as having been terminated—
- it may refuse all liability to the insured under the contract in respect of a relevant event occurring after the time of the fraudulent act, and
- it need not return any of the premiums paid under the contract.
There is a lot to consider here and these points are not exhaustive or expansive. The Insurance Act is a significant update on legislation over 100 years old. Whilst it brings some welcome changes for the Insured, particularly in relation to warranties, it also places increased responsibility on the Insured, in regard to the duties of disclosure.
There is always a member of staff at BQI who is able to take any calls or queries on this subject. If you would like to discuss this further, then please do not hesitate to contact us.