Insurance Act 2015
Property Insurance Aware 3
The Insurance Bill received Royal Assent on the 12 February 2015.
A vast majority of the new Act will come into force on the 12 August 2016 to allow the insurance market time to adjust to the reforms.
Duty to make a fair presentation of risk
Change: An insured will now have a duty to make a fair presentation of the risk. The new Act sets out what the court should take into account when assessing whether an insured has breached this new duty.
Effect: Insurers will need to adopt a much more active role in assessing a risk before they underwrite it rather than simply relying on the insured to disclose material facts.
Remedy for breach of the new duty
Change: The remedy for breach of the new duty will not automatically be avoidance. Except where the breach of the new duty is deliberate or reckless, the remedy for breach will depend on what the insurer would have done had they known the information which was not disclosed before they entered into the insurance contract.
Effect: Insurers will need to make sure that their underwriting guidance is clear so they can demonstrate what the outcome would have been if they had been given particular information of a risk on inception. If the insurer says that they would not have provided cover if certain information had been provided, this will need to be backed up in the underwriting guide.
Change: A breach of a warranty will now suspend the insurer’s obligation to indemnify rather than discharge it. Basis of contract clauses are also no longer permissible.
Effect: Once the insured remedies a breach of warranty they are entitled to make a claim for an indemnity under the policy for any subsequent losses. It will therefore be important to establish by evidence the nature of the breach when it occurred, and whether the insured has remedied the breach.
Causal link between breach of condition and loss
Change: There must be a causal link between a breach of a condition precedent by the insured and the loss claimed in order for an insurer to be able to decline an indemnity. If the insured can prove that non-compliance with the condition would not have increased the risk of the loss which actually occurred, in the circumstances in which it occurred, they can demand an indemnity under the policy.
Effect: Whilst the burden is on the insured to prove the lack of a causal link, it will be good practice in cases where a breach of condition precedent is suspected, for insurers to obtain evidence of a causal link during the investigation of the claim under a reservation of rights.
Change: Where it can be proven that the insured has made a fraudulent claim under the policy, the effect at common law will be to forfeit the entire insurance claim. In addition the insurer is not obliged to pay any claims under the policy after the date of the fraud, but will be obliged to pay (non-fraudulent) claims before the fraud.
Effect: Very little as most insurance policies have fraud clauses setting out what the outcome will be if a fraudulent claim is made by the insured.
Third Party (Rights Against Insurers) Act 2010
Change: The 2010 Act is amended so that it can be brought into force. This will be in the near future, but a date has not yet been set.
Effect: It will make it easier for third parties to request information and pursue claims against the insurers of deceased, dissolved or insolvent insureds whether they be individuals or companies.
What has not been implemented in the Insurance Act 2015
In their consultation, the Law Commission set out reforms to the requirement for an insurable interest and to allow insureds to claim damages for the late payment of insurance claims. These reforms have not found their way into the Act.
The Law Commission has published a further consultation to determine if there is a need for this reform which is due to close in June 2015. There does not appear to be any immediate plans to pursue the reforms but we will monitor the situation.