The Deregulation Act 2015
Property Insurance Aware 3
The Deregulation Act 2015 received Royal Assent on 26 March 2015 and will come into force on a staged basis. For the insurance industry, Section 9 introduces important changes to the law of motor insurance. Those changes will come into force on 30 June 2015 - Scott Harwood assesses the impact they will have on insurers and explains why it is not only motor insurers who should be aware of the forthcoming changes.
The Deregulation Act 2015 (“the Act”) brings about a number of changes to the law in a variety of areas. They include, amongst other things: planning, landlord and tenant, and insurance. The aim of the Act is to remove red tape and bring about changes, cutting out unnecessary regulation and bureaucracy.
For the insurance industry the Act makes a number of important changes to the law of motor insurance and simplifies matters regarding the issue of certificates (at policy inception) plus surrender and recovery when policies are cancelled. The changes reflect the fact that motor policies are now routinely issued and administered online and that the first port of call for the police and injured victims of road traffic accidents and their representatives is the Motor Insurers’ Database (“MID”).
What is changing?
The Act makes changes to the key piece of legislation which governs and underpins motor insurance law in Great Britain: The Road Traffic Act 1988 (“RTA”). The relevant sections of the RTA which will change are Section 147, Section 148, Section 151 and Section 152.
An update this week issued by the Department for Transport (22 June 2015) has clarified an earlier question mark over whether the changes will have retrospective effect. A statutory instrument signed by the Secretary of State on 22 June 2015 now confirms that the changes to Section 151 and 152 will not apply to any policy which is cancelled before 30 June 2015.
What effect will the changes to Section 147 have?
It has long been the case that a policy of motor insurance is of no effect unless and until a motor insurance certificate has been issued and delivered to the policyholder.
However, in practice this made little difference. In the event of a claim being made against a driver whose insurer asserted that the policy was not in force by reason of a failure to deliver the certificate, the insurer was compelled to deliver it.
Provided it was received prior to the date of any court judgment against the offending driver, the insurer was then obliged to meet the claim as RTA insurer. In our experience it was very rare to find an insurer who had successfully taken the delivery point against an innocent victim of a road traffic accident.
The amendment to Section 147 reflects what has been happening in practice. These changes will mean that a motor insurance certificate will no longer need to be delivered to the policyholder for the policy to be effective. The insurer will still be required to deliver the certificate to their policyholder, but delivery (note that electronic delivery or making policy documents available on a website constitutes delivery under the RTA) will no longer be the trigger which makes a motor policy effective.
After 30 June 2015, the trigger event will be the issue of the policy.
It has long since been the case that, on cancellation, policyholders were required to return all certificates to the insurer within seven days. If the certificate had been lost or destroyed, the policyholder was required to give a statutory declaration or written confirmation of the loss or destruction of the certificate.
After 30 June 2015, the insured will no longer be required to surrender the certificate. They will also no longer need to give a statutory declaration or written assurance if it has been lost or destroyed.
These changes simplify matters for all parties and are likely to create better certainty and cost savings for insurers who will no longer need to take steps to recover the certificate.
What effect will the changes to Section 151 have?
Section 151 sets out the duties of a motor insurer to satisfy judgments against offending motorists for liabilities for death, injury and property damage which arise out of the use of a motor vehicle on a road or in a public place.
Minor amendments will be made to Section 151 to mirror the provisions in Section 147 regarding the issue and delivery of certificates. The effect will be that an insurer’s Section 151 duty will no longer depend upon a motor insurance certificate having been delivered to the policyholder. Once the policy is issued, an insurer is exposed to a Section 151 liability in the same way as they always have been.
What effect will the changes to Section 152 have?
Section 152 sets out the exceptions to a motor insurer’s duties which arise under Section 151, i.e. the circumstances in which an insurer will be able to escape a liability as RTA insurer where the driver found to be at fault for the injury or damage in question is not covered by the policy or where cover has been declined.
Section 152 will be amended in relation to policies cancelled prior to the incident which gives rise to a RTA liability.
As a result, for policies cancelled after 30 June 2015, the insurer will escape RTA liability for such policies by the act of cancelling the policy; but crucially, only for those policies which are cancelled before the incident. It is no longer necessary for the insurer to recover the certificate or to obtain a statutory declaration or written confirmation that the certificate has been lost or destroyed. The changes will not apply to policies cancelled before 30 June 2015.
There will be no need for insurers to commence proceedings against the policyholder for recovery of the certificate to escape liability as RTA insurer where the policy is cancelled after 30 June 2015.
So, if the policy is properly cancelled (where the cancellation takes effect after 30 June 2015) before the incident in accordance with its terms then the insurer will escape RTA liability. Insurers who seek to take a cancellation point to escape liability as RTA insurer are likely to come under close scrutiny from claimant lawyers, other insurers who also might be liable and possibly from the Motor Insurers’ Bureau (“MIB”).
If an insurer’s cancellation has not been properly carried out in accordance with the terms of the policy, the insurer may find themselves having to deal with a claim as contractual insurer without any recourse to their insured, other insurers or the MIB.
What about Article 75?
Where an insurer properly cancels a policy after 30 June 2015, and cancels the policy before the incident which gives rise to a claim, the insurer is likely to escape contractual and RTA liability and will be Article 75 insurer.
We are yet to learn how the wording of Article 75 will be amended, but it is anticipated that an insurer in those circumstances will be able to escape liability as Article 75 insurer in any case where, before an incident, a policy has been cancelled and also before the incident, the insurer has updated the MID to record the cancellation. We expect that these changes will only apply to policies cancelled after 30 June 2015.
Insurers will therefore need to keep proper records of each notification given to the MID when a policy is cancelled.
Where insurers delay in updating the MID, the insurer is likely to remain exposed to third party claims as Article 75 insurer.
Further updates on the proposed changes to Article 75 are likely to be issued by the MIB towards the end of June 2015.
It is important to note that the proposed changes under the Act do not affect the position where an insurer seeks to avoid the policy and downgrade to Article 75 insurer by reason of a material non-disclosure or misrepresentation by the insured. Avoidance is entirely separate from cancellation and the position is not impacted by the forthcoming changes.
Consequences for Motor Insurers
The Act brings about a degree of certainty for motor insurers. After 30 June 2015, insurers will have more control over their RTA and Article 75 status where they have cancelled a policy prior to an incident which gives rise to a claim.
The act of cancellation is likely to remove any RTA liability and, pending clarification from the MIB, we think that the subsequent act of updating the MID to record the cancellation is likely to absolve insurers of an Article 75 liability. Insurers are likely to find that each act of policy cancellation which they seek to rely on will come under scrutiny and insurers should be careful to ensure that all policy cancellations are in strict compliance with the terms of the policy.
Strict procedures for the timely updating of MID records must also be put in place if insurers want to avoid being left dealing with a claim from which they could have escaped but for a simple notice to the MID. Careful record keeping will be necessary by insurers to enable an insurer to prove its case if any notice given to the MID is challenged.
Consequences for the wider insurance markets
Any party which seeks to advance a claim against a motor insurer for losses which arise out of the use of a vehicle will be well advised to take note of the changes (property insurers, BTE and ATE insurers are all likely to be affected).
Before embarking upon litigation against a driver, it is advisable to ask the motor insurer concerned to confirm its status and for evidence in support.