Client Alert: Section 9 of the Deregulation Act 2015
Motor Insurers: Section 9 of the Deregulation Act 2015 will come into force on 30 June 2015. Are you ready?
Section 9 of the Deregulation Act 2015 makes changes to 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 issued by the Department for Transport on 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 earlier this week now confirms that the changes to Section 151 and 152 of the RTA will not apply to any policy which is cancelled before 30 June 2015.
What effect will the changes to Section 147 have?
The changes will mean that a motor insurance certificate will no longer need to be delivered to the policyholder for the policy to be effective. After 30 June 2015, the trigger event will be the issue of the policy.
When it comes to cancellation and the return of the certificate, after 30 June 2015 the insured will no longer be required to surrender the certificate or, if it has been lost or destroyed, to give a statutory declaration or written assurance of that fact.
What effect will the changes to Section 151 have?
Where the insurer is not indemnifying, the effect will be that an insurer’s 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 RTA liability.
What effect will the changes to Section 152 have?
The changes will not apply to any motor policy which is cancelled before 30 June 2015. However, where a policy is cancelled after 30 June 2015 the insurer escapes RTA liability by the act of cancelling the policy; but crucially, only for those policies cancelled before the incident.
So, after 30 June 2015 if the policy is properly cancelled before the incident in accordance with its terms then the insurer will escape RTA liability under s.151 of the RTA.
If however 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?
If, after 30 June 2015, the insurer has properly cancelled 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 will be able to escape liability as Article 75 insurer in any case where a policy has been cancelled before an incident and where the insurer has also updated the MID to record the cancellation before the incident.
Insurers will therefore need to keep proper records of each notification given to the MID after 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.
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.
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 and their agents to enable an insurer to prove its case if any notice given to the MID is challenged.