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The Insurance Act 2015 – Start Preparing NOW

Arranging commercial insurance can take months, so businesses need to start preparing for changes to the Insurance Act 2015 which will come into effect on 12 August 2016.

Prior to the Act, insurance contracts were contracts “of the utmost good faith” which in practice meant that if any incorrect information was given in a proposal, or if any relevant information was omitted, an insurer could cancel the policy and reject any claim leaving the business uninsured. 

The problems were:

  • Businesses often did not understand what information an insurer might consider relevant to a proposal for insurance or renewal and might innocently omit something which the insurer considered material. 
  • The onus was on the insured to volunteer the information rather than on the insurer to ask questions. 
  • Any incomplete or untrue information given meant the insurer could reject a claim and avoid the policy.

The Insurance Act 2015 makes some important changes so as to create a fairer relationship between insured and insurer. 

  • The insured must make a “fair presentation” of information to an insurer, one which provides information in a reasonably clear and accessible manner.
  • Data dumping or burying relevant information in a mass of other detail will not be “reasonably, clear or accessible”.
  • Representations as to estimates, expectations or beliefs must be made in good faith.
  • Enquiries require a “reasonable search” of information available to individuals, including information held by agents.

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What happens if the duty of presentation is breached?

  • If the breach was deliberate, or reckless, the insurer can treat the policy as if it never existed, keep the premium and refuse to pay any claim.
  • If the breach was not deliberate or reckless the consequence depends upon what a hypothetical reasonable insurer would have done had the information been provided. 

A fairer balance

The Act creates a fairer balance between insurer and insured.  The strictness of the disclosure requirements are reduced and the consequences of breach softened in many cases.  Clauses and policies that turn an insureds representations into warranties (going to the basis of the contract) will no longer have any effect.

Further, breaches that are irrelevant to the loss that occurs will no longer discharge insurers from liability under the policy. 

In addition, breaches that are relevant will not discharge the insurer from all liability and if the breach is remedied before a claim arises that breach has no effect.

What if the insured is guilty of fraud?

Insurers will be entitled, by giving notice, to treat the policy as terminated from the date of the fraudulent act and can keep the premiums paid.  The insurer will not be liable for any fraudulent claim and will be able to recover any payments made in respect of fraudulent claim.

A claim made under a valid policy, which arises before the fraud occurs, will be payable in the normal way.

Contracting out

There can be no contracting out of the prohibition on clauses treating representations as warranties going to the basis of the contract.

In respect of the other provisions of the Act a policy of insurance can contract out of the Act and impose terms which put an insured in a worse position than that for which the Act provides only if the less favourable provisions are “clear and unambiguous” and sufficient steps have been taken to draw them to the attention of the insured and/or its agents before the policy is concluded.

What should you do?

Insured parties should review their disclosure processes to ensure that senior management and agents (e.g. brokers) are in a position to disclose all matters which they will be presumed to know. 

Contact Richard Stockdale on 0113 246 2575 if you would like any further information on the changes to the Insurance Act 2015.





About the Author

Richard Stockdale


Richard has over 30 years experience of general commercial litigation including breach of contract,…

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