The first part of this document describes the general intent of The Insurance Act 2015 whilst the second part describes our approach to the Act itself.
The Insurance Act 2015, which was passed on the 12th February 2015, introduced a new change in Insurance Contract Law and it is a further step from the previous Consumer Insurance (Disclosure and Representations) Act 2012 which had already replaced the consumer’s duty to volunteer information with a duty to answer the insurer’s questions honestly and reasonably.
The Insurance Act 2015 (‘the Act’) sets clear guidelines for both consumer and non-consumer insurance contracts and it introduces the duty of commercial policyholders to make a fair presentation of the risk. The Act also sets out the remedies for various breaches of policy terms and conditions and it implements an amendment to the Third Parties (Rights against Insurers) Act 2010 which enables third parties to directly bring actions against an insurer without the caveat of having to first establish the liability of the insured.
Duty of Fair Representation
The Act introduces the ‘duty of fair representation’ for commercial clients. The duty is satisfied when either every material fact the insured knows or ought to know by reasonable search internally and externally is disclosed to the insurer or when sufficient information is given to the insurer so as to prompt further enquiries. The Act also clarifies the extent and the definitions of general, insured’s and insurer’s knowledge alike so that clear guidelines are given in respect of what each party is expected to know.
Remedies for breach of the duty of fair representation
If a commercial client fails to disclose material information, where there is no fraudulent intent, the remedies of the insurer have been amended by the Act to be proportionate to the terms and conditions that the insurer would have applied had the fair representation been carried out.
Basis of Contract clauses
The Act abolishes all Basis of contract clauses. These were those clauses used to effectively turn all statements within a proposal form into warranties. Whilst Basis of Contract Clauses have been abolished, warranties are still allowed for use by Insurers albeit the remedies for their breach has been amended as described below.
Remedies for breach of warranty
The Act deems that all warranties are now remediable so that the insurer’s liability is only temporarily suspended for the time during which the warranty is breached and then immediately reinstated as soon as the warranty is complied with again so that the insurer is still on risk for any losses where the previously breached warranty had since been remedied. Breach of warranty therefore no longer automatically terminate the policy.
Remedy for fraudulent claims
Remedies for fraudulent claims have been amended by the Act so that the insurer is no longer able to avoid the policy completely and treat the insurance contract as if it never existed. Any losses which occurred before the fraudulent act are therefore still valid claims. The insurer’s remedies for breach are amended so that the insurer can avoid paying the fraudulent claim, recover any sums already paid out for the fraudulent claim from the insured and terminates the policy with no need to return any premiums paid under the contract.
Remedies for breach of conditions precedent to liability
The Act stipulates that for breach of any terms which are applied by the insurer to reduce the risk of losses of a particular kind, at a particular location or at a particular time, the insurer can no longer rely on the breach to avoid the claim if the insured can prove that the breach didn’t actually increase the risk of the loss in question in the particular circumstances in which the loss has occurred.
How we are embracing the Act
Whilst the Act allows insurers to opt in or out of certain parts, we always have the customer’s needs in mind so we are fully committed to embrace the entire Act and we will also go beyond the stipulations of the Act by making all our policies warranty free going forward. Whilst we go through the process of amending all our policy wordings, all warranties will be treated by us as conditions precedent to liability.
Fair Presentation of Risk
We fully embrace the changes put forward by the Act in this respect and where an innocent breach of the duty of fair representation occurs, we will consider what terms and premium we would have imposed had we been made aware of the material facts in question and we will then either apply the relevant additional terms to the claim settlement as appropriate and/or proportionally reduce the claim payment by the same difference in proportion between the premium actually charged and the premium we would have charged in light of the new material facts.
Where the newly disclosed material facts are of such nature that we would have not issued the policy at all, we may then avoid the policy in its entirety but we will also return all premiums paid under the contract. If the breach of duty of fair representation is fraudulent, reckless or deliberate we may then avoid the policy in its entirety and not return any premiums paid under the contract.
Basis of Contract clauses
We fully embrace the changes put forward by the Act in this respect and, as Basis clauses have been abolished by the Act, we have now completely removed all such clauses from our policy wordings.
The 2015 Act still allows the use of conditions precedent to reduce the risk of a particular loss. The remedies for breach of such terms have been amended so that only if the breach actually increases the risk of the loss can it then be relied upon by an insurer. We have previously maintained this stance and no loss has ever been repudiated unless the breach was material to the loss.
We fully embrace the changes put forward by the Act in this respect and if the breach of condition precedent is proved to not increase the risk of the loss in question, we shall not act upon that breach.
We fully embrace the changes put forward by the Act in this respect and we take fraud prevention seriously so if the claim is exaggerated or fraudulent in any way, we may then avoid settling the loss, terminate the policy and/ or retain all premiums paid under the contract.