Biggest change in insurance contract law for over 100 years

The Insurance Act 2015 (the ‘Act’) received Royal Assent on the 12th February 2015 and will come into force on the 12th August 2016.

Executive Summary

• The Insurance Act 2015 takes effect on 12 August 2016 and applies to all commercial insurance policies.

• The new law adjusts the contract risk presently favourable to insurers and makes it more equitable between insurer and insured.

• Your Company has a new duty of fair presentation which includes the knowledge of your Board and Senior Managers.

• Your company also has an obligation to undertake a reasonable search for material information to disclose to insurers.

• ‘’Proportionate’’ remedies are now available where your company is in breach of the duty of fair presentation BUT insurers retain the right in some circumstances to avoid the policy and make no payment.

• Other contractual terms favourable to insurers are mitigated by the new legislation eg terms that limit an insurers’ liability cannot be relied on if they are irrelevant to the loss that occurred.

• Parties may ‘’contract out’’ from the Act. Insurers will have to comply with certain obligations but for the larger Company or more sophisticated, brokered or complex contracts it will be easier for insurers to do so.

• The Act offers greater contract certainty and policy efficacy if Directors and senior managers adjust to the new legislation: your business should seize that opportunity.

Warranties and Irrelevant terms

The Act also changes the law in relation to obligations on the part of your Company to comply strictly with certain terms and alters the ability of the insurer to refuse to pay a claim where your Company has breached an irrelevant term.

Practicalities

Commercial advantage can be gained or disadvantage avoided in reviewing the following:

• Your Board should sign off placement documents or have mechanisms in place to ensure that your Company does not inadvertently fail to comply with its obligation to make a fair presentation to its insurer.

• Larger corporates should review their governance surrounding placement, clearly identify senior managers likely to have knowledge of material risks and also review mechanisms and processes to ensure that a reasonable search (including insured subsidiaries) is effective

• Review wordings – consider whether additional adverse terms are being imposed by insurers or whether wordings beneficial to your company may be available as the market adopts and adapts to change.

• Above all allow additional time to discuss issues arising from the Act.

Conclusion

Our insurance experts will work closely with you to engage the new Act and ensure a ‘fair presentation of risk’ is presented to insurers.

We recommend that the insurance act is reviewed at board level and a copy can be obtained from us or downloaded from our website at: www.jameshallam.co.uk
 

Authors: Greg Mead

Published: 11 May 2016

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