The Insurance Act 2015 came into force on 12 August 2016 and brought with it the biggest changes to the law relating to insurance in a century. Businesses became obliged to give clearer information about the risk they pose to insurers, and insurers became obliged to deal more fairly with businesses who fail to comply with the terms of their policy. There was a lot of publicity about the Act, but many businesses still remain unclear about how the changes introduced affect them.
Robert Goddard, corporate solicitor with Thackray Williams explains the rules.
Duty of fair presentation
In relation to your business insurance, you are under a duty to ‘make a fair presentation of the risk’ your business poses to an insurer, so you must disclose every material circumstance which might affect the decision to offer you insurance. Alternatively, you must give the insurer enough information to alert them to the fact that they need to make further enquiries.
There is also a duty to ensure that the disclosure made to the insurer is ‘reasonably clear and accessible to a prudent insurer’, so it should not confuse or mislead. There are also provisions to stop you misrepresenting any information.
When will I be taken to know something?
As a business owner or director, you will be taken to know what the senior management and those responsible for arranging your insurance know. This includes employees who negotiate the terms of your insurance, help collect data on your behalf or act as risk managers.
What should I know?
You ought to know any information that would be revealed by a reasonable search for information to help determine risk. This provision means that you cannot escape your obligations under the Act by simply failing to investigate potential risks.
What happens if I do not make the disclosures required?
The onus is now on the insurer to show how it would have acted had it received a fair presentation of the risk. If the insurer would not have entered the contract at all, they are entitled to void the policy. If they would still have insured but on different terms, other than the amount of the premium, then they are entitled to treat the policy as though it had included those terms from the start. If, however, the insurer would still have insured but the premium would have been greater, the amount payable on the claim may be reduced proportionately.
Warranties and other terms
A breach of warranty will suspend the insurer’s liability until the breach is remedied. If it cannot be remedied, the insurance will no longer be valid but it will have been valid up to the date of the breach. Importantly, if the breach could not have increased the risk of loss occurring, the insurer cannot rely on the breach of warranty to avoid paying a claim. This does not apply to terms of the policy that define the risk as a whole.
The Act introduces a new regime to deal with fraudulent claims. The insurer does not have to pay fraudulent claims and can elect to terminate the contract. They are entitled to refuse to pay any claims relating to loss suffered after the fraud took place, but will still be liable for genuine losses occurring before the fraudulent act.
Can insurers avoid the Act?
It is possible for insurance contracts to include terms that are different from those set out in the Act, but those terms must not put you in a worse position than you would have been under the Act, unless:
- the insurer has taken steps to draw the terms to your attention in advance of you entering into the contract; and
- the terms are clear and unambiguous as to the effect they have on the insurance.
If you have concerns about your business insurance or your duties under the Act, it is vital that you seek legal advice to avoid what could become very costly mistakes either now or in the future.
For a confidential discussion about your business requirements, please contact Robert Goodard