Posted on 6.7.16 by Mark Deverell
The Insurance Act 2015 will have a big impact on how insurance law affects businesses in the UK, in fact it has been described as the biggest reform to insurance contract law in more than a century. For this reason alone, it’s important that you have an understanding of what the Insurance Act 2015 is and how it might impact on your company.
The Act applies to all commercial contracts of insurance, variations to existing insurance contracts and those renewed on or after 12th August 2016 in England, Wales, Scotland and Northern Ireland. The aim of the changes is to create a new and fairer balance between the insurer and policyholder with an alteration in approaches for both parties. The new Act aims to be flexible and set out the principles to be followed rather than being a rigid code, thus being able to cater to all businesses from small start-ups to large corporations.
When does the Insurance Act 2015 come into force and why is it important?
After receiving Royal Assent on 12th February 2015, the Insurance Act comes into force on 12th August 2016. Important to note that the Act is not retrospective and the changes only apply to contracts made on 12th August 2016 and thereafter.
The changes are likely to impact on how parties underwrite risk, approach disclosure, due diligence, negotiate terms and settle disputes. With such wide-ranging changes, an 18 month period was built in to allow businesses and parties in the insurance market to first of all understand the reforms then adapt their practices and policy documents to reflect the changes.
In short the changes are a recasting of the old uberrima fides rule, which refers to ‘utmost good faith’. The new laws will install substantial changes to the law governing disclosure, requiring vastly increased honesty from businesses on the risks they pose to insurers before entering into a contract of insurance.
Before an insurance contract is entered into, renewed or altered, a business must disclose “every material circumstance which it knows or ought to know”.
What is Duty of Fair Presentation?
Insurance policyholders will be under a new duty of fair presentation, which replaces the old general obligation to disclose all relevant material and facts. This means that a business must provide their insurer with everything they need to be able to assess the risks within their business. If a business can’t provide the insurer with a fair presentation then they must disclose enough information so that the insurer can then make the necessary enquiries to reveal the material circumstances. This is applicable for all contracts before they are entered, whether renewing or mid-term variations.
Failure to provide all the material facts, disclose the right information of breach the terms of the contract could invalidate the insurance policy leaving you uncovered. However, the new Act has brought in a range of proportionate remedies reflective of the type of breach depending on whether it was deliberate or reckless.
The Act provides a new framework for business insurance contracts on a variety of terms such as warranties, remedies, fraudulent claims and fair presentation amongst other issues. It seems like the new Act goes some way in restoring the lack of balance between the insurers and the policyholders. As with all new legislation it’s the job of the courts to interpret the law.
The Act is likely to bring in a little uncertainty during the early stages whilst all parties allow the new changes to bed in. If your business has any legal issues relating to The Insurance Act 2015 or would like one of our specialist solicitors to inspect an insurance contract please phone us on 0343 507 5151 or send your enquiry to firstname.lastname@example.org.