Successfully negotiating claims since 1867
The Insurance Act 2015 is the most important piece of insurance legislation for more than a hundred years. It’s a very important protection for the insurance buyer, but still leaves areas where there could be uncertainty. The Act updates legislation relating to insurance contract law, finally modernising a 1906 statute. The law had become very out of date, given that the 1906 Act merely codified principles developed in the eighteenth and nineteenth centuries.
The new legislation dates back to 2006 when the Law Commissions first undertook a joint review of the state of insurance contract law. Now, after eight years of consultation the 2015 Act brings the rules governing insurers and their business customers into the twenty-first century.
Richard Hanson-James, a director of Thompson and Bryan, who chaired the claims working party of the original British Insurance Law Association report that led to the Law Commissions’ review, has made a detailed study of the Act, the most important provisions of which he gives below.
The Act covers three main areas of insurance contracts.
Disclosure and representation
The concept of utmost good faith is no longer the default position, but has been replaced – in commercial contracts only, as consumers have a different duty as set out in the Consumer Insurance Act of 2012 – by a duty of fair presentation by the policyholder of material facts that the policyholder knows. This means that business policyholders will still have a duty to volunteer information, but what is required of them is made clearer and insurers will have to be more active in the questions they ask. A new scheme of proportionate remedies replaces the existing single remedy of avoidance.
The definition of a material fact, though, is likely to prove a hunting ground for lawyers as the statutory definition is not necessarily going to be the same as has been decided in common law and reported cases.
Where there has been a non-deliberate or non-reckless misrepresentation, the insurer’s remedy is a proportionate one based on premiums payable and paid. My experience with this concept, already present in consumer insurances, is that a number of insurers are unable to produce – or unwilling to disclose – the premium figures.
Care should be taken: subject to some robust duties of transparency, an insurer can contract out of the Act’s provisions in non-consumer contracts, and I fully expect that there will be insurers who attempt to do this. Brokers should be watchful in this regard.
Warranties and conditions
The Act abolishes “basis of contract” clauses which can turn any statement from a policyholder into a warranty.
No longer will a breach of warranty result in an automatic right for the insurer to avoid the policy from date of breach. Insurers become liable to pay any claim that arises after a breach of warranty has been remedied, such as where a broken alarm has been repaired before the claim arises. Finally, losses not attributable to the breach will be payable if the policyholder can show that the breach was completely irrelevant to the loss suffered.
The Act allows an insurer to avoid the whole claim where any part of a claim is fraudulent and can decline to pay any subsequent claims. However, in contrast to existing law, an insurer must pay earlier, valid claims
The provisions to amend the Third Parties (Rights against Insurers) Act 2010 will simplify procedures for an injured party to make a claim against an insurer when the insured has gone out of business. According to the government it will, for example, make it easier for mesothelioma sufferers to get compensation from insolvent employers.
The Act comes into force in August next year, but it is likely that the Financial Ombudsman Service will apply its principles now to eligible SME policyholders.
If you would like any further information on this, or on the changes already in force in relation to consumer insurance, please email me on firstname.lastname@example.org.
Richard Hanson-James MA LL.B FCII FCILA