What is the Insurance Act?

The Insurance Act 2015 (the “Act”) made several positive changes, as follows:

• focus on transparency and ensure a better exchange of information between the insurer and insured, therefore addressing the imbalance which is currently in favour of the insurer;

• reduce the number of disputes and claims rejected, therefore saving legal costs and avoiding disruption to both insured persons and insurers; and

• increase the confidence in the insurance sector domestically and internationally. Whilst the main changes relate to disclosure and warranties, the Act also makes a number of other changes.

Under the Act the duty of utmost good faith remains a principle but the sole remedy for breach is abolished and replaced with a range of proportionate remedies which depend on whether the breach was reckless/deliberate and what the insurer would have done had the policyholder disclosed all required information.

From August 2016 the new Act came into force and policies will fall within the Act if they are incepted or renewed on or after the 12th August 2016.

Fair Presentation
The Act centres on the insured providing a “fair presentation of risk” to its insurer. A fair presentation is a presentation that discloses, in a manner that is reasonably clear and accessible, every material circumstance which is known or ought to be known by an policyholder’s senior management and those responsible for arranging the insurance, following a reasonable search.

A presentation can however be fair where disclosure gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing the material circumstances. (Knowledge which is in the public domain or knowledge which an insurer would be expected to know remains outside of the disclosure requirement).

Your Responsibilities
You are responsible for answering any questions in relation to any proposal for insurance cover honestly and to the best of your knowledge, providing complete and accurate information which insurers will require. This also applies to your responses in relation to any assumptions you may agree to in the process of applying for insurance cover. This is particularly important before taking out a policy but also at renewal or if you make a mid-term amendment to your policy.

If you are a commercial customer, please be reminded you are responsible for providing the complete and accurate information which insurers require at inception, renewal and throughout the life of a policy. If you make any change to your policy on or after 12th August 2016 you will have, in relation to that change, a duty to make a fair presentation of the risk to the insurer based on your reasonable understanding of the risks to your business. Your reasonable understanding should include every matter which you know, or ought to know, that would influence the judgement of the insurer or that would put the insurer on notice that it needs to make further enquiries. If you fail to disclose information, misrepresent any fact which may influence the insurer’s decision to accept the risk or the terms offered, or fail to make a fair presentation to an insurer, this could invalidate the policy and mean that claims may not be paid in full.

It is important that you read all insurance documents issued to you and ensure that you are aware of the cover, limits and other terms that apply. Particular attention must be paid to any warranties and conditions as failure to comply with them could invalidate your policy. You must inform us immediately of any changes in circumstances which may affect the services provided by us or the cover provided by your policy. If you are unsure about any matter, please contact us for guidance.

Claims Handling
The current law distinguishes between:

• claims fraud which goes to the heart of the whole contract; and

• the use of fraudulent devices to increase an otherwise valid claim.

The Act only refers to fraudulent claims and if a fraudulent claim is made, the insurer:

• is not liable to pay the fraudulent claim;

• can recover any amounts already paid for the fraudulent claim; and

• can choose to terminate the contract from the date of the fraudulent act and refuse to pay claims relating to losses suffered after the fraud. The option to terminate from the date of the fraudulent act is new for insurers and can date back to when the actual act in question took place.

If the insurer chooses to terminate the contract, they:

• can refuse liability for all matters occurring after the date of the fraudulent act; and

• do not have to return premiums; but

• will remain liable for all legitimate losses suffered before the fraud. 

There is no definition of fraud in the Act itself, although the Fraud Act 2006 sets out how the offence of fraud can be committed and this – together with the common law principles – will determine what constitutes fraud.

Changes to Warranties and Other Terms
Previously, if an insured did not comply with a warranty, the insurer is automatically discharged from liability from the date of the breach of warranty. This applied to the entire policy and had the effect of ceasing policy cover. This discharge from liability applied whether or not the breach of warranty was material to any claim made. Under the new Act an insurer will have no liability in respect of any loss after a warranty in the policy has been breached until that breach has been remedied. However, the new Act provides that an insurer will not be able to rely on non-compliance with a term if the insured can show that the non-compliance could not have increased the risk of the loss. For example, an insurer could not refuse to pay a flood claim because an alarm warranty was breached.

Any clauses turning all the disclosed information into a warranty (known as Basis of Contract clauses) are strictly prohibited under the new Act.

Contact Us
If you have any questions or are unsure how The Insurance Act 2015 affects you please contact us.