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You may not have realised it, but 12 August 2016 was a noteworthy day for your business. In fact, it probably slipped under your radar but one of the most significant changes to the UK’s insurance contract law for over 100 years came into effect on that day and you need to be aware of the implications. James Shaw of insurance broker Darwin Clayton explains.
The impact will not be immediate for everyone – the Insurance Act 2015 applies to all policies placed, renewed or varied on, or after, 12 August 2016 – but at some point anyone who has or takes out business insurance will need to be aware of the new law. It considerably affects the way insurance policies will be handled and creates new duties for both insurers and business policy holders.
The legislation provides a new framework for business insurance contracts. The aim is to redress the previous imbalance between the interests of the companies being insured and their insurers.
TIME TO TALK Under the Act there is now a duty to make a ‘fair presentation’ of the risk involved. This means it will now be up to the business being insured to disclose every material circumstance which it knows (or ought to know) to the insurer.
In English law, every circumstance is material if it would influence how a prudent insurer sets the premium and/ or the terms of the insurance. It is also material if it would affect whether the insurer would accept the risk in the first place. The requirement is not just limited to the insurer who has been offered the risk, but covers the opinion of any ‘prudent insurer’. This means disclosure can be considered material even if it does not lead to an increased premium or reduction of risk.
The Act is designed to bring clarity for all businesses about the information that they need to provide to an insurer. It also helps identify whose responsibility it is to provide the information and who the recipient should be. Rather than defining a strict code, it sets out principles to be
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followed. This allows it to be applied appropriately for small businesses and major corporations alike.
“The Insurance Act 2015 provides a
new framework for business insurance contracts, with the aim to redress the previous imbalance
between the interests of the companies being insured and their insurers.”
The criteria for a fair presentation of the risk are:
1. Disclosure of every material circumstance which the insured party knows or ought to know, or failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.
2. Disclosure in a manner which would be reasonably clear and accessible to a prudent insurer.
3. Every material representation regarding factual information is
substantially correct, and every material representation regarding expectations or beliefs is made in good faith.
4. What Needs Disclosing?
If you have information and are not sure whether, or when, it needs disclosing, we recommend that you make that information known to your insurer. If you don’t, they could reduce any claim pay out, apply new terms or even avoid the policy entirely.
With that advice in mind, it is also worth remembering the requirement that disclosure must be made: ‘… in a manner which would be reasonably clear and accessible to a prudent underwriter’ (Section 3(3)(b) of the Insurance Act 2015). This is to stop policy holders overloading their insurers with information in the hope of hiding issues of significance among swathes of data.
Further aspects of the new Act include:
• A new system of proportionate remedies for situations where the duty to make fair representation has been breached
• Warranties (including basis of contract clauses)
• Terms not relevant to the actual loss • Fraudulent claims • Good faith
• Amendments to the Third Parties (Rights Against Insurers) Act 2010.
If you would like to know more about your responsibilities under the new Act, please contact your insurer or insurance broker.
www.darwinclayton.co.uk Tomorrow’s Cleaning September 2016 | 31
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