Insurance Act: Revolution or Evolution?
Charles Darwin said that a man who dares to waste one hour of time has not discovered the value of life. However, if you run a business that requires insurance it will not be a waste of your time to make yourself aware of the Insurance Act 2015 which came into force this month.
The Insurance Act came into force on 12th August 2016 and is arguably the single most important piece of insurance legislation in the past 100 years. It is intended to create a fairer balance between policyholders and insurers. If you buy insurance to protect your business, you need to understand the changes in law. It will have a significant impact on the way you buy insurance and the payment of any claims you make.
The Act will not apply retrospectively. It applies to both business and consumer insurance, although the new duty to make a fair presentation only applies to business insurance contracts, with the consumer equivalent having been dealt with under the Consumer Insurance (Disclosures and Representations) Act 2012.
The Act repeals the current requirement to disclose every material circumstance and instead the insured will be tasked with disclosing every material circumstance which the insured knows or ought to know and must make a fair presentation of the risk. There is some guidance in the Act as to what this means so that information must be reasonably clear and accessible, substantially correct and made in good faith. The mutual obligation of utmost good faith is abolished.
The status of warranties changes. Under the current law an insurer is discharged from the date of breach. Under the new law an insurer will be discharged for the period of breach so that the insured temporarily has no cover, but the insurer remains on risk.
Some of the changes can be contracted out of and some insurers are already preparing alternative sets of policy terms.
Most insurance contract law dates back to the Marine Insurance Act 1906. It has evolved with interpretation by the Courts over the years but more root and branch reforms have taken place more recently including the 2012 Act touched on above. It is likely there will be some uncertainty as ever when new legislation has been introduced and as before it will be for the Courts to interpret it where necessary.
Kelvin Farmaner is a Partner with Trethowans LLP. He is a Past President of the Insurance Institute of Southampton and heads the Insurance Litigation Team at Trethowans.