The Insurance Act 2015 (“the Act”) came into force on 12th August 2016. The Act is the most comprehensive update of insurance law in over a century and the key provisions are set out below.
The Act replaced the existing duties of disclosure with a duty on the insured to make a ‘fair presentation’ of the facts. The duty consists of three elements; disclosure, the form of presentation and representations.
Disclosure – The duty of disclosure requires the insured to disclose every material circumstance which it knows or ought to know, or provide sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.
Form of Presentation – the Act requires the disclosure of information to be carried out in a reasonably clear way. Sending large quantities of unorganised data (whether in an attempt to disguise the risk or not) will not constitute a ‘fair presentation’ of the risk.
Representations – part of the duty on the insured is to ensure that the representations made to the insurer are ‘substantially correct’ and representations made of expectation or belief must be made in good faith.
Remedies for a Breach of Duty
The Act introduces a range of remedies designed to put the parties in the position they were in had there been a ‘fair presentation’ of the risk. The remedies differ depending on whether the breach occurred prior to entering into the insurance contract or prior to a variation of the contract.
Deliberate or reckless breaches of duty – In the case of a deliberate or reckless breach prior to entering into the contract the insurer is entitled to avoid the contract and need not return any of the premium already paid. Where the breach occurs prior to a variation, the insurer may treat the contract as having terminated with effect from the variation and again they do not have to return the premium paid.
Innocent breaches of duty – In the case of innocent breaches of duty the onus falls to the insurer to show that they would have acted differently had they received a ‘fair presentation’ of the risk. Therefore, if the insurer can show it would not have entered the contract had they received a ‘fair presentation’ of the risk they will be entitled to terminate the contract. If they can show that they would have attached different terms to the contract they may treat the contract as having included those terms. If they can show they would have entered the contract but charged a higher premium, then they may reduce the amount paid out under the claim by the same proportion.
The Act abolishes the ‘basis of contract’ clauses in non-consumer contract that have been a feature of many insurance contracts up to now. The effect of these clauses is to make every answer given in a proposal form a warranty, which in turn relieves the insurer of liability for all claims where an incorrect answer has been given, regardless of whether that answer is material to claim at hand. The Act does allow for specific warranties to be included in the contract itself however.
Breach of Warranty
Previously, a breach of warranty discharged the insurer’s liability completely from the point of the breach. The revised position under the Act is now that liability will be suspended until the breach is remedied. Once the breach is remedied the insurer’s liability will recommence. The Act also provides that in the case of a ‘once and for all’ breach relating to time scales, (e.g. to do something by a certain date) late completion of that task will amount to a remedy of the breach.
Fraudulent Claims & Remedies
The Act does not attempt to define fraud; that will be left to common law to determine. However, the Act does provide some remedies for fraudulent claims and give the rule of forfeiture a statutory basis. It also allows insurers to elect to terminate the contract from the time of the fraudulent act without needing to return the insurance premium. That termination will have retrospective effect and the insurer may refuse to pay out on legitimate claims that occurred after the fraudulent act. Where claims relate to events that pre-date the fraud, the insurer will still be liable to pay the claim.
The Act also clarifies the law in relation to fraudulent group insurance schemes (for example, insurance arranged by an employer on behalf of their employee’s). Where an individual makes a fraudulent claim on group insurance the insurer can treat the contract in relation to that individual only as having been terminated and it will not affect the other group members’ insurance cover.
The Act specifically provides that it cannot be contracted out of for consumer contracts though non-consumer (i.e. business to business) may contract out. There are still some cautionary provisions relating to non-consumer contracts however, for any ‘disadvantageous term’ to be enforceable an insurer will have to be able to show that they have taken sufficient steps prior to entering the contract to draw the insured’s attention to the term and ensure that the term itself is clear and unambiguous.
If you have any questions relating to insurance contracts contact Andrew Kerr, Head of Corporate or if your query relates to a dispute about an insurance contract contact Kevin Rogers, Head of Commercial Litigation for advice.