It’s time to talk… insurance

One of the most significant changes to the UK’s insurance contract law for over 100 years comes into effect on 12 August 2016 and it could have a big impact on your business. Mark Harris of insurance broker Darwin Clayton explains what the changes involve.

The Insurance Act 2015 provides a new framework for business insurance contracts and aims to redress the imbalance, present under the current law, between the interests of those companies being insured and the insurers.

The new legislation will apply to all policies placed, renewed or varied on, or after, 12 August 2016. It creates new duties for both insurers and business policy holders, and significantly affects the way insurance policies will be handled.

Fair information sharing

The Act introduces a duty to make a ‘fair presentation’ of the risk involved, meaning 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.

The disclosure does not necessarily need to lead to an increased premium, or reduction of risk, in order to be considered material. Every circumstance is material, in English law, if it would influence how a prudent insurer sets the premium and/or the terms of the insurance and, indeed, whether they would accept the risk in the first place. This is not limited to the insurer who has been offered the risk, but encompasses the opinion of any ‘prudent insurer’.

The Act sets out principles to be followed rather than a strict code to allow it to be applied appropriately for small businesses and major corporations alike. It is designed to bring clarity for all businesses about the information that they need to provide to an insurer, along with identifying whose responsibility it is to provide it and who the recipient of the information should be.

A fair presentation of the risk is one that meets the following criteria:

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.

The duty on those taking out business insurance to offer information is therefore being maintained.

Better to be safe

If you are unsure whether any specific information needs to be disclosed, or the timescales for disclosing that information, we recommend that you disclose the information to your insurer. If you don’t, your insurer may reduce any claim payment, apply new terms or even avoid the policy.

Notwithstanding that advice, it is also worth noting 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 the data.

The Act also introduces a new system of proportionate remedies for situations where the duty to make fair representation has been breached. Further aspects of the new Act include:

• 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 are at all unsure of your responsibilities under the new Act you should contact your insurer or insurance broker.

www.darwinclayton.co.uk

Published in H&V News – September 2016