12 August 2016 marks the introduction of the Insurance Act 2015, with significant effects for businesses and brokers.
For more than 100 years, insurance law has stated that the insured is required to disclose every circumstance that they are aware of, or which they ought to be aware of, which would influence an insurer in fixing a premium.
This has meant that those being insured have had to predict, without guidance, what an insurer would be influenced by; an obligation which has effectively been extended to brokers acting on their behalf.
Where a disclosure has not been made which would be relevant to a “prudent insurer”, the insurer would have the right to treat the policy as void and refuse to make any payment under it.
Insurance Act 2015
In an attempt to combat this difficult situation and create a more even playing field between the policy holder and the insurer, a new duty of ‘fair presentation’ has been detailed in the Act.
This means that, moving forward, there must be sufficient disclosure to provide an insurer with the relevant information it requires, at least in order to make further enquiries. This places a more positive duty of enquiry on insurers.
There is, however, still a duty on those seeking insurance to carry out a “reasonable search” for information; an obligation that may not always be easy to understand.
The remedies available to an insurer where a disclosure has not been made or where a warranty in the insurance contract is breached are now more measured. The non-disclosure, or the breach of warranty, must be relevant to the loss that has been caused. Also, there is a possibility of the insurer paying out a percentage of the claim if the non-disclosure would have affected the premium price but would not have deterred the insurer from insuring completely.
Although businesses should now have greater protection under this new Act, they need to be aware that insurance companies are allowed to contract out of many of the protections provided by the Insurance Act 2015 – so it will be important to check the terms of the contract carefully.
This is arguably the biggest change to insurance law since 1906 so it’s crucial that business owners are properly informed on what this new Act means for them and their business.
How can Nelsons help?
For more information, please contact our Commercial Litigation team on 0800 024 1976 or via our online form, and we will be happy to assist.