What’s new?
The Act applies to all commercial contracts of insurance, as well as variations to existing commercial insurance contracts. It creates a flexible framework of principles applicable to all business organisations, with requirements on the insurer to seek further information when required. Key changes include:
• Insurers to seek clarification
Whilst commercial organisations have been obliged to tell the insurer about all relevant material facts or circumstances about their business, under the new Act, the insurer must now seek clarification when necessary to ensure the information they receive from the business is clear and precise.
• Fair presentation of risk
There is now a duty of ‘fair presentation of risk’ on insureds. The Act sets out the information an insured must provide, and by and to whom it should be given. It is the insured’s responsibility to make a reasonable search of its business information when insurance is purchased. Businesses should keep a record of the searches performed in case of dispute.
The aim is that the insurer can then provide the insurance cover best suited for that business. Insurers should also be informed of any relevant changes that take place during the year.
• Proportionate remedy
The Act offers a range of ‘proportionate remedies’ that are fairer than under the previous rules. The Act recognises that not all failures to give a fair presentation of risk are deliberate. If an organisation does not provide a fair presentation of risk, but such failure was not deliberate or reckless, a proportionate remedy will apply – and this will depend on what the insurer would have done had they known the true facts. This may mean cancelling the policy and returning the premium, or (if they would still have offered insurance) pay the claim based on the cover and premium that would have been offered had a fair presentation been made.
• Warranties
Failure to comply with a warranty in an insurance policy has, until 12 August 2016, allowed the insurer to be discharged from their liability. Now, if a business fails to comply with a warranty the insurance cover will be suspended for the duration of the breach and re-instated once the breach has been fixed; and the insurer cannot rely on non-compliance with a warranty if the non-compliance could not have increased the risk of loss that occurred in the particular circumstances. This means businesses may not necessarily lose out, even if they have breached a warranty (though this depends on the nature of the warranty and the specific circumstances).
What should we do?
You should review your organisation’s disclosure and record keeping processes to ensure full compliance with the requirement for fair presentation of risk.
How can we help?
We provide expert advice on financial services matters, including contracts of insurance. If you have any queries as to the impact of the Insurance Act 2015 on your business, contact the experienced financial service solicitors at Herrington Carmichael for specialist advice.