COMMERCIAL & RESIDENTIAL Property Insurance Services Limited 01275 876714
THE INSURANCE ACT 2015 How it affects you after 12th August 2016 Commercial   Insurance   Law   is   being   transformed   with   what   the   UK   Government describe    as    the    “biggest    reform    to    insurance    contract    law    since    the    Marine Insurance Act (MIA)   of   1906”,   the   current   legislation.   The   MIA   contains   provisions   which   entitles insurers   to   avoid   cover   for   non-disclosure   and   terminate   for   breach   of   warranty.   It is now outdated. The   Insurance   Act   2015   (The   Act)   modernises   how   insurers   approach   commercial insurance   policies,   including   reinsurance   and   retrocession   policies   that   are   entered into    (or    are    varied)    after    12th    August    2016    and    are    governed    by    the    laws    of England, Wales, Scotland and Northern Ireland (“English Law”) While   accurate   disclosure   by   you   as   the   insured   party   remains   central   to   the   new law,   the   Act   provides   a   fairer   approach   for   insurers   to   follow   in   the   event   of   a breach of policy requirement and / or your duty to present information. This   is   intended   to   give   you   more   protection   in   the   event   of   a   claim   being   rejected by the insurer on a technicality that hasn’t increased the risk of loss. At-a-glance 1 ) Duty of fair presentation replaces the Duty of disclosure.   This is a subtle but fundamental shift of emphasis in the new legislation. 1a)      Previously   policy   holders   were   required   to   disclose   every   circumstance   that they   knew,   or   ought   to   have   known,   which   would   influence   an   insurer   in   fixing   a premium   or   deciding   whether   to   insure   a   risk   and   on   what   terms.   This   required insured   parties   to   predict   what   factors   a   hypothetical   prudent   insurer   would   be influenced   by.   The   same   obligation   extended   to   brokers   acting   on   behalf   of   insured parties bi)   The   Insured   must   disclose   material   facts   they   know   or   ought   to   know.   The Insured   must   disclose   sufficient   information   for   a   prudent   insurer   to   dig   deeper where   clarification   of   the   risk   to   be   insured   is   required.   This   places   the   onus   on insurers   to   be   proactive   and   not   simply   base   policy   terms   on   assumptions   and   a one-way flow of information. bii)   The   Act   says   it’s   unreasonable   for   an   insurer   to   assume   that   the   insurance buyer   in   any   business   has   every   single   material   fact   to   hand.   The   Act   defines knowledge    as    including    senior    management    knowledge,    the    knowledge    of    the insurance buyer and including information held in the business that could be established by a reasonable search. biii)   The   information   disclosed   must   be   done   in   a   way   that   gives   a   clear   indication of     risk     and     circumstances     to     a     prudent     insurer.     This     prevents     disclosure submissions   that   are   too   brief   as   well   as   those   that   are   a   blizzard   of   un-signposted data.   The   broker   can   demonstrate   value   –   guiding,   reviewing   and   collating   the information into a fair risk presentation. biv)   Where   the   insured   has   had   a   relationship   with   the   insurer   for   a   while,   so   that the    insurer    already    holds    information    relating    to    the    insurance    cover,    the    Act recognises   that   the   insurer   will   be   taken   to   already   know   some   of   the   information, particularly where it is    readily    available    to    the    underwriter.    This    produces    a    rounded    and    relevant picture of the risk. 1 ) The new remedies available to an Insurer for breach of disclosure. Previously   an   insurer   was   able   to   avoid   the   policy   and   so   refuse   all   claims   under   an insurance contract if the pre-contractual disclosure duty was breached – even if the breach   was   committed   by   the   broker.   The   Act   sets   out   a   range   of   remedies   in   the event of a breach of an insured’s duty of fair presentation. a ) Deliberate   or   reckless   breach:    the   insurer   can   void   the   policy   and   retain   the premium   but   ONLY   if   it   can   prove   a   deliberate   or   reckless   breach   of   fair presentation.  The onus of proof lays with the insurer not the insured. a ) Non-deliberate   or   non-reckless   breach:    There   will   be   multiple   remedies available   but   the   responsibility   lies   with   the   insurer   to   show   how   they   would have behaved had they known all the material information. Bi)   If   the   insurer   would   not   have   entered   into   the   contract   the   claim   can   be   refused. The insurer can void the policy but must refund all premiums from inception. Bii)   If   the   insurer   would   have   entered   into   the   contract   at   a   higher   premium   they can reduce any claims payment in proportion to the underpayment of premium. Biii)   If   the   insurer   would   have   entered   into   the   contract   at   new   or   different   terms e.g.   conditions   and   exclusions,   the   extra   terms   can   be   applied   retroactively   and   the claims settlement made under the new terms. 3) Warranties and basis of contract clauses A   warranty   is   a   clause   in   which   the   insured   indicates   that   a   state   of   affairs   exists and / or that it will comply with a particular requirement. Previously,   basis   of   contract   clauses   could   convert   all   representations   made   in   the course   of   a   non-consumer   contract   into   contractual   warranties.   Breaching   of   a warranty would completely discharge an insurer from liability   for   all   risks   covered   by   this   policy   from   the   time   of   the   breach,   even   if   the warranty   had   no   bearing   on   the   risk.   The   Act   changes   this   and   insurers   are   no longer permitted to turn information given by an insured into a warranty,   so   that   any   change   or   error   in   that   information   could   result   in   the   insurer cancelling   the   policy.   Examples   of   Basis   of   Contract   clauses   that   are   no   longer permitted: In    proposal    forms     -    "I/We    agree    that    this    proposal    form    and    all    other    written information   which   is   provided   are   incorporated   into   and   form   the   basis   of   any contract of insurance." In   policy   wordings    -   "All   information   supplied   by   the   insured   in   connection   with   the application    for    insurance    including    any    proposal    form,    application    form    or otherwise and   supplied   by   or   on   behalf   of   the   insured   will   be   incorporated   into   and   form   the basis of the policy." 3a)   The   Act   introduces   a   suspensory   effect   to   warranties   which   means   that   that   if the   breach   is   remedied,   cover   is   suspended   for   the   period   prior   to   the   date   of remedy.   insurers   can   not   cancel   the   policy   and   are   obliged   to   deal   with   claims   that are made after the remedy date. 3b)   Where   a   loss   occurs   when   an   insured   is   not   in   compliance   with   a   term   which ‘tends   to   reduce   the   risk’   of   loss,   the   insurer   will   not   be   able   to   rely   on   non- compliance   to   limit   or   discharge   its   liability,   if   the   insured   can   show   that   its   non- compliance   did   not   increase   the   risk   of   loss   which   occurred   in   the   circumstances   in which   it   did.   In   other   words,   the   Act   requires   Insurers   to   demonstrate   a   causal   link between    the    breach    and    the    loss.    The    provision    will    not    apply    if    the    term    in question is one which ‘defines the risk as a whole’. 4) Fraudulent claims Previously,   in   the   event   of   fraud,   there   was   case   law   to   suggest   that   an   insured party    would    forfeit    the    whole    claim    and    insurers    could    also    void    the    whole contract. Under   the   Act,   an   insurer   is   not   liable   to   pay   a   fraudulent   claim   but   must   pay   valid claims   prior   to   the   fraudulent   claim.   The   Act   sets   out   a   clear   statement   of   insurer remedies in the event of fraudulent claims brought by policy holders. 4a)   The   insurer   is   not   required   to   pay   the   fraudulent   claim   and   can   recover   any money that has already been paid in respect of that claim. 4b)   The   insurer   can   give   notice   to   the   insured   to   terminate   the   Policy   from   the   date of the fraudulent claim. The Policy does not automatically become void. 4c)   The   Act   provides   that   insurers   will   have   the   same   remedies   available   in   respect of   a   fraudulent   claim   which   is   made   by   one   beneficiary   under   a   group   insurance contract.    Importantly,    the    remedies    apply    only    in    relation    to    the    fraudulent beneficiary. In   the   event   of   disclosure   breach   The   Insurance   Act   2015   offers   you   fair   and   varied options instead of the hard impact that comes with a voided policy. The    Act    comes    into    force    12th    August    2016    for    all    new    policies    and    policies renewed   after   this   date.   The   duty   of   fair   presentation   under   the   Act   also   applies   to any changes made to existing policies after this date.
COMMERCIAL & RESIDENTIAL Property Insurance Services Limited 01275 876714
THE INSURANCE ACT 2015 How it affects you after 12th August 2016 Commercial    Insurance    Law    is    being    transformed    with what    the    UK    Government    describe    as    the    “biggest reform    to    insurance    contract    law    since    the    Marine Insurance Act (MIA)   of   1906”,   the   current   legislation.   The   MIA   contains provisions   which   entitles   insurers   to   avoid   cover   for   non- disclosure    and    terminate    for    breach    of    warranty.    It    is now outdated. The    Insurance    Act    2015    (The    Act)    modernises    how insurers      approach      commercial      insurance      policies, including   reinsurance   and   retrocession   policies   that   are entered   into   (or   are   varied)   after   12th   August   2016   and are   governed   by   the   laws   of   England,   Wales,   Scotland and Northern Ireland (“English Law”) While   accurate   disclosure   by   you   as   the   insured   party remains   central   to   the   new   law,   the   Act   provides   a   fairer approach   for   insurers   to   follow   in   the   event   of   a   breach of    policy    requirement    and    /    or    your    duty    to    present information. This   is   intended   to   give   you   more   protection   in   the   event of   a   claim   being   rejected   by   the   insurer   on   a   technicality that hasn’t increased the risk of loss. At-a-glance 1 ) Duty of fair presentation replaces the D   u   t   y     of disclosure.   This   is   a   subtle   but   fundamental   shift   of   emphasis   in   the new legislation. 1a)      Previously   policy   holders   were   required   to   disclose every    circumstance    that    they    knew,    or    ought    to    have known,    which    would    influence    an    insurer    in    fixing    a premium   or   deciding   whether   to   insure   a   risk   and   on what    terms.    This    required    insured    parties    to    predict what   factors   a   hypothetical   prudent   insurer   would   be influenced   by.   The   same   obligation   extended   to   brokers acting on behalf of insured parties bi)   The   Insured   must   disclose   material   facts   they   know   or ought    to    know.    The    Insured    must    disclose    sufficient information   for   a   prudent   insurer   to   dig   deeper   where clarification   of   the   risk   to   be   insured   is   required.   This places    the    onus    on    insurers    to    be    proactive    and    not simply   base   policy   terms   on   assumptions   and   a   one-way flow of information. bii)    The    Act    says    it’s    unreasonable    for    an    insurer    to assume   that   the   insurance   buyer   in   any   business   has every    single    material    fact    to    hand.    The    Act    defines knowledge   as   including   senior   management   knowledge, the    knowledge    of    the    insurance    buyer    and    including information held in the business that could be established by a reasonable search. biii)   The   information   disclosed   must   be   done   in   a   way that   gives   a   clear   indication   of   risk   and   circumstances   to a   prudent   insurer.   This   prevents   disclosure   submissions that   are   too   brief   as   well   as   those   that   are   a   blizzard   of un-signposted   data.   The   broker   can   demonstrate   value   guiding,   reviewing   and   collating   the   information   into   a fair risk presentation. biv)   Where   the   insured   has   had   a   relationship   with   the insurer    for    a    while,    so    that    the    insurer    already    holds information    relating    to    the    insurance    cover,    the    Act recognises   that   the   insurer   will   be   taken   to   already   know some of the information, particularly where it is   readily   available   to   the   underwriter.   This   produces   a rounded and relevant picture of the risk. 1 ) The   new   remedies   available   to   an   Insurer   for breach of disclosure. Previously   an   insurer   was   able   to   avoid   the   policy   and   so refuse   all   claims   under   an   insurance   contract   if   the   pre- contractual disclosure duty was breached – even if the breach   was   committed   by   the   broker.   The   Act   sets   out   a range    of    remedies    in    the    event    of    a    breach    of    an insured’s duty of fair presentation. a ) Deliberate   or   reckless   breach:    the   insurer   can void   the   policy   and   retain   the   premium   but   ONLY if   it   can   prove   a   deliberate   or   reckless   breach   of fair   presentation.      The   onus   of   proof   lays   with the insurer not the insured. a ) Non-deliberate    or    non-reckless    breach:     There will     be     multiple     remedies     available     but     the responsibility   lies   with   the   insurer   to   show   how they   would   have   behaved   had   they   known   all   the material information. Bi)    If    the    insurer    would    not    have    entered    into    the contract   the   claim   can   be   refused.   The   insurer   can   void the policy but must refund all premiums from inception. Bii)   If   the   insurer   would   have   entered   into   the   contract   at a   higher   premium   they   can   reduce   any   claims   payment in proportion to the underpayment of premium. Biii)   If   the   insurer   would   have   entered   into   the   contract at   new   or   different   terms   e.g.   conditions   and   exclusions, the    extra    terms    can    be    applied    retroactively    and    the claims settlement made under the new terms. 3) Warranties and basis of contract clauses A   warranty   is   a   clause   in   which   the   insured   indicates   that a   state   of   affairs   exists   and   /   or   that   it   will   comply   with   a particular requirement. Previously,    basis    of    contract    clauses    could    convert    all representations   made   in   the   course   of   a   non-consumer contract    into    contractual    warranties.    Breaching    of    a warranty would completely discharge an insurer from liability   for   all   risks   covered   by   this   policy   from   the   time of   the   breach,   even   if   the   warranty   had   no   bearing   on the   risk.   The   Act   changes   this   and   insurers   are   no   longer permitted to turn information given by an insured into a warranty,   so   that   any   change   or   error   in   that   information could     result     in     the     insurer     cancelling     the     policy. Examples   of   Basis   of   Contract   clauses   that   are   no   longer permitted: In   proposal   forms    -   "I/We   agree   that   this   proposal   form and   all   other   written   information   which   is   provided   are incorporated   into   and   form   the   basis   of   any   contract   of insurance." In    policy    wordings     -    "All    information    supplied    by    the insured   in   connection   with   the   application   for   insurance including     any     proposal     form,     application     form     or otherwise and    supplied    by    or    on    behalf    of    the    insured    will    be incorporated into and form the basis of the policy." 3a)   The   Act   introduces   a   suspensory   effect   to   warranties which   means   that   that   if   the   breach   is   remedied,   cover   is suspended   for   the   period   prior   to   the   date   of   remedy. insurers   can   not   cancel   the   policy   and   are   obliged   to   deal with claims that are made after the remedy date. 3b)    Where    a    loss    occurs    when    an    insured    is    not    in compliance   with   a   term   which   ‘tends   to   reduce   the   risk’ of    loss,    the    insurer    will    not    be    able    to    rely    on    non- compliance   to   limit   or   discharge   its   liability,   if   the   insured can   show   that   its   non-compliance   did   not   increase   the risk   of   loss   which   occurred   in   the   circumstances   in   which it    did.    In    other    words,    the    Act    requires    Insurers    to demonstrate   a   causal   link   between   the   breach   and   the loss.   The   provision   will   not   apply   if   the   term   in   question is one which ‘defines the risk as a whole’. 4) Fraudulent claims Previously,   in   the   event   of   fraud,   there   was   case   law   to suggest   that   an   insured   party   would   forfeit   the   whole claim and insurers could also void the whole contract. Under   the   Act,   an   insurer   is   not   liable   to   pay   a   fraudulent claim   but   must   pay   valid   claims   prior   to   the   fraudulent claim.    The    Act    sets    out    a    clear    statement    of    insurer remedies in the event of fraudulent claims brought by policy holders. 4a)    The    insurer    is    not    required    to    pay    the    fraudulent claim   and   can   recover   any   money   that   has   already   been paid in respect of that claim. 4b)    The    insurer    can    give    notice    to    the    insured    to terminate    the    Policy    from    the    date    of    the    fraudulent claim. The Policy does not automatically become void. 4c)   The   Act   provides   that   insurers   will   have   the   same remedies   available   in   respect   of   a   fraudulent   claim   which is    made    by    one    beneficiary    under    a    group    insurance contract.   Importantly,   the   remedies   apply   only   in   relation to the fraudulent beneficiary. In   the   event   of   disclosure   breach   The   Insurance   Act   2015 offers   you   fair   and   varied   options   instead   of   the   hard impact that comes with a voided policy. The   Act   comes   into   force   12th   August   2016   for   all   new policies   and   policies   renewed   after   this   date.   The   duty   of fair    presentation    under    the    Act    also    applies    to    any changes made to existing policies after this date.
COMMERCIAL & RESIDENTIAL Property Insurance Services Limited 01275 876714
THE INSURANCE ACT 2015 How     it     affects     you     after     12th August 2016 Commercial        Insurance        Law        is        being transformed    with    what    the    UK    Government describe   as   the   “biggest   reform   to   insurance contract law since the Marine Insurance Act (MIA)   of   1906”,   the   current   legislation.   The   MIA contains   provisions   which   entitles   insurers   to avoid   cover   for   non-disclosure   and   terminate for breach of warranty. It is now outdated. The   Insurance   Act   2015   (The   Act)   modernises how   insurers   approach   commercial   insurance policies,          including          reinsurance          and retrocession   policies   that   are   entered   into   (or are    varied)    after    12th    August    2016    and    are governed     by     the     laws     of     England,     Wales, Scotland and Northern Ireland (“English Law”) While     accurate     disclosure     by     you     as     the insured   party   remains   central   to   the   new   law, the   Act   provides   a   fairer   approach   for   insurers to    follow    in    the    event    of    a    breach    of    policy requirement    and    /    or    your    duty    to    present information. This   is   intended   to   give   you   more   protection   in the    event    of    a    claim    being    rejected    by    the insurer   on   a   technicality   that   hasn’t   increased the risk of loss. At-a-glance 1 ) Duty   of   fair   presentation   replaces   the Duty of disclosure.   This    is    a    subtle    but    fundamental    shift    of emphasis in the new legislation. 1a)      Previously   policy   holders   were   required   to disclose   every   circumstance   that   they   knew,   or ought   to   have   known,   which   would   influence an    insurer    in    fixing    a    premium    or    deciding whether   to   insure   a   risk   and   on   what   terms. This   required   insured   parties   to   predict   what factors   a   hypothetical   prudent   insurer   would be      influenced      by.      The      same      obligation extended     to     brokers     acting     on     behalf     of insured parties bi)    The    Insured    must    disclose    material    facts they   know   or   ought   to   know.   The   Insured   must disclose    sufficient    information    for    a    prudent insurer   to   dig   deeper   where   clarification   of   the risk   to   be   insured   is   required.   This   places   the onus    on    insurers    to    be    proactive    and    not simply   base   policy   terms   on   assumptions   and a one-way flow of information. bii)    The    Act    says    it’s    unreasonable    for    an insurer   to   assume   that   the   insurance   buyer   in any   business   has   every   single   material   fact   to hand.   The   Act   defines   knowledge   as   including senior         management         knowledge,         the knowledge      of      the      insurance      buyer      and including information held in the business that could be established by a reasonable search. biii)   The   information   disclosed   must   be   done   in a   way   that   gives   a   clear   indication   of   risk   and circumstances     to     a     prudent     insurer.     This prevents   disclosure   submissions   that   are   too brief   as   well   as   those   that   are   a   blizzard   of   un- signposted   data.   The   broker   can   demonstrate value    –    guiding,    reviewing    and    collating    the information into a fair risk presentation. biv)   Where   the   insured   has   had   a   relationship with   the   insurer   for   a   while,   so   that   the   insurer already     holds     information     relating     to     the insurance    cover,    the    Act    recognises    that    the insurer   will   be   taken   to   already   know   some   of the information, particularly where it is    readily    available    to    the    underwriter.    This produces    a    rounded    and    relevant    picture    of the risk. 1 ) The    new    remedies    available    to    an Insurer for breach of disclosure. Previously    an    insurer    was    able    to    avoid    the policy     and     so     refuse     all     claims     under     an insurance      contract      if      the      pre-contractual disclosure duty was breached – even if the breach   was   committed   by   the   broker.   The   Act sets   out   a   range   of   remedies   in   the   event   of   a breach       of       an       insured’s       duty       of       fair presentation. a ) Deliberate     or     reckless     breach:      the insurer   can   void   the   policy   and   retain the   premium   but   ONLY   if   it   can   prove   a deliberate    or    reckless    breach    of    fair presentation.      The   onus   of   proof   lays with the insurer not the insured. a ) Non-deliberate          or          non-reckless breach:        There       will       be       multiple remedies          available          but          the responsibility    lies    with    the    insurer    to show    how    they    would    have    behaved had     they     known     all     the     material information. Bi)   If   the   insurer   would   not   have   entered   into the    contract    the    claim    can    be    refused.    The insurer   can   void   the   policy   but   must   refund   all premiums from inception. Bii)   If   the   insurer   would   have   entered   into   the contract   at   a   higher   premium   they   can   reduce any     claims     payment     in     proportion     to     the underpayment of premium. Biii)   If   the   insurer   would   have   entered   into   the contract     at     new     or     different     terms     e.g. conditions   and   exclusions,   the   extra   terms   can be      applied      retroactively      and      the      claims settlement made under the new terms. 3) Warranties and basis of contract clauses A    warranty    is    a    clause    in    which    the    insured indicates   that   a   state   of   affairs   exists   and   /   or that      it      will      comply      with      a      particular requirement. Previously,     basis     of     contract     clauses     could convert   all   representations   made   in   the   course of    a    non-consumer    contract    into    contractual warranties.    Breaching    of    a    warranty    would completely discharge an insurer from liability   for   all   risks   covered   by   this   policy   from the   time   of   the   breach,   even   if   the   warranty had   no   bearing   on   the   risk.   The   Act   changes this   and   insurers   are   no   longer   permitted   to turn information given by an insured into a warranty,   so   that   any   change   or   error   in   that information      could      result      in      the      insurer cancelling    the    policy.    Examples    of    Basis    of Contract clauses that are no longer permitted: In    proposal    forms     -    "I/We    agree    that    this proposal       form       and       all       other       written information   which   is   provided   are   incorporated into    and    form    the    basis    of    any    contract    of insurance." In   policy   wordings    -   "All   information   supplied by      the      insured      in      connection      with      the application      for      insurance      including      any proposal form, application form or otherwise and   supplied   by   or   on   behalf   of   the   insured   will be   incorporated   into   and   form   the   basis   of   the policy." 3a)   The   Act   introduces   a   suspensory   effect   to warranties   which   means   that   that   if   the   breach is   remedied,   cover   is   suspended   for   the   period prior   to   the   date   of   remedy.   insurers   can   not cancel   the   policy   and   are   obliged   to   deal   with claims that are made after the remedy date. 3b)   Where   a   loss   occurs   when   an   insured   is   not in    compliance    with    a    term    which    ‘tends    to reduce   the   risk’   of   loss,   the   insurer   will   not   be able    to    rely    on    non-compliance    to    limit    or discharge   its   liability,   if   the   insured   can   show that   its   non-compliance   did   not   increase   the risk       of       loss       which       occurred       in       the circumstances   in   which   it   did.   In   other   words, the    Act    requires    Insurers    to    demonstrate    a causal   link   between   the   breach   and   the   loss. The    provision    will    not    apply    if    the    term    in question is one which ‘defines the risk as a whole’. 4) Fraudulent claims Previously,    in    the    event    of    fraud,    there    was case    law    to    suggest    that    an    insured    party would    forfeit    the    whole    claim    and    insurers could also void the whole contract. Under   the   Act,   an   insurer   is   not   liable   to   pay   a fraudulent    claim    but    must    pay    valid    claims prior   to   the   fraudulent   claim.   The   Act   sets   out   a clear    statement    of    insurer    remedies    in    the event of fraudulent claims brought by policy holders. 4a)    The    insurer    is    not    required    to    pay    the fraudulent   claim   and   can   recover   any   money that   has   already   been   paid   in   respect   of   that claim. 4b)   The   insurer   can   give   notice   to   the   insured to   terminate   the   Policy   from   the   date   of   the fraudulent      claim.      The      Policy      does      not automatically become void. 4c)   The   Act   provides   that   insurers   will   have   the same     remedies     available     in     respect     of     a fraudulent     claim     which     is     made     by     one beneficiary   under   a   group   insurance   contract. Importantly,     the     remedies     apply     only     in relation to the fraudulent beneficiary. In   the   event   of   disclosure   breach   The   Insurance Act    2015    offers    you    fair    and    varied    options instead   of   the   hard   impact   that   comes   with   a voided policy. The   Act   comes   into   force   12th   August   2016   for all   new   policies   and   policies   renewed   after   this date.   The   duty   of   fair   presentation   under   the Act    also    applies    to    any    changes    made    to existing policies after this date.