The Insurance Act 2015 comes into effect on 12 August 2016 and is set to shakeup how insurance law affects businesses in the UK.
The new law requires far greater disclosure on the risks businesses pose to insurers before starting, renewing or renegotiating any contract of insurance.
What is the Insurance Act 2015?
The Insurance Act 2015 makes important changes to the way businesses need to act in order to ensure that their insurance policies are effective and valid. It contains new rules about what businesses are required to do before their insurance policies are commenced, renewed or varied.
What Does the Insurance Act 2015 Apply to?
The Insurance Act 2015 applies to all insurance policies which are taken out, renewed or varied on or after 12 August 2016 and governed by the laws of England, Wales, Scotland or Northern Ireland.
Why is it Important to Understand the Changes the Insurance Act Introduces?
If your business fails to disclose the right information you could breach the terms of your insurance policy. This can leave you uninsured until you rectify the situation - so it is best to make sure to get it right first time when you take out or renew your business insurance.
The Insurance Act 2015 creates a new duty that, before a contract of insurance is entered into, renewed or varied, the insured business must disclose “every material circumstance which it knows or ought to know”. This may include the provision of documents, to provide the insurer with a fair presentation of the risk it is being asked to insure. Failing that, a business must disclose enough information so that the insurer is aware that it needs to make further enquiries to obtain this information. This is known as the ‘Duty of Fair Presentation’.
What Does Duty of Fair Presentation Mean?
The ‘Duty of Fair Presentation’ is everything that a business must provide an insurer with to give them a fair presentation of the risks within their business. This must include disclosure of every material circumstance which the business knows and that which it ought to know.
What the business knows and ought to know includes the following:
- What the senior management team at the business knows – senior managers are also expected to disclose any matters within the business that they suspect will impact the insurer’s decision.
It is not sufficient to leave such matters unconfirmed or to not investigate something you might suspect will have an impact. You cannot turn a blind eye to events or circumstances that may materially impact upon your insurance.
- What the individuals who are in charge of sorting out the business insurance know.
- Information that would realistically be revealed by a ‘reasonable search’ – so it is worth checking with your insurer beforehand what they consider a ‘reasonable search’.
A business does not need to disclose information which:
- Diminish the insurance risk.
- The insurer already knows about.
- The insurer ought to already know about.
- The insurer is presumed to already know.
- The insurer has previously waived.
What Happens if a Business Fails to Provide Duty of Fair Presentation?
Previously a ‘material non-disclosure’ permitted an insurer to treat a contract as void or voidable (that is, at an end or having never come into existence). The Act has replaced this with a range of proportionate remedies reflective of the seriousness of the breach.
If a business breaches the duty of fair presentation then the insurer will be able to avoid the policy and retain the premium if it can show that the omission was deliberate or reckless.
If the insurer is unable to show that the breach was deliberate or reckless, it can claim remedies which reflect what it would have done if it had known about the (undisclosed) information before entering into the contract.
If an insurer would have written the policy on different terms or taken a higher premium as a result of the information which was omitted from the business’ disclosure then the contract will be treated as if it was entered into on those terms or the claim will be reduced proportionately in line with the higher premium.
If your business has any issues resulting from changes brought in by The Insurance Act 2015 please contact our business legal services team on freephone 0800 112 4957 or contact us online and we’ll be happy to help.
Rebecca Young is a dispute resolution solicitor at Slater and Gordon Lawyers in Manchester.