The Insurance Act 2015 will have a significant impact on both the placement of commercial insurances and the handling of the commercial insurance claims when it comes in to force on 12thAugust 2016 and both brokers and insurers should begin preparing for it now.

In terms of placement the fact that Act replaces insured’s duty of utmost good faith with a duty of “fair presentation” and introduces proportionate remedies for non disclosure will probably mean that:

  • insurers will need to ask more questions and so will adapt their proposal forms, statements of facts and questionnaires to ensure they enquire more specifically about material facts of a risk
  • the Act also allows insurers to contract out of some of the changes of the Act (subject to transparency requirements) so insurers may also change their policy wordings
  • brokers will have to ensure both they are aware of any such changes to insurers information requirements and policy wordings. They will need to be alert to the fact that insurers may use the policy wordings to contract out of the changes and also brief clients appropriately agreeing them what information they need to provide at inception
  • both brokers and insurers are also aware that currently they have a duty to explain to insured's that the insurance contract is subject to a duty of utmost good faith and explain the consequences if they breach this duty. Often client documentation contains this explanation. Client facing staff are going to need to be trained in the change to the duty and client documentation changed accordingly

In terms of claims, the Act not only changes the law of disclosure but bans the use of “basis of contract” clauses and more importantly changes the law with respect to warranties so breach of a warranty only allows the insurer to suspend coverage rather than void the policy as a whole.

  • Although insurers may contract out of some of the changes their policy defences for both non disclosure and breach of warranty will be reduced
  • Brokers negotiating claims will need to be aware of the changes in law and any resultant policy wording changes 

I attach a link to a briefing by Thomas Cooper on the Act but brokers and insurers should keep up to date with how market practice changes as a result.

The British Insurance Brokers Association is issuing a comprehensive guide for brokers at their conference on 13th May 2015.

Posted by Neil Park February 14, 2016