The United Kingdom Insurance Act 2015 – An Update
In 2015 we sent to our various clients and contacts advice about the implications for insurers of the new UK Insurance Act 2015 (“the Act”). A copy of this original advice can be found further below.
The Act becomes law in the UK later this week, on 12 August 2016. This will mean that claims made under policies which are subject to English law and practice (which is of course a common provision) will be governed by the Act.
Insurers should also note that the new Act will be amended by provisions of the Enterprise Bill 2015 (“the Bill”). The Bill is expected to come into force in the UK in 2017.
The Bill will introduce an implied term in insurance contracts that insurers will have to pay a valid claim within a reasonable period of time. If insurers do not do so, the claimant will have the contractual right to sue the insurer for losses suffered as a consequence of an unreasonable delay.
What constitutes an unreasonable delay will of course depend in part on the nature and circumstances of the individual claim, particularly the size and complexity of the loss.
The extent to which an assured may be able to claim for consequential losses will be determined in accordance with the usual provisions of English contract law. In particular, an assured would in principle be able to recover those losses, caused by unreasonable delay by an insurer, that could be reasonably said to have arisen in the normal course of events. This is often referred to as a loss that is “reasonably foreseeable”.
An assured would also be able to recover those losses, caused by unreasonable delay by an insurer, if the insurer was made aware, when the policy was written, of circumstances which would mean that the prompt payment of claims was especially important.
Insurers will be able to contract out of the late payment provisions of the Bill (except in the case of consumer insurance). But if insurers do wish to contract out, then they will need to ensure that such contracting out, and its impact on the assured, is expressed clearly and brought to the attention of the assured before the commencement of the policy (or before the policy is amended). Even if an insurer contracts out of the late payment provisions, the insurer may still be liable for losses caused by any deliberate or reckless delay in payment of a claim.
We hope that the above is of interest. Should you have any comments or questions then please do not hesitate to contact us.
***********The Following Was Our Original Advice to Clients***********
The United Kingdom Insurance Act 2015
Implications for Marine Insurers
Introduction
The new UK Insurance Act (the 2015 Act) is due to come into force in August 2016. The new Act incorporates some significant changes and will potentially have an impact on marine insurers.
As is well known, many policies written outside the UK, especially if based upon Institute Clauses (such as the Institute Cargo Clauses), will be subject to English law and practice, albeit of course that the interpretation put on such law and practice will often be that of a foreign court.
For over one hundred years, the law as it relates to marine insurance in the UK has been based upon the Marine Insurance Act 1906 (MIA). The 2015 Act will serve to amend the MIA in several important respects, some of which will directly concern those working in the field of marine insurance. The most important of these, from a marine insurer’s perspective, are discussed briefly below.
Should you require our further or more detailed advice on anything in this bulletin (or a copy of the 2015 Act) then please do not hesitate to contact us.
Disclosure by the Assured/Fair Representation
Currently, Section 17 of the MIA requires the Assured to disclose to the Insurer, before the insurance contract comes into force, all information (with certain exceptions) material to the risk. If the Assured does not do so, the Insurer is entitled to avoid the policy.
The 2015 Act replaces the relevant provisions in the MIA in such a way that the onus with regard to disclosure is no longer solely on the Assured. In particular, under Section 3 of the 2015 Act, the Assured now has a duty to make a fair presentation of the risk. This duty requires the Assured to disclose “every material circumstance” known by the Assured or that ought to be known by the Assured (as was the case under the MIA). Or, failing that, the Assured must provide “sufficient information” such that insurers become aware of the need to make further enquiries. The effect of this is that, when the 2015 Act comes into force, there will be a greater obligation on insurers than there is currently to take an active role in seeking information from the Assured in relation to the risk to be covered.
As mentioned, if the Assured fails in his duty of disclosure under the old MIA, the insurer is entitled to avoid the policy, even if the failure to disclose does not relate to the loss. Importantly, this will no longer always be the case after August 2016.
Under the 2015 Act, the insurer will only be entitled to avoid the policy if the failure to make a fair presentation of the risk was deliberate or reckless and also where the Insurer can show that it would not have entered into the contract of insurance had the information been disclosed by the Assured.
If the failure on the part of the Assured to give a fair presentation of the risk is not deliberate or reckless, the Insurer is only entitled to avoid the policy if he can show that, had the Assured given a fair representation of the risk, the Insurer would not have agreed to enter into the contract at all. But if the Insurer would still have entered into the contract had he known all the facts, but just charged a greater premium or written the policy on different terms (such as applying a higher deductible, for example), then the insurance will remain in force but on those new terms.
Warranties/Basis of Contract Clauses
Sections 33-41 of the MIA deal with warranties. Certain warranty provisions found in the MIA have been criticised over the years for the apparently harsh outcomes suffered by Assureds as a result of their effect.
This is especially the case with respect to Sections 33 and 34 of the MIA which discharges an Insurer from all liability under a policy from the point in time that a warranty is breached by an Assured even if the loss is unconnected with the breach of warranty. Furthermore, even if the Assured puts things right and complies with the warranty before the loss is suffered, the Insurer is still discharged from liability.
The 2015 Act significantly dilutes the effect of a breach of warranty. The relevant provisions within the MIA are effectively replaced by Sections 9 to 11 of the 2015 Act.
In particular, the 2015 Act now makes it clear that if an Assured is in breach of a warranty but later complies with the warranty before the loss is suffered, an Insurer will not be able to point to the breach of warranty to avoid liability for that loss.
Furthermore, under the 2015 Act, an Insurer will only be able to avoid liability for a loss following a breach of warranty (or indeed any term relating to a particular type of loss) if the breach of warranty led to or increased the chances of the loss arising. These new provisions (on which this is just a brief summary) are arguably the most significant changes introduced by the 2015 Act.
Connected with this is the fact that the 2015 Act effectively invalidates so called “basis of contract” clauses. Any clause in the policy which seeks to turn a representation made by the Assured before the contract comes into force into a warranty (and which would discharge the insurer from all liability in the event of misrepresentation by the Assured, even if immaterial to the risk), will no longer have any effect once the 2015 Act comes into force.
Fraudulent Claims
Under the new Act an Insurer may chose to terminate a policy with immediate effect from the time when a deliberate fraudulent act first occurred without any obligation to return the premium. This entitles Insurers to decline a claim that would otherwise have been valid, if the event bringing about the claim arises after the fraudulent act. In fact, this reflects current UK case-law and the 2015 Act just seeks to make the position clear.
Summary
- Responsibility for disclosure by the assured shifts more to a duty of positive enquiry by insurers
- A breach of warranty may result in temporary suspension of cover until the breach is remedied and only if the loss relates to the breach of warranty.
- A policy may be terminated from the point of a fraudulent act
