Insurance Act 2015

The Insurance Act 2015 came into force on the 12^th of August 2016. It applies to business insurance policies and follows legislation already introduced for consumer insurance.

The new Act changes what an insurer can do following non-disclosure of risk information by an insured. Previously an insurer could avoid claims, as well as cancel policies without premium refund. This was seen as unfair, particularly where the non-disclosure was unintentional. It was also contrary to modern insurance practice and one of the reasons for the new legislation. The action available to an insurer will now depend on whether non-disclosure by an insured was deliberate or reckless, or otherwise.

At best, non-disclosure, whether deliberate or not, will delay claims settlement by insurer. This is likely to put added financial pressure on a business at the time of a major loss. Business managers should understand their responsibility for the disclosure of relevant information and what they can do to avoid non-disclosure. For larger businesses, this should include a documented search for information with questionnaires completed by others, or email trails. Evidence of a search for information can be used to prove that non-disclosure is not deliberate or reckless.

Interestingly, the Act defines individuals who must disclose information. This is new and includes specifically senior managers, anyone involved in insurance procurement, insurance advisers and other agents of the insured, and anyone else who would benefit from the insurance. The Act also rewrites the rules around insurance policy conditions and warranties. Of particular mention is the following –

• Any rule of law that breach of a warranty (express or implied) in a contract of insurance results in the discharge of the insurer’s liability under the contract is abolished
• A material representation made by an insured cannot be converted automatically into a policy warranty, even if declared to form the basis of the contract
• An insurer will still be able to refuse to pay a claim, but only whilst a warranty has been breached
• The insurer cannot refuse to pay a claim if the warranty is not relevant to the loss.

There are other limitations around changes in circumstance and legality.

Finally, anything in an insurance policy that puts the insured in a worse position than in accordance with the Act will have no effect. However, an insurer can contract out of this and include policy terms that are against the provisions allowed by the Act. This is subject to a test of transparency and does not apply to warranties resulting from representations made by the insured.