Michael Luckman: Well after 100 years we've got an entirely new Insurance Act that's going to change the way in which business insurance is going to operate. David Breslin, one of our partners specialising in insurance, is going to take us through some of the detail.
Well, thank you for coming along David - you're our man on insurance. Can you tell me why, after 106 years, we've got a new legislation on insurance?
David Breslin: Well, it seems like a long time doesn't it Michael but, in fact, the 1906 Act itself was a codifying Act so it encompassed decades of existing insurance legislation into that one Act. It really has stood the test of time actually - over 100 years. It's covered more than just marine insurance. It covers the entire marine/non-marine, in fact, insurance contracting generally in the UK so it's been a pretty decent Act for that period of time. The change has not been fast admittedly. The Law Commission started its reports and its assessment in 2006 so it's been 10 years in the coming but the changes are significant and, I think, it's important that they are considered by all businesses.
Michael: So when will the new Act begin to apply to businesses?
David: Well, the legislation itself came in last year in February 2015 and that was after 10 years of consultation through the Law Commission but it doesn't take effect for another 18 months so it becomes effective in August 2016 this year, 12 August. So that means that any contracts entered into after that date are going to be affected by the new Act.
Michael: So how does the new Act apply?
David: Well, the new Act applies to all business insurance contracts and that's important to understand that it is business insurance contracts rather than consumer contracts. It applies to all business insurance contracts entered into after 12 August 1996 and those that are subject only to English law. It's not a retrospective Act, in that sense, so it doesn't apply to existing contracts.
Michael: So what are the key changes?
David: Well, there are a number of changes but, I would say, the major changes are, there are four in fact, there is a new duty of fair presentation and that's a duty on the insured to make a fair presentation of his risk to the insurer.
There is a new duty to carry out a reasonable search and that's a very interesting new concept for an insured to grasp in the new legislation - he has to carry out a reasonable search for information which he must give in his fair presentation to the insurer.
There are some changes as to what happens if you breach the new duty of fair presentation and there are some changes as to how breach of warranties are dealt with in the new Act and those, I think, are the major changes that we're going to see.
Michael: So how does the old duty of disclosure change?
David: Well, it's important to understand that the insurance contracts as contracts of utmost good faith doesn't change - that still continues to exist in a modified form but the old duty of disclosure changes into a duty to make a fair presentation of the risk and that's a very important change for business because the old duty only gave the insured one opportunity to present their information to the insured and any breach of that information could lead to a complete avoidance of the policy. The changes to the duty of fair presentation now give the insurer more options.
Michael: So, you mentioned a reasonable search - can you give me a bit more detail on that please?
David: Yes, I mean the reasonable search is one of the most significant changes in the new Act - it gives the insured a positive duty to carry out a reasonable search of his business in order to obtain information and that information is the information which will comprise what he presents to the insurer as his fair presentation so it's extremely important. It will scope the knowledge of the insured.
Now, knowledge in the Act is talked about in two ways. One is an actual knowledge of the insured and another is deemed knowledge - what he ought to know in the course of his business and those two are defined further in the Act, the actual knowledge is considered to be the actual knowledge of senior management in the business and the deemed knowledge is knowledge that can be obtained by reasonable search and so that's how a reasonable search becomes very important to the, to businesses who are purchasing insurance after August 2016.
Michael: I understand the remedies for breach of warranty are changing - is this helpful to the insured?
David: Well, it is. The breach of warranty remedies that currently exist have always been considered to be slightly unfair and very much weighted towards the insurer. The way the existing law works is that any breach of an insurance warranty whether it relates to the loss can give rise or does give rise to automatic termination of the policy going forward and that's always been considered to be a very draconian remedy available to the insurers. The position now changes - the breach of warranty, if it occurs, can be remedied under the new Act and it previously couldn't and all breaches of warranty under the new Act are considered suspensory in nature so they can be remedied prior to a loss taking place.
Michael: So how should General Counsel prepare their businesses for the new Act?
David: Well, I think, that General Counsel should be very clear that it's an important new Act for business and that they do need to make some preparations in advance of August 2016. They need to look at their existing insurance policies and they need to identify how they are going to make their duty of fair presentation on their new renewals.
Now, they can take some steps in advance of that. The key changes are going to be in relation to what their actual knowledge and what their deemed knowledge is and how you conduct a reasonable search and they can agree with insurers or, at least, can certainly look to agree with insurers the scope of the actual knowledge - who in the business has that actual knowledge? It's defined in the Act as senior management so an insured should identify who, in his senior management, he is going to assess in terms of their actual knowledge. On the reasonable search side, it's going to be different for a small sole trader business than it is going to be for a multi-national corporation and, equally, the scope of a reasonable search can be agreed or looked to be agreed with the insurer so that there is no debate subsequently as to whether or not the right processes have taken place.
Michael: That was very interesting David. Thank you very much.
David: Thank you Michael.
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