UK: Big Changes Coming In English Commercial Insurance Law: The United Kingdom Insurance Act 2015

Key Points

  • The United Kingdom Insurance Act 2015 ("Act") comes into force on August 12, 2016 and applies to policies placed or varied on or after that date.
  • The Act reviews disclosure obligations on those seeking commercial insurance.
  • The Act provides for imputation of certain information to policyholders and to insurers alike.
  • The Act moderates the consequences of breaches of certain policy terms.
  • The Act restricts the extent to which insurers can argue that information provided to them has been warranted (and seek to deny indemnity as a result).
  • In an amendment made by the UK Enterprise Act 2016, a provision has been inserted into the Act that, from May 4, 2017, will imply into all contracts of insurance governed by English law a provision whereby if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time.

Background

The Act is the product of a joint project undertaken by the Law Commission of England and Wales and the Scottish Law Commission. The goal of this project was to study the state of commercial insurance law in the UK and to make recommendations deemed to improve and modernize dealings between policyholders and insurers in respect of the key areas of risk placement and claims. This work resulted in the Insurance Act 2015, the coming into force of which was delayed until August of this year.

Key Changes Introduced by the Act

The Act legislates in four fundamental areas:

  1. It addresses the information known to (or deemed to be known to) and disclosed among the parties to an insurance contract at the time of risk placement.
  2. It controls the consequences of alleged failures to disclose/misrepresentations and certain policy breaches.
  3. It restricts the form of wordings that can be used by insurers to impose warranties.
  4. Effective May 4, 2017, it will impose upon insurers an obligation to pay sums due in relation to any claim within a reasonable time.

Each of these is briefly outlined below.

Knowledge, Deemed Knowledge, and Disclosure at the Time of Risk Placement

The Duty of "Fair Presentation." Under English insurance law, policyholders seeking to obtain insurance traditionally have been placed under an obligation to make a disclosure of those things that are material to the risk being underwritten. Under the Act, however, a policyholder is required to disclose not only those things it knows but also those things that it "ought" to know. As to those things it "ought to know," the Act includes information that would have been revealed by a "reasonable search." In addition, for policyholders that are entities, the Act deems the entity to know information held by its senior management and those procuring its insurance.

Observations:

  • While the Act applies to policies placed or varied by August 12, 2016, the disclosures made for such insurances are highly likely to be made in advance of policy inception. In that respect, the Act could have something of a retroactive reach (applying new law to disclosures made before that new law is in place). Therefore, policyholders must be mindful of these requirements when involved in such placements or renewals.
  • The boundaries of what will be taken to be a "reasonable search" are not well known, and they are likely to be elusive.
  • The scope of persons included within the categories of "senior management" and "those procuring insurance" is also not easily determined.
  • Protection is given in respect of certain types of confidential information.
  • Insurers will likewise be deemed to know certain information available to them.

Remedies if the Duty of Fair Presentation is not Discharged. Under current law, insurers are open to argue that a failed duty of disclosure (or misrepresentation) can, in certain circumstances, void the insurance ab initio. The Act eliminates this as an automatic consequence of material breach except in cases of reckless or intentional conduct. Instead, the Act will require an insurer to prove materiality, and a court will determine what the insurer would have done if the full facts had been known to it. The Act therefore adopts a "proportionate" approach more akin to that found in Civil Code countries.

Observations:

  • Under some circumstances, if the insurer can establish that it would not have written the insurance at all, then avoidance may still be available, subject to a return of premium monies.
  • If the court finds that the risk would still have been written, but at a higher premium, then that higher premium will be imposed retrospectively (by offsetting against claim monies).
  • If the court finds the insurer would have written the insurance but on different terms, then those different terms will be held to apply, and the claim will be adjusted accordingly.
  • The outcome of these tests may well turn on the proof available and on which party has the burden of proof.

The Act's Effect on Breaches of Policy Terms and Conditions

The Act introduces a significant change to the English law of "warranties" in insurance policies. Under current (pre-Act) English law, a breach of warranty in a policy of insurance, if established, renders that policy void from the date of breach. The Act eliminates this consequence. Rather, breach will be held to suspend the policyholder's right to indemnity, which right will be reinstated automatically once the breach is remedied, if such is possible. The Act also works a significant change in English insurance law by eliminating an insurer's ability to defend against a claim for indemnity based on a policyholder breach that did not increase the risk of loss.

Observations:

  • The Act does away with mechanical or technical breaches as a significant risk, focusing on those that actually are material.
  • The Act places the burden of proving nonmateriality on the policyholder.

The Act's Effect on Certain Standard Policy Terms

The Act abolishes standard policy terms that "deem" information to have been warranted. Under current English law, insurers are permitted to use "Basis of Contract" clauses, whereby certain information or representations are deemed to be the basis of the insurance contract. These clauses have been given the legal effect of warranties, with the resulting risk that a breach, even if innocent, could result in the invalidation of insurance. These are no longer permitted.

Observation:

  • The abolition of "basis of contract" clauses was deemed to be so important that insurers are not permitted to contract out of this provision.

The Act's Effect on the Time to Pay Claims

For policies placed or varied on or after May 4, 2017, Section 13A of the Insurance Act 2015 will imply a term into those policies whereby if the insured makes a claim, the insurer must pay any sums due in respect of that claim within a reasonable time.

The concept of a "reasonable time" is a flexible one and is likely to generate disagreement between insurers and policyholders. It is important to note, however, that this represents an improvement for policyholders because English law currently does not recognize per se remedy for late settlement of an insurance claim.

Conclusion

This is a nontechnical summary of the Act and its significant changes. Of necessity, there are nuances and implications that cannot be described here. In particular, the Act permits insurers to seek to contract out of (or around) some of its provisions, and it also makes certain amendments to the Third Parties (Rights Against Insurers) Act 2010. Moreover, the requirements of the Act could affect the manner in which policyholders should arrange their dealings with others, such as brokers and trading partners.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Fenwick Elliott LLP
Clyde & Co
Troutman Sanders LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Fenwick Elliott LLP
Clyde & Co
Troutman Sanders LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions