UK: UK Insurance Act 2015 In Force

Last Updated: 30 September 2016
Article by Ronald Kwan Ngai Sum

The Insurance Act 2015 (the "Act") has come into force on 12 August 2016, marking the most significant reform of the UK insurance law. This Act applies to all insurance policies entered into on or after 12 August 2016, including renewals, and to variations to existing policies made on or after that date.

The past century has witnessed apparent injustice created by some rigorous rules in the outdated insurance law, and its incompatibility with the modern commercial practice. This article summarizes the major changes to the UK insurance law regime brought about by the Act that readers may find useful.

1. Duty of Fair Presentation

The Act replaces the duty of "utmost good faith" ("Uberrima fides") by the duty of "fair presentation" of the insured.  This requires the insured to (i) disclose "every material circumstance" which the insured knows or ought to know, and (ii) provide the insurer with "sufficient information" to put a prudent insurer on notice that it needs to make further enquiries.  The requirement of "ought to know" requires the insured to know what should reasonably have been revealed by a "reasonable search of information" available to the insured, including a search for information held within the insured's organization, by its agent or by person covered by the insurance policy.

This change justifies a more active role of insurers to assess the risks they underwrite, including directing the insured's "reasonable search of information", or outline particular or potential risks to the insured, who would then be aware of what the insurer considers to be material to the relevant risk.

Notwithstanding the interpretation of "ought to know", there may be issues between parties to the insurance policy as to the extent of a "reasonable search for information", which may create disputes in future.

2. New Remedies for Breach of the Duty of Fair Presentation

Insurers are no longer entitled to avoid the entire policy where there is a failure by the insured to disclose all material information.

An insurer will only be entitled to avoid the entire policy and refuse all claims without returning the premiums paid where the breach of the duty of fair presentation is deliberate or reckless. Where the insurer is unable to show any deliberate or reckless intent, but can show that it would not have entered into the contract on any terms in the absence of such breach, it can avoid the entire policy and refuse all claims, but the premium paid must be returned in any event. Where the breach is neither reckless nor deliberate, the remedies are less draconian to reflect what the insurer would have done if it had known the undisclosed information before entering into the contract. For instance, if the insurer would have entered into the contract, but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim by way of a specific mathematic formula.

This would create uncertainty in the insurance industry. Due to vagueness of the extent of a "reasonable search of information" as discussed above, from the insured's perspective, there is always a risk that the claims would not be covered by a policy on such ground. In addition, it is questionable whether the brokerage fees will be affected in view of these changes.

3. Warranties

Upon breach of a warranty by an insured, the insurer's liability under the policy will be suspended until the breach is remedied, rather than being entirely discharged. During the suspension, the insurer will have no liability for any claim arising from the policy. Once the breach is remedied, the insurance policy resumes in full force. An insurer is also prevented from avoiding an insurance policy if a warranty ceases to be applicable due to change of circumstances, unlawfulness or waiver by the insurer.

Furthermore, an insurer should not be entitled to avoid a claim if the insured's breach of a term, including a warranty, is not related to a loss; there must be a nexus between the loss and the breach of a term. If the breach of a term, which is not relevant to the actual loss, could not have increased the risk of the loss, the policy cannot be avoided. This can be illustrated by an example of a household policy containing a warranty that the insured must have a working sprinkler system. A burglar breaks into the household where the sprinkler system is not operative. In such circumstances the insured can argue that even if there had been a working sprinkler system, the theft would still have occurred. In other words, the risk of loss would not have been increased by a failure of having a working sprinkler system.

To determine whether or not a breach of a term is relevant to the actual loss, the test is whether the term "defines the risk as a whole". This again brings uncertainty in the drafting and application of warranties and other terms regarding a particular loss, which will create disputes in the future.

4. Abolishment of "Basis of the Contract" Clause

The Act abolishes the "basis of the contract" clause in non-consumer contracts. It will not be possible to contract out this provision. Prior UK insurance law allowed an insurer to rely on the answers of the insured in the proposal form to be the basis of the insurance policy, regardless of its materiality. The effect of this clause is to incorporate the answers of the insured into the policy even though they are not set out in the insurance policy. This would be fatal to the insured if the answers in the proposal form is incorrect, whether deliberate or not, and the insurer is entitled to deny coverage. The position now is that any such "basis of the contract" clause in relation to an insurance policy will be deemed invalid.

5. Fraudulent Claims

If the insured makes a fraudulent claim, the insurer is not liable to pay the claim, may recover sums paid in respect of the loss and may give notice terminating the insurance as from the date of the fraudulent act without returning the premium. Claims arising from an event before the fraud would, however, continue to be payable.

6. Contracting Out Provisions in this Act

Parties to a non-consumer contract will be entitled to agree terms which are less favorable to the insured than those set out in the Act, except for "basis of the contract" clauses. Such contracting out is subject to certain transparency requirements that (i) the insurer should take sufficient steps to draw disadvantageous terms to the insured's attention, and (ii) the disadvantageous term must be clear and unambiguous. In determining whether "sufficient steps" have been taken, one has to take into account the characteristics of the insured and the circumstances of the transaction. These requirements may cause uncertainties.

The Act does not go further to define what amounts to "sufficient steps". Does the principle of "reasonable measures" to draw onerous terms to the attention of the signing party established in the leading British case Tilden-Rent-A-Car1, such as making the provision bold in a written agreement or giving sufficient time to read, satisfies this requirement? If satisfied, that does not change the current position of the common law. This will be left to the court to decide when disputes arise. Besides, it is always open to parties to argue whether a provision is "clear and unambiguous" or not. The requirement of "clear and unambiguous" may depend on factors including, but not limited to, wording of the provision, knowledge and experience of the insured, explanation by the insurer and other circumstances of the negotiation and transaction.

The Insurance Act 2015 has made far reaching changes to the existing UK insurance law regime. It enhances the protection of the insured by putting the burden on the insurers in actively obtaining information from the insured, rather than passively relying on the insured and its broker to provide all relevant information. On the other hand, this Act imposes severe penalties on the insured who makes insurance claims in bad faith. This Act also creates uncertainties.

Footnotes

1 Tilden Rent-A-Car Co v Clendenning (1978) 83 DLR (3d) 400 (CA, Ontario)

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
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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