The Insurance Act 2015 (the Act) came into force on 12 August 2016, introducing major changes in English law in relation to insurance and all forms of reinsurance.
It applies to all contracts of insurance and reinsurance governed by English law entered into after 12 August 2016. This includes renewals, amendments and endorsements to existing contracts.
Many articles and commentary have been published dealing with the new Act. Here, we wanted to draw the attention of those responsible for the purchase of insurance and reinsurance to the application of this new Act so that the key advantages it offers to policyholders are not overlooked in the course of upcoming insurance placements, amendments and renewals. The three areas discussed below are worthy of particular note: disclosure, warranties, and basis of contract clauses.
Disclosure English insurance law which predated the new Act was weighted in favour of the insurer in a number of respects. First and foremost, the remedy available to the insurer for a breach by the policyholder of its obligation to give full disclosure of facts and circumstances relevant to the risk insured — the avoidance of the policy from the beginning — irrespective of whether the failure by the insured was minor, whether it had any bearing on the loss which actually took place or whether the insurer would have accepted the risk on different terms had full disclosure been given. The new regime removes the insurer’s remedy of avoidance (save for cases of deliberate non-disclosure or recklessness).
In its place, the Act provides that the insurer’s remedy will depend on what would have happened at the time of placement had the failure to disclose not occurred. For example, if the insurer would have still accepted the contract but on different terms, those terms would be applied to the circumstances of the claim and, dependent on those terms, the insured’s claim may be unaffected.
Under the old regime, the policyholder was required to disclose every fact and circumstance material to the risk being insured; under the new regime, the policyholder’s obligation is to make a fair presentation of the risk. This obligation may be fulfilled even though the insured does not disclose every fact and circumstance but does disclose sufficient information to alert a prudent insurer to the need to ask further questions.
Warranties Under English law prior to the Act, a breach of a warranty by a policyholder automatically brought the insurance contract to an end at the moment of the breach – irrespective of whether the breach was minor or causative of the loss which occurred.
Under the new Act, a breach of warranty suspends cover. An insurer cannot rely on a breach of warranty if the breach is put right prior to a loss. Furthermore, an insurer can no longer rely on a breach of warranty if the breach is entirely unconnected to the loss which occurred. For the insurer to be able to rely upon the breach of warranty, there now has to be a causative link between the breach of warranty and the loss.
Basis of contract clauses Under the old regime, a particularly iniquitous arrangement was the classification of answers of a policyholder to questions in a proposal form (an application or the equivalent) as being ‘the basis of contract’. In effect, the insurer was entitled to avoid the policy if there had been any inaccuracy in the answers given. These clauses are abolished under the new Act.
With the exception of the provisions relating to the basis of contract clauses, it is possible for the parties to contract out of the new English insurance law provisions. It is, therefore, very important when considering any new contract, amendment or endorsement after 12 August to have the provisions identified in this Alert and the other provisions of the Act in mind so that the advantages which it can provide are appreciated and are not given away without good reason.