By Graham Sutton, Associate Solicitor at Hay & Kilner
The Insurance Act 2015 (IA 2015) came into effect on 12 August 2016 and applies to all commercial contracts of insurance, and in part to consumer insurances. The Act changes the way in which insurance is conducted and represents a significant change to the legal framework of insurance contracts.
There are a number of fundamental changes that have been introduced, all of which will have an impact on those insurers and insured across the industry, given the heavy reliance on insurance products. These changes include:
- A new concept of “a duty of fair presentation”. The insured will have to disclose every material circumstance that they know or ought to know to put a prudent insurer on notice that it needs to make further enquiries to reveal the material circumstances. This applies to disclosure before the contract is concluded, new contracts, renewals and mid-term variations.
- Disclosure of facts must now be made in a reasonably clear and accessible manner, and material representations of facts must be “substantially correct”. Further, material representations of expectation or belief must be made in “good faith”.
- Where there has been a breach of “warranty”, being a particular type of contractual term, the Act now prevents the insurer being able to discharge all liability for the risks covered by the policy from the time of the breach. Where a deliberate or reckless breach of duty takes place, insurers will still be able to avoid the policy in full and retain any premiums paid. The responsibility will be with the insurer to show that a breach was deliberate or reckless.
For other breaches, the remedies are based on what the insurer would have done if the breach had not taken place and the insured had made a fair presentation of the risk.
- What are known as “basis of contract” clauses are now abolished. Insurers will now generally remain liable for all legitimate losses suffered by an insured if a fraudulent claim is made.
- The duty of good faith remains but the right to avoid the insurance policy if the other party fails to act in accordance with utmost good faith has now been removed.
- Parties to non-consumer insurance contracts can agree less favourable terms than those in the Act. However, it is not possible to contract out of the new prohibition on the “basis of contract” clauses.
Construction companies will need to review how they have conducted their disclosure to insurers and make sure that they comply with the new requirements. It might seem like a lot of work, but it’s important that you/your project fully complies with the Act’s provisions and that you have appropriate and effective internal procedures in place to ensure the relevant employees are fully conversant with the new requirements. Yes it might make the process a little longer, but do you want the job doing right, or do you want the job doing fast?