The Insurance Act 2015
Insurance law is changing and the Insurance Act 2015 introduces reforms to the way in which Commercial insurance policies are written and how claims will be dealt with. The Act received Royal Assent on 12 February 2015 and will apply to policies incepted or renewed from 12 August 2016.
- Duty of fair representation
- Application of warranties
- Fraudulent claims.
Duty of fair representation
The Insured has a duty to disclose every material circumstance which they know or ought to know, or gives the Insurer sufficient information to put them on notice to make further enquiries.
If the Insured fails to meet these requirements the Insurer may refuse indemnity but only in circumstances where the Insurer would not have entered into the contract at all, had the full facts been known to them.
If in this circumstance the Insurer would have entered into the contract but on different terms other than relating to premium, the policy is to be treated as if those terms applied.
If the Insurer would have charged a higher premium, then the Insurer is entitled to reduce the claim payment in proportion.
Application of Warranties
“Basis of contract” clauses are abolished. It is no longer possible to incorporate statements made by the Insured into policy warranties.
What Insurers are doing to support the Act
We anticipate some of our insurers will adopt the changes in the Act, so that our customers benefit from the proportionate remedies intended in the event of non-disclosure of material circumstances in advance of the effective date of the Act.
All claims under policies incepting or renewing after the act will be dealt with as follows, subject to customer rights existing under the terms of the policy:
Non deliberate or non-reckless non-disclosure/misrepresentation
Where some of our insurers would have charged a higher premium, they will reduce the amount of the claim settlement proportionate to the premium they would have actually charged had the circumstances been disclosed.
If they would have imposed terms other than terms relating to premium, they will consider the insurance contract on the basis that those different terms had applied from the date of the breach of duty.
In circumstances where they would not have entered into the insurance contract at all, they can treat the insurance as void (as if it never existed) and refuse to pay all claims, but will return the premium.
Deliberate or reckless non-disclosure/misrepresentation
Where non-disclosure or misrepresentation is deliberate or reckless, they will have the option to treat the insurance as void and retain the premium.
Some of our insurer’s wordings do contain warranties. It is likely they will remove any warranties from existing policies by treating them as Conditions Precedent to payment of a claim.
The “Basis Clause” should be removed from their wordings and such clauses in existing policies should not apply.
Where the Insured commits any fraud in relation to a claim some of our insurers will not pay that claim. They may also give notice that the policy is terminated from the date of the fraudulent act, in which case premiums are non-refundable.
Insurer’s policy wordings and other associated literature will be changed to meet the requirements of the Act.
Whilst the Act does not come into force until August 2016, in the coming months our insurers will be working towards addressing the Act and incorporating these changes into their Commercial insurance policy wordings and Claims service to benefit you sooner.
Further information will be released as they progress, but in the meantime if you have any questions or queries relating to this communication, please speak to your normal Towan Insurance contact who will be happy to help.
We do everything we possibly can to check that we have got our facts straight, but it’s always possible that we could make a mistake (hopefully not or never would be better). Therefore we would like to make you aware that we accept no responsibility for information that may be factually incorrect or out of date, but we will do our best to make sure that all content is accurate. Our vision behind bringing the blog to the wider community is to keep our clients and prospective clients informed of their legal requirements on the different products on offer and how they may benefit your business and the new schemes we find which we think will benefit you.
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