Insurance Act 2015 Reforms

The Insurance Act 2015 (the Act) will come into force 12 August 2016 and introduces a number changes.

The Duty of Fair Presentation

The “duty of disclosure” is to be replaced by “the duty of fair presentation” which, broadly, means:

• the policyholder needs to provide all information or circumstances which he or she knows or ought to know; or
• The policyholder needs to provide sufficient information to put the insurer on notice that it needs to make further enquiries.

All the information provided must be substantially correct, given in good faith and be reasonably clear and accessible.

The remedy for breach has been changed significantly. Previously, breach allowed the insurer to avoid the policy. Whilst this remains under the new Act where the breach was deliberate or reckless, a new system has been introduced for innocent or non-reckless breaches:

• If the insurer would not have entered into the contract at all, the insurer can avoid the contract.
• If the insurer would have entered into the contract on different terms, it is treated as having done so.
• If the insurer would have charged a higher premium, the insurer may reduce the amount to be paid proportionately.

Breach of Warranty

Under the new Act, a breach of warranty may still allow an insurer to avoid liability, but there are two limitations:

• If the breach is capable of being remedied; and
• If the breach did not increase the risk of loss which occurred.

Fraudulent Claims

Under the new Act, if a policyholder makes a fraudulent claim, the insurer is not liable to pay the claim and can treat the contract as having been terminated from the date of the fraudulent act.

Basis of Contract Clauses

Basis of contract clauses intended to turn pre-contractual representations into warranties. Therefore pre-contractual representation that were incorrect, could allow the insurer to avoid the policy. These clauses have been abolished under the Act.

Contracting Out

Parties can also contract out of different terms, provided that the terms are sufficiently transparent. This does not include the basis of contract clauses above which is prohibited.

To discuss how the changes to the Act might affect you please contact Anjon Mallik, or Catherine Woodward.