Insurance Act 2015 - It's new and how it affects you

The Insurance Act 2015 (“the Act”) received Royal Assent last month. As a result, it comes into force in 18 months’ time. This Act will apply to the majority of insurance and reinsurance contracts which incept on or after 12 August 2016. It will be relevant not only to your firm’s professional indemnity insurance but other classes of insurance that your firm has.

The much anticipated legislation makes key changes to the obligations of insurers and insureds during both the placing process and the term of the insurance contract. Firms are encouraged to review and understand these changes when renewing or entering policies which will be caught by the Act, liaising with their legal advisers and insurance brokers.

Key provisions that the Act will introduce are:

  • Disclosure obligations - a policyholder that is looking to enter into an insurance contract will have an obligation to make a “fair presentation” of the risk. The Act provides that this will require disclosure of every material circumstance which the insured knows or ought to know; or failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purposes of revealing those material circumstances. Policyholders must make the disclosure in a manner which is “clear and accessible” to a prudent insurer. Material representations as to matters of fact must be substantially correct and material representations as to matters of expectation or belief must be made in good faith. Certain information will not need to be disclosed unless the insurer makes enquiries about it, such as circumstances which diminish the risk or of which the insurer knows or ought to know.
  • Insured’s Knowledge – an insured will be required to disclose every material circumstance that it knows or ought to know. What an insured knows covers what should reasonably have been revealed by a reasonable search of information available to the insured. For individual insureds, knowledge will extend to knowledge of those “responsible for the insured’s insurance” e.g. an insurance broker. For insured organisations, this will include the knowledge of those who are part of the insured’s “senior management” and/or those “responsible for the insured’s insurance”. Firms should have procedures in place to identify such persons so that relevant information can be captured and a “fair presentation” made.
  • Remedies – the Act provides a more proportionate regime, reducing insurers’ present right to avoid contracts altogether (although this is still available in certain circumstances). The available remedy for non-disclosure will depend on whether the failure to make a fair presentation has been deliberate or reckless and what the insurer would have done had the insured’s presentation been a fair one.
  • Warranties – all “basis of contract” clauses will be prohibited and it will not be open to parties to contract out of this. These clauses converted all representations into warranties such that any breach regardless of materiality discharged insurers from the date of the breach even if the breach was unrelated to the loss or subsequently remedied. Under the Act, breaches of warranty will become “suspensive”, which means that insurers’ liability will be suspended until the breach is remedied.
  • Fraud – insurers can give notice that the contract is terminated from the time of the fraudulent act and they will not be required to return the premium. Insurers will not be liable to pay claims to which the fraud relates, and insurers can recover payments already made on such claims.
  • Contracting-out – in respect of non-consumers, the parties can agree contract terms on less favourable terms to the insured in respect of most provisions, subject to insurers complying with “transparency requirements” set out in the Act. It remains to be seen how the insurance market for professional firms will adapt in light of the changes in the Act.

In light of these important changes, firms are encouraged to familiarise themselves with their obligations in the run up to the new Act so that they are fully prepared once the Act comes into force. The incoming Act will lead to insurers reviewing their policies and procedures, and indeed policy wording. Policyholders are advised to discuss these changes with legal advisers or their brokers at the relevant time.

To receive further information about the changes that will be brought about by the Insurance Act 2015, please contact Radhika Ruparelia or Simon Mason.

You can also obtain further information about the Act and its implications in this article»

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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Simon Mason

Partner - Executive Partner (Bristol)

Throughout my career, I have specialised in professional indemnity work acting for insurers and their insured professionals.