The Insurance Act 2015 (the 2015 Act) will come into force on 12 August 2016 in the UK and will apply to policies obtained or amended from that date. It also amends the Third Parties (Rights against Insurers) Act 2010 (the 2010 Act) enabling it to finally come into force.
Policyholders will welcome the changes as claims should be paid quicker and it should be harder for insurers to void cover for a technical breach of warranty. They will also be able to pursue insurers for insolvent companies and individual without having to obtain a costly judgment.
For insurers, the non-disclosure obligations and clarification of the way in which fraudulent claims are dealt with should be seen as positive developments.
The new Acts will improve the prospects of making recoveries from insurers and, in particular, in relation to an insolvency situation.
Below we set out what you need to know.
The 2010 Act will apply to both companies and individuals. It will be relevant to those with claims against insured professionals or those receiving such claims.
Under the 2010 Act third parties will be able to:
Under the current Third Parties (Rights Against) Insurers Act 1930 a party cannot bring a claim against an insurer without first obtaining a judgment against the insured. This has prevented recoveries as you have had to incur significant costs before you know whether a recovery was likely to be commercial.
As a result, commercial decisions on potential recoveries will now be made earlier, with more information.
For those who provide asset protection, public liability and other business related insurance, the 2015 Act focuses on four key areas.
Warranties & other policy terms
Under the current law, a breach of warranty discharges an insurer's liability in its entirety. The 2015 Act will make warranties "suspensive" conditions. Liability before the breach remains but cover will be suspended (and the insurer will not be liable) whilst breaches continue. Once the breach is remedied liability will be restored from that point.
An insurer will also be unable to avoid liability. This is when there has been a breach of warranty (or other term) relating to a particular type of loss if a claim for a different kind of loss is made.
The 2015 Act abolishes "basis of contract" clauses. Unlike the current situation, in which pre-contractual information form warranties, any warranties will have to be expressly agreed between both the insured and insurer.
Remedies for fraud
Presently these are wide and the law is unclear. The 2015 Act codifies the position for fraudulent claims and provides the insurer with clear remedies. The insurer will no longer be able to void the contract altogether. The insurer will be able to treat the contract as terminated from the time of the fraud but previous valid claims remain unaffected.
A new duty for insurers to pay claims within a "reasonable time" will come into force on 4 May next year. It will apply to policies in place or varied on or after that date. The remedy could be interest but this does leave the door open for consequential loss.
Disclosure – duty of fair presentation
The policyholders will have to provide information they know or "ought" to know if they carried out a reasonable search. This is a more onerous requirement when compared with the current obligation of utmost good faith. In an organisation, senior management or those responsible for obtaining the insurance will also be required to provide the same type of information.
Under the 2015 Act there are proportionate remedies. An insurer can only void the contract if it can show that it would not have provided cover or would have provided different terms absent the breach. If a policy would have been provided but with different terms, or a higher premium, then those terms or premium can be applied in breach cases.
The TLT team regularly deal with coverage disputes and recover from insurers. Please contact Neil Franklin, if you would like to discuss further.
Contributor: Catherine Zakarias-Welch
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.