Insurance Act 2015
Levelling the Playing Field
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2 C HA D BOU R N E
The Insurance Act 2015 (the “Act”) represents the most significant change
to insurance contract law in England1 for over 100 years. The new legislation seeks to strike a fairer balance between (re)insured and (re)insurer and
should transform the way that business is placed in the London Market as
well as the rights and remedies available under English law insurance and
reinsurance contracts. Set out below are some key aspects of the Act.
SCOPE AND APPLICATION OF THE ACT
•Applies to all English law insurance AND reinsurance contracts (including renewals and
variations) made after 12 AUGUST 2016
• UNLESS the parties have contracted out of the Act – see “Contracting Out” below
INSURED’S DUTY TO MAKE FAIR PRESENTATION OF RISK (ss. 3 – 4)
KEY ISSUES
PROVISIONS
COMMENTS
What must insured
disclose?
Every material circumstance which the
insured knows or ought to know; OR
Greater onus on the insurer to make
further enquiries.
Failing that, sufficient information to
put a prudent insurer on notice to make
further enquiries.
What is “material”?
Whether the information would have
influenced the mind of a reasonably
prudent underwriter in assessing the risk;
AND
Codification of established English case
law on inducement as established by
Pan Atlantic Insurance Co Ltd v Pine Top
Insurance Co (1994) 389 LMLN 1.
Whether the actual underwriter would
have reached a different outcome, had the
true position been stated.
Examples of material
circumstances
Special or unusual facts relating to risk;
Particular concerns which led to insured
seeking cover for risk; and
The Insured is not now obliged to
disclose a material circumstance if it
diminishes the risk.
Anything which those concerned with
class of insurance and field in question
would understand as being dealt with in a
fair presentation of the risk.
table continued on next page
1
The Act also applies to Wales, Scotland and Northern Ireland.
IN S U RA N C E A C T 201 5 1
INSURED’S DUTY TO MAKE FAIR PRESENTATION OF RISK (ss. 3 – 4)
KEY ISSUES
PROVISIONS
Whose knowledge
constitutes knowledge
of the insured?
Includes information known to senior
Senior management includes the board of
management AND individuals
directors and senior executives.
responsible for insurance, including the
insured’s risk manager and broker.
What is the insured
deemed to know?
Circumstances that should reasonably
have been revealed by a reasonable
search of information available to the
insured.
“Information” includes that held within
the insured’s organisation or by “any
other person”, including brokers and
other insureds.
What is presumed to be
known by the insurer and
not therefore subject to a
disclosure obligation?
Actual and “blind eye” knowledge of
relevant individuals at the insurer who
participate in the decision as to whether
to write the risk and on what terms.
COMMENTS
There is no guidance in the Act as to the
extent of what a reasonable search should
be. This is one of the key areas of the Act
that will need to be determined by the
English Courts.
“Blind eye” knowledge refers to matters which an individual suspects, but
deliberately chooses to ignore to suit his
purpose.
Presumed knowledge i.e. common
knowledge and matters which an insurer
writing business in that class would be
expected to know.
Imputed knowledge i.e. knowledge
possessed by employee/agent who could
reasonably be expected to have passed it
on (if actually held and readily available).
How must information
be disclosed?
In a manner reasonably clear and
accessible to a prudent insurer
When?
Initial placement and at every renewal
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It will no longer be appropriate to overwhelm the insurer with documentation
e.g. on CD or in hard copy (so-called
“data dumping”). Material information
must be sufficiently prominent in the
placement documentation.
2
PROPORTIONATE REMEDIES FOR BREACH OF DUTY OF FAIR PRESENTATION (s.8, Sch.1)
KEY ISSUES
PROVISIONS
COMMENTS
What is the remedy for
deliberate or reckless
non-disclosure and
inducement?
Avoidance – insurer may (but is not
obliged to) treat the contract as never
having been entered into (but no return
of premium by insurer).
No change from the pre-Act law on
fraudulent misrepresentation.
Inducement – see “What is “material”?”
above.
What remedies are
available if the
non-disclosure and
inducement were not
intentional?
Avoidance IF the insurer can show that it
would not have entered into the contract
but for the breach (BUT the insurer cannot keep the premium); OR
If the insurer can show that it would
have entered into contract on different
terms, the contract will retrospectively be
rewritten on those terms; OR
If the insurer can show it would have
charged a higher premium, there will be a
proportionate reduction of the sum payable for the claim.
Reflects a causation-based analysis i.e.
what would the underwriter have done
but for the non-disclosure/misrepresentation? As the onus of proof is on the
underwriter, it would be prudent to:
• maintain and adhere to well-defined
underwriting guidelines; and
• record rationale for underwriting
decisions.
WARRANTIES (ss.9 – 10)
KEY ISSUES
PROVISIONS
COMMENTS
What is the effect of precontractual statements on
the proposal form?
Pre-contractual statements can no longer
be warranties.
This is the only mandatory rule
of the Act.
Non-compliance with
warranties
Warranties will now operate as suspensive conditions i.e. the insurer is only
discharged from liability for the period of
non-compliance with the warranty.
“Basis clauses” are no longer enforceable. Warranties must be set out in the
contract itself.
Insurers can no longer decline liability
based on a breach of warranty not existing at the time of loss. See also comments
re section 11 below.
2
The previous remedy for all non-disclosure and misrepresentation was avoidance of the entire contract. This was widely regarded as
unfair and disproportionate where the insured’s failure was not intentional. Indeed, some policies already include “innocent non-disclosure” clauses preventing avoidance in such situations.
IN S U RA N C E A C T 201 5 3
TERMS UNRELATED TO THE LOSS (s.11)
KEY ISSUES
PROVISIONS
What is the effect of breach Where compliance with a term would
of terms which do not cause tend to reduce the risk of loss of a particular kind, at a particular location or at
the loss?
a particular time
COMMENTS
This introduces a causation requirement
into breach of warranty or conditions defences. Previously the warranty breached
did not have to cause the loss.
An insurer can only rely on non-compliance with that term to exclude, limit
or discharge liability for the loss if the
insured can not show that non-compliance would not have increased the risk
of the loss which actually occurred in the
circumstances in which it occurred.
FRAUDULENT CLAIMS (s.12)
KEY ISSUES
PROVISIONS
Payment of claims
The insurer is not obliged to pay any
sums in respect of a fraudulent claim and
may recover sums already paid.
Termination
The insurer may terminate the contract
which is effective from the time of the
fraudulent act, but the insurer must give
notice of its intention to do so.
Severability
If an employee of the insured makes a
fraudulent claim, it will not affect the
contract itself nor the cover extended to
other employees.
Fraudulent means
and devices
The Act is silent on use of fraudulent
means and devices.
COMMENTS
Note that if the insurer does not give
effective notice of termination, it may be
deemed to have waived that right and be
required to pay future claims.
The recent Supreme Court decision on
Versloot Dredging v HDI Gerling Industrie
Versicherung AG (2016) held that the use
of fraudulent devices does not amount to
a fraudulent claim so the claim remains
valid. NB. Deliberate exaggeration of a
claim will be deemed to be a fraudulent
claim which can be denied in full.
CONTRACTING OUT (s.17)
1. Permissible, except in relation to provision prohibiting conversion of pre-contractual statements into warranties
2. Must use clear and unambiguous language regarding effect of disadvantageous term and
insurer must take sufficient steps to draw it to the insured’s attention before the contract
is entered into.
4 C HA D BOU R N E
IN S U RA N C E A C T 201 5 5
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Insurance Act 2015, August 2016