The insurance industry is currently undergoing a period of change that started with the Consumer Insurance (Disclosure & Representation) Act 2012 and continues with the Insurance Act 2015, which is specifically focused on commercial insurance contracts. The law goes into effect on August 16th 2016, changing the landscape of commercial insurance. Here, Charles Foster, of insurance experts Lycetts, discusses the act and how it affects businesses.
This new act sets out a number of principles which should be followed – flexible enough to cater for different sized businesses. The act looks to clarify the current law and also to modify the duty of good faith that underlies insurance contracts. To do this, the act seeks to introduce a duty of fair presentation. This means that a policyholder should either:
- A – Disclose every material circumstance which the insured knows or should know.
- B – Provide the insurer with enough information to put an insurer on notice that they should investigate those material circumstances further.
The key points of this act include the disclosing of every material circumstance that you know, or ought to know, that could be undertaken by a reasonable search. Duty is then satisfied, assuming every material circumstance relating to the business has been disclosed. If not, sufficient information is provided to put a ‘prudent’ insurer on notice to make further enquiries.
Another change comes to warranty breaches. A warranty breach now suspends an insurer’s liability, rather than avoids it – until the breach is remedied, in which case the policy resumes in full force. The new act could also allow the insured to avoid an insurer’s defence of breach of warranty by showing that said breach will not have increased the risk of loss.
For a business, the Insurance Act mainly deals with property. Where once responsibility to disclose circumstances rested mainly on the client, now third parties such as land agents need to have expertise and a detailed knowledge of the property that is going to be insured in order to offer as much disclosure as possible.