The Insurance Act 2015
DIPLOMA LEVEL MEMBERS OF THE MII HAVE AN INTERNATIONALLY RECOGNISED QUALIFICATION SUCH THAT THE CHARTERED INSTITUTE OF LOSS ADJUSTERS PROVIDE IMMEDIATE ENTRY TO MII DIPLOMA HOLDERS TO THEIR ADVANCED DIPLOMA IN LOSS ADJUSTING. WHAT’S MORE, THE MII DIPLOMA
The purpose of this article is to highlight recent developments in the UK market with particular regard to the end of utmost good faith as we know it to assist those looking to further their knowledge in this regard.
The Insurance Act 2015 was given Royal Assent on 12 February 2015. The Act came into effect until 12 August 2016.
Here, we focus on the change to the law of utmost good faith but readers should be aware that the Act also deals with the following:
(Rights Against Insurers) Act 2010
THE DUTY OF FAIR PRESENTATION
The principle of utmost good faith allowing avoidance of the contract is abolished by section 14 of this Act and any rule of law to the effect that a contract of insurance is a contract based on the utmost good faith is modified by both this Act and the Consumer Insurance (Disclosure and Representation) Act 2012.
It is important to understand that this new duty of fair presentation applies to non-consumer insurance contracts only. “Consumer insurance contract” has the same meaning as in the Consumer Insurance (Disclosure and Representations) Act 2012, in which it is stated that a “consumer insurance contract” means a contract of insurance between—
(a) an individual who enters into the contract wholly or mainly for purposes unrelated to the
individual’s trade, business or profession, and
(b) a person who carries on the business of insurance and who becomes a party to the contract by way of that business (whether or not in accordance with permission for the purposes of the Financial Services and Markets Act 2000);
The new duty under the 2015 Act on non-consumers is one of fair presentation by the insured so it is important to understand what a fair presentation is.
A FAIR PRESENTATION OF THE RISK IS ONE:
3(a) which makes the disclosure required by subsection 4 (see below),
(b) which makes that disclosure in a manner which would be reasonably clear and accessible to a prudent insurer, and
(c) in which every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith.
The disclosure required is as follows, except as provided in subsection 5 (see below)
4(a) disclosure of every material circumstance which the insured knows or ought to know, or (see below)
(b) 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 purpose of revealing those material circumstances.
In the absence of enquiry, subsection (4) does not require the insured to disclose a circumstance if—
It is important to understand that this new duty of fair presentation applies to non-consumer insurance contracts only.
5(a) it diminishes the risk,
(b) the insurer knows it,
(c) the insurer ought to know it,
(d) the insurer is presumed to know it, or
(e) it is something as to which the insurer waives information.
Remember it only applies to nonconsumer insurance contracts as consumer contracts are dealt with under the Consumer Insurance (Disclosure and Representations) Act 2012.
Under section 15 the 2015 Act it is stated that any term within a contract that puts a consumer in a worse position than they would be under section 3 is effectively null and void. With regard to non-consumer insurance contracts it is possible to “contract out” however, only where the insurers satisfies section 17 of the 2015 Act which requires, compliance with the “transparency requirements”.
These requirements mean that the insurer must bring the disadvantage of the contracting out term to the
attention of the insured and further more this must be in a clear and unambiguous manner.
So, we now understand that the insured must make a fair presentation of the risk and that the Act describes what a fair presentation is, but what then are the remedies for a breach of the fair presentation rule?
Firstly, if a qualifying breach was deliberate or reckless, the insurer —
(a) may avoid the contract and refuse all claims, and
(b) need not return any of the premiums paid.
However, of course not every breach will be either deliberate or reckless so the 2015 Act sets out a whole range of other remedies dependent upon the reason for the breach and what action.
The insurer must bring the disadvantage of the contracting out term to the attention of the insured.