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

Insurance - - CONTENTS -

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:

claims

(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.

CON­TRACT­ING OUT

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.

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